International Turnkey Contracting in ASEAN: EPC-Projects in Singapore

published on 16 March 2022 | reading time approx. 4 minutes

The importance of turnkey or EPC-projects (short for: Engineering, Procure­ment and Construction) has increased significantly in the Southeast Asia region – this also applies to Singapore. Various factors play an important role in the realisation. In the following article, we take a closer look at tax, investment, and manpower conside­rations in Singapore.

• Tax Considerations »

• Investment Considerations »

• Labour law Considerations »

Tax Considerations

When is a permanent establishment (PE) generally established for on-site works? Does a double taxation agreement (DTA) between Singapore and Germany affect this aspect?

Under the Singapore domestic tax law, a PE is triggered in Singapore where, among others, a person (which includes corporations) carries on supervisory activities in connection with a building or work site or a con­struction, installation or assembly project. Do note that there is no minimum time threshold stipulated for PE exclusion.

Under the DTA, among others, a building site or construction or installation or assembly project constitutes a PE only if it lasts more than six months.

Is it a common approach in Singapore to split EPC-contracts in on- and offshore parts to mitigate tax risks?

Yes, it is common practice to split the EPC-contracts based on supply of goods/services onshore or offshore. This is not only a tool to mitigate tax risks, but also to address other non-tax considerations such as limiting the liability for the contractor and reducing the cost of complying with local licensing regulations.

Are there any specific taxes to be observed for EPC-contracts in Singapore?

There is no specific tax regime for EPC-contracts in Singapore. Income Tax would be a major tax to be con­sidered, followed by Goods and Services Tax (depending on the type and extent of the supply of goods/services). Withholding Tax should also be taken into consideration. Other taxes/fees may include import and stamp duties, local construction and property license fees and duties.

Investment Considerations

Are there specific investment conditions or permits/licences required for EPC-works in Singapore?

There are no specific investment permits/licenses required for investing in EPC works in Singapore. Generally, depending on the form of investments, licenses may be required for a firm carrying out investment activities. If the investment firm wishes to conduct regulated fund management activities, it must be registered with the Monetary Authority of Singapore or hold a capital market services license to operate as a registered fund management company or licensed fund management company. Managers of venture capital funds managers need to apply for MAS as well. Currently, the most common mode of financing EPC-works in Singapore is debt financing.

With respect to EPC-works, however, there are several permits, approvals and licenses required for setting up a construction company in Singapore to provide EPC-works. Firms which provide professional engineering services must be licensed by the Professional Engineers Board under the Professional Engineers Act. In addition, workmen performing certain tasks may require specialised licenses, e.g., tasks like electrical works, welding etc.

Would a mere tax registration of a PE be sufficient or is a certain investment vehicle required in Singapore?

Generally speaking, a suitable vehicle is determined based on tax efficiency and on the question whether tax treaty provisions need to be relied upon. That being said, a mere tax registration of a PE is sufficient, whereby the PE would be filing income tax return in Singapore as a separate entity for Singapore tax purposes. There is no mandatory investment requirement or investment vehicle required in Singapore in relation to a PE.

Can the PE get own bank accounts and handle local currency payments as well as FOREX transactions for the project?

Yes.

Labour Law Considerations

Which immigration requirements commonly apply for foreign staff temporarily deployed to work on-site in Singapore?

Foreign staff performing certain activities in Singapore for a short period of time can come to Singapore with­out a work pass.

In order to be eligible for a work pass exemption, the foreign staff must (a) be engaged to perform the work pass exempt activity before entering Singapore; (b) have a valid short term visit pass issued by the Immigration & Checkpoints Authority of Singapore allowing them to stay during the activity; (c) notify the Ministry of Man­power of their intention to work in an exempted activity after entering Singapore and before the start of the activity; (d) comply with other specific legal requirements in Singapore, if applicable.

The notification to the Ministry of Manpower is to be done online by the foreign staff.

The foreign staff will be allowed to perform the work pass exempt activity for any number of visits up to a total of 90 days in a calendar year.

Work pass exempt activities include providing expertise relating to

• commissioning or audit of any new plant and equipment;
• installing, dismantling, transfer, repair or maintenance of any machine or equipment; and
• transfer of knowledge on the process of new operations in Singapore.

The exemption does not apply to the following, for which a work pass is needed:

• conducting activities that involve the sale of products or services to the public;
• manufacturing any products to be sold; and
• providing renovation or carpentry services.

Can work permits, if required, be applied for by an overseas company or the foreign individuals directly or is the involvement of a local entity required?

Companies not registered in Singapore need to get a local sponsor to submit a work pass application on behalf of the foreign staff. The relationship between the overseas employer and the sponsor company in Singapore, as well as the reasons why the sponsor company needs the foreign staff to work in Singapore, ought to be explained.

Are there taxes or social security contributions applicable for foreign staff temporarily working on-site in Singapore? Under which conditions are foreigners required to pay income tax?

Foreigners working in Singapore (whether temporarily or permanently) are exempted from participating in Singapore’s social security scheme – the Central Provident Fund (CPF).

Participation in the CPF is required for Singapore Permanent Residents and Singapore citizens. The employ­ment income of non-residents who work in Singapore for 60 days or less in a calendar year is exempt from tax. The income of non-residents who work in Singapore for 61-182 days in a calendar will be taxed at 15 percent or at the progressive resident rates, whichever gives rise to a higher tax amount. Individuals who work in Singa­pore for 183 days or more in a calendar year will be considered as tax residents and their income will be taxed at the progressive resident rates.