India Market Entry for Singapore Companies
Treaty rates, the 2017 capital gains change and the substance a Singapore holding company needs, for Singapore parents and for investors routing through Singapore.
Singapore plays two roles for India entry. Singapore-headquartered companies invest in India directly, and companies from the rest of the world often route their India investment through a Singapore holding company. Both uses depend on the India-Singapore tax treaty, and both have been shaped by the treaty changes of the last decade, so the structure needs to hold up on substance, not only on paper.
The India-Singapore treaty at a glance
The India-Singapore treaty lowers withholding tax on dividends, interest, royalties and technical fees paid to a Singapore resident, with dividends at 10 per cent for holdings of 25 per cent or more. Since April 2017, gains on shares acquired after 1 April 2017 are taxable in India, so older planning assumptions no longer hold.
The treaty reduces India's withholding tax on payments to a Singapore resident. Dividends are taxed at 10 per cent if the Singapore company holds at least 25 per cent of the paying company, and 15 per cent otherwise. Interest is taxed at 10 per cent if paid to a bank or similar financial institution and 15 per cent otherwise. Royalties and fees for technical services are taxed at 10 per cent. India's default rate on dividends, royalties and technical fees paid to non-residents is 20 per cent before surcharge and cess.
| Payment from India to Singapore | Treaty rate |
|---|---|
| Dividends, holding of 25% or more | 10% |
| Dividends, other cases | 15% |
| Interest, paid to a bank or similar institution | 10% |
| Interest, other cases | 15% |
| Royalties | 10% |
| Fees for technical services | 10% |
Capital gains are the part many investors get wrong. A protocol that took effect in April 2017 ended India's exemption for gains on shares in Indian companies acquired on or after 1 April 2017, so those gains are now taxable in India. Shares acquired before that date were grandfathered. If you are considering a Singapore holding company for a new India investment, do not assume the older capital-gains exemption applies.
Substance and anti-avoidance
Treaty relief depends on real substance. India applies its General Anti-Avoidance Rule and the principal purpose test to arrangements whose main aim is a tax benefit, so a Singapore holding company with no staff, premises or decision-making is exposed, while one that genuinely manages the investment is on far safer ground.
Treaty relief needs a Singapore Tax Residency Certificate and Form 10F, and India applies its General Anti-Avoidance Rule and the principal purpose test from the multilateral convention to arrangements whose main aim is a tax benefit. A Singapore holding company with no staff, premises or decision-making is exposed. A company that really manages the investment from Singapore is on far safer ground. Our analysis of choosing a holding company after Pillar Two and our DTAA guide to Mauritius, Singapore and UAE structures compare the options.
Setting up from Singapore
A Singapore company usually owns an Indian private limited company directly. The equity inflow is reported to the Reserve Bank of India within 30 days of allotment, the company needs two directors with one resident in India, and an annual return on foreign liabilities and assets is filed each year.
A Singapore company typically owns an Indian Private Limited company directly. Equity inflows must be reported on Form FC-GPR within 30 days of allotment, and an annual return on foreign liabilities and assets is filed with the RBI each year. The Indian entity needs at least two directors, one of them resident in India. India and Singapore also have a Comprehensive Economic Cooperation Agreement, which can matter for trade in services and investment. Use our cost and timeline calculator to size the set-up.
Frequently asked questions
Is a Singapore holding company still tax efficient for India? For dividends and interest, the treaty gives lower withholding rates than India's default. For capital gains on shares acquired after 1 April 2017, the exemption is gone. Efficiency now depends on real substance and your exit plans.
What proof of residence does India require? A Tax Residency Certificate from the Singapore tax authority and a completed Form 10F, given to the Indian payer before it applies the treaty rate.
Can a Singapore company hire in India before it has an entity? Yes, through an Employer of Record, which employs the people in India on your behalf while you set up.
Does a Singapore company face permanent establishment risk in India? Yes, if it has a fixed place of business or dependent agents in India. Our international tax team can assess that before you place staff in India.