Singapore Tax Guide to Foreign-Sourced Income

This article will cover on the below topics:

• To be consider foreign sourced income, income must be derived from outside Singapore. When remitted to or received in Singapore, it is considered taxable and is generally taxed twice – once in foreign tax authority and a second time in Singapore.
• Even if the income is not remitted back to Singapore but the income is used to pay one or more debts incurred or purchase moveable property brought into Singapore is also consider taxable.
• However, there are certain cases in which income derived from outside and remitted into Singapore but is exempted from tax.
• To determine if it is foreign source or not, the location of the operations that generated the income is the deciding factor.
• Foreign-sourced income is only taxable if it originates from a company based in Singapore, this means that foreign-based companies which do not have a Singapore office may use banks and fund management institutions based in Singapore without being taxed.
• Foreign sourced may be used to invest in assets from other countries but the company is not permitted to use such foreign expenses or investments to claim tax deductions in Singapore local sourced income.
• 3 methods that company can enjoy tax breaks on foreign income as follows:

1. Full Tax exemption of specified foreign income such as foreign-sourced dividends, branch profits and service income.
2. Foreign income is derived in a jurisdiction that has an Avoidance of Double Taxation Agreement (DTA) with Singapore, company can claim tax break; and
3. Foreign tax credit for the taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income.

Certain forms of foreign-sourced income are exempt from Singapore taxation.

The three categories of specified foreign income that exempted if they meet the criteria are:

These exemptions have been in place since June 1, 2003. The scope of tax exemptions related to foreign-sourced income has been increasing over recent years. This is because the government has been trying to make it easier for companies to use money earned from investments and operations in other countries so that the companies can better fund their corporate financial needs in Singapore.

According to Section 13(9) of the Income Tax Act, tax exemptions are only to be granted for foreign-sourced income if all of three conditions are fulfilled.

Once all three conditions are satisfied, the individual or company may begin enjoying tax exemptions granted.

To receive a tax exemption for foreign-sourced income, certain information must be supplied in the income tax return. These include the nature and amount of income received, the jurisdiction from which the income is originally from, the headline tax rate of the foreign tax jurisdiction, and a confirmation that tax has already been paid in the jurisdiction from which the income is derived. Those who are filing Form C-S instead of Form C ought to include the above information in the company’s tax computation while also retaining any supporting documents and information.

Under normal circumstances, foreign income earned by a company based in Singapore is subject to taxation twice. The income may be taxed in the jurisdiction from where it originates. It may also be taxed when it is remitted into Singapore. However, a Singapore company may be able to avoid this problem of double taxation by claiming foreign tax credit or tax exemption as above.

If a company has a permanent establishment abroad and the income is derived through that permanent establishment, this income will usually be taxed abroad. Foreign tax credit will only be granted if this income is also taxed in Singapore.

Conditions to claim foreign tax credit are as followings:

A foreign tax credit is divided into two categories namely:

Double tax relief is provided for under a Double Taxation Agreement (DTA). It allows a Singapore tax resident to claim tax credit for the tax amount paid in another country against the Singapore tax which is payable on the same foreign sourced income. If the foreign tax was paid according to the provisions stated in the DTA and double tax relief is capped at the lower of the amount of foreign tax paid and the amount of Singapore tax that would usually have been payable on the same income.

Unilateral tax credit is granted with regard to foreign-sourced income received in Singapore by Singapore tax residents where there is no DTA between two countries.

Passive income, which includes dividends and interest, derived from a country is normally taxed abroad in the year of receipt. This same income is to be taxed in Singapore in the year of remittance. Foreign tax credit is given after the tax on this income is paid in Singapore.

To suffer double taxation is uncalled for, it advisable to seek for tax specialist to understand your income source to assess your eligibility for tax credit. To gain more assurance you can even get an advance tax judgment from IRAS.