The IRS Deductions Blog

Archive for May, 2008

The basic requirements to set up a company, incorporation procedure, time-line and statutory compliance are some of the factors that need to be taken into account while determining the ease of setting up a company in a given jurisdiction. This article presented by www.guidemesingapore.com contrasts the company registration and related statutory requirements for two of the major countries in Asia namely Singapore and India.

FOREIGN OWNERSHIP
Singapore does not impose any restrictions on foreigners who wish to do business in the country. It allows 100% foreign ownership (i.e. shareholding) of a Singapore private limited company. Any foreign individual or a foreign entity can register a company in Singapore. No special approvals or formalities are required and the new entity can engage in any lawful business activity.
In India, foreign entrepreneurs can set up a foreign direct investment company with 100% ownership only in certain business sectors. Some sectors are subject to caps on investment limits and require prior approval from the Indian government, while certain other sectors prohibit foreign investment.

MINIMUM INCORPORATION REQUIREMENTS
In Singapore, the minimum incorporation requirements include: a local registered address; at least 1 local resident director (a Singapore Citizen, a Singapore PR, or a foreigner holding an Employment Pass, Entrepreneur Pass or Dependent Pass); a local resident and qualified company secretary (must be a natural person); a minimum of 1 and maximum of 50 shareholders (natural persons or corporates); and a minimum paid up capital of SGD 1.
To set up a company in India, foreigners must comply with the following requirements: a local registered address; at least 2 directors (need not be local residents); minimum of 2 and maximum of 50 shareholders (natural persons or corporates); and a minimum paid up capital of INR 100,000.
INCORPORATION PROCEDURE
Company registration in Singapore is fully-computerized and can be completed within 1 day via electronic means. There are only two major steps involved in company formation – name approval and filing incorporation documents.
On the other hand, incorporating a company in India involves several steps and is not only tedious but also time-consuming. It can take up to few months to complete all formalities. You must first seek government approval for setting up a foreign direct investment company in India. Directors must obtain a ‘Director Identification Number’ and ‘Digital Signature Certificate’ prior to company incorporation. Upon company name approval and filing incorporation documents, the Certificate of Incorporation will be issued.

INCORPORATION TIMELINE
Company incorporation in Singapore can be completed in a record time of less than 24 hours, with minimal formalities. By contrast, in India it can take anywhere between 2-3 months to incorporate a company.
ANNUAL FILING REQUIREMENTS
In Singapore, an Annual Return must be filed with Companies Registrar and Income Tax Return with the Singapore tax department each year. Small companies with revenue less than SGD 5 million and no corporate shareholders are exempt from filing audited accounts with the returns.
In India, companies must submit Annual Return along with audited annual accounts to the Registrar of Companies. No company is exempt from the audit requirement. Income Tax Return along with audited accounts must be filed with the Indian tax authority each year. Companies whose annual turnover is less than INR 4 million are exempt from the tax audit requirement.
CORPORATE TAXES

The corporate tax rate in India is 30.9% for taxable income up to INR 10 million and 33.9% for taxable income above INR 10 million. Companies are also subject to dividend distribution tax of 16.995% and capital gains tax of 10%, 15% or 20%. Services tax stands at 10.3%. The state level VAT ranges from 1%, 4%, 12.5% to 20%, while the central level sales tax stands at 2%.
Taxes in Singapore are significantly lower than India. Singapore charges a corporate tax rate of approximately 8.5% for profits up to S$300K and a flat 17% for profits above S$300K. There is neither a separate dividend distribution tax nor any capital gains tax. GST stands at 7%.
According to a recent tax comparison report issued by GuideMeSingapore.com that considers the case of a hypothetical start-up firm expecting to make an annual income of US$300k, the firm will have a total tax bill of only US$34k in Singapore while it would face an approximate tax bill of US$102k in India.
ON A FINAL NOTE
Based on the comparative analysis it is clear that Singapore offers a better business environment for foreign entrepreneurs, as compared to India. Some of the distinct characteristics of company formation in Singapore include: easy incorporation procedure which can be completed in less than 24 hours; liberal foreign ownership policy; minimal statutory requirements and an attractive tax regime.

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Question: I paid 6K in taxes and mortgage interest in 07. Should I go for itemized or can claim it in stand. deduction?

My filing status is married filing jointly and I know for itemized deduction my total deduction should be above 10700. Since I bought my house in Nov 07 the amount of taxes cannot go beyond 6K. But if I add the amount of fed. income tax i paid on my salary,the amount can satisfy the requirement. Can some one let me know I can file for itemized deduction? If not is it possible to claim property taxes and mortgage interest on standard deduction? Sorry for the lengthy question

Answer: You claim EITHER the standard deduction OR Itemized Deductions, so no if you file the standard, you can’t also list the interest and property taxes. And federal taxes are not a deduction.

You can use the standard if you want to, but if your total itemized deductions inclunding for example state and local taxes, and charitable contributions, are over the $10,700 you should itemize.

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Answer: Claim the tuition and fees as a credit, With a fairly low income though, you might of might not get full benefit from it.

For the pension, just put the full amount as the taxable amount.

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