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Singapore Tax Guide to Foreign-Sourced Income

Singapore Tax Guide to Foreign-Sourced Income

Information on Foreign-sourced Income 

In Singapore, income is subject to different rates of taxation depending on various factors. One of these factors is the location of the income’s source. The Income Tax Act states that any income accrued in or derived from Singapore or received in Singapore from another country is taxable. However, there are certain cases in which income sourced from abroad is specifically exempt from tax. The Income Tax Act also states that income which is received in Singapore but has its source in another country is deemed to have been received in Singapore if any of the following criteria apply: if the income is remitted to, transmitted into, or brought into Singapore; if the income is used to pay one or more debts incurred while operating a business or trade carried on in Singapore; or if the income is used to purchase moveable property brought into Singapore. 

To determine the location of the income’s source, the location of the operations that generated the income is ascertained. If the business’s main corporate location is in Singapore, the income will be deemed to have been sourced in Singapore. All income which is neither derived from a trade nor business carried out in Singapore is to be classified as foreign-sourced income. 

 

Taxation of Foreign-Sourced Income

Foreign-sourced income is only taxable if it originates from a company based in Singapore. According to the Inland Revenue Authority of Singapore (IRAS), 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. Although income sourced from abroad may be used to invest in assets from other countries, the company is not permitted to use such expenses or investments to claim tax deductions in Singapore. However, the IRAS also allows taxpayers to offset any losses from abroad against foreign-sourced income that has been received domestically.  

 

Tax Exemptions and Foreign-Sourced Income 

Certain forms of foreign-sourced income are exempt from Singapore taxation. This is the case because the Singaporean government intends to maintain the country’s status as a center of global business. The government also believes that these exemptions will also improve the condition of the country’s economy. 

Companies which are tax residents are able to benefit from tax exemptions on any specified foreign income remitted from countries other than Singapore. Specified foreign income refers to any of the following forms of income from abroad: foreign-sourced dividends, foreign-sourced profits, and foreign-sourced service income. 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. 

 

Tax Exemption Conditions

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. The first of these is that the foreign income must already have been taxed in the foreign tax jurisdiction in which it was received. This is also known as the “subject to tax” condition. The rate at which the foreign income was taxed does not matter. The Comptroller of Income Tax regards this condition as having been fulfilled if the income is tax-exempt in the foreign tax jurisdiction due to tax incentives granted for carrying out substantive business activities there. The second condition is that the highest corporate tax rate of the foreign tax jurisdiction from where the income originates must be at least 15% when the foreign income is received in Singapore. This condition is known as the “foreign headline tax rate” condition. The third condition requires the Comptroller to believe that the granting of the tax exemption would benefit the relevant resident individual or company. Once all three conditions are satisfied, the individual or company may begin enjoying tax exemptions granted. 

 

Receiving a Tax Exemption 

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. 

 

Foreign Tax Credit

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. 

Foreign tax credit is divided into two categories. These are double tax relief and unilateral tax credit. 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 income. If the foreign tax was paid according to the provisions stated in the DTA and 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, double tax relief will be granted. Unilateral tax credit is granted with regard to foreign-sourced income received in Singapore by Singapore tax residents. However, this tax credit may only be claimed if the income is from a tax jurisdiction that does not have a DTA with Singapore. 

To claim foreign tax credit, a company must be a tax resident for the basis year in question, have paid tax on the same income in the foreign tax jurisdiction, and have income subject to taxation in Singapore. Companies in a loss position may not claim foreign tax credit. 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. Passive income, which includes dividends and interest, derived from a country other than Singapore 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. 

Where to apply for some tax incentives?

Answer:

There are various types of tax incentives available to companies and these are provided in the Singapore Income Tax Act (ITA) and Economic Expansion Incentives Act (EEIA). Some of the tax incentives available are listed in the table below.

Governing legislation Types of incentives Where to apply
ITA/S13F Approved International Shipping Enterprise MPA
www.mpa.gov.sg
ITA/S13H Approved Venture Company EDB
www.edb.gov.sg
ITA/S14B Further deduction of expenses relating to Approved Trade Fairs, Trade Exhibitions, Trade Missions or to maintain overseas Trade Office IE Singapore
www.iesingapore.gov.sg
ITA/S14E Further deduction of expenses on Research and Development Project EDB
www.edb.gov.sg
ITA/S14O Tax deduction of special reserves for catastrophic risks of approved general insurers MAS
www.mas.gov.sg
ITA/S19C Writing down allowance for cost sharing agreement EDB
www.edb.gov.sg
ITA/S43(9) Concessionary rate of tax for income of life insurance companies apportioned to policyholders
ITA/S43C Concessionary rate of tax for approved offshore general insurance companies MAS
www.mas.gov.sg
ITA/S43C Concessionary rate of tax for approved offshore life insurance companies MAS
www.mas.gov.sg
ITA/S43C Concessionary rate of tax for approved offshore composite insurance companies MAS
www.mas.gov.sg
ITA/S43C Exemption of tax for approved marine hull and liability insurer (onshore and offshore business) MAS
www.mas.gov.sg
ITA/S43C Exemption of tax for approved offshore captive insurance companies MAS
www.mas.gov.sg
ITA/S43C Exemption of tax for approved insurer underwriting offshore qualifying specialised insurance risk MAS
www.mas.gov.sg
ITA/S43E Concessionary rate of tax for Approved Operational Headquarters (OHQs) EDB
www.edb.gov.sg
ITA/S43G Concessionary rate of tax for Approved Finance and Treasury Centre EDB
www.edb.gov.sg
ITA/S43Q Concessionary rate of tax for Financial Sector Incentive Companies MAS
www.mas.gov.sg
ITA/S43P Approved Global Trading Company IE Singapore
www.iesingapore.gov.sg
EEIA/ Part II Pioneer Industries EDB
www.edb.gov.sg
EEIA/ Part III Pioneer Service Companies EDB
www.edb.gov.sg
EEIA/Part IIIB Approved Shipping Logistics Enterprise MPA
www.mpa.gov.sg
EEIA/ Part IIIB Development & Expansion Incentive EDB
www.edb.gov.sg
EEIA/Part X Investment Allowances EDB
www.edb.gov.sg
EEIA/Part XIIIB Overseas Enterprise Incentive IE Singapore
www.iesingapore.gov.sg
EEIA/Part VIA Export Service Company EDB
www.edb.gov.sg

How to apply? If you receive foreign income Active.

Answer:

Companies can apply for a COR either:

  • Electronically via myTax Portal. The company staff or tax agent has to be authorised via the e-Services Authorisation System (EASY) before a COR can be applied through myTax Portal; or
  • By submitting an application form.
  • Download the application form for certificate of residence (44KB); or
  • Request a fax copy of the application form by using the self-help options at the Corporate Tax Integrated Phone Service at 1800-356 8622.

How to calculate DTR?

Answer:

The amount of DTR is dependent on the nature of income and subject to the specific terms and conditions as specified in the DTA with the relevant treaty country.

DTR

= Lower of:

  • the actual amount of foreign tax paid; or
  • the amount of Singapore tax attributable to the foreign income (net of expenses)

For trade income

If the company has a permanent establishment (PE) overseas and the income is derived through that PE, the income would generally be taxed overseas. A DTR would be granted only if the income is also taxed in Singapore.

For passive income (e.g. interest, dividend etc)

Passive income derived from outside Singapore will be taxed in Singapore in the year of remittance.

How to claim for tax exemption?

Answer:

You are required to make a declaration in your income tax returns by giving the nature and amount of the foreign-sourced income that was remitted to Singapore. You are also required to complete the Declaration Form for Foreign-Sourced Income Received in Singapore From 22 Jan 2009 to 21 Jan 2010 (60KB) for submission to IRAS. Although you have to state the use of the foreign income in the declaration form, the usage of such foreign income will not affect the claim for tax exemption.

What is an Avoidance of Double Tax Agreement?

Answer:

An Avoidance of Double Taxation Agreement (DTA) is an agreement signed between Singapore and another country (a treaty country) which serves to relieve double taxation of income that is earned in one country by a resident of the other country.

It makes clear the taxing rights between Singapore and her treaty partner on the different types of income arising from cross-border economic activities between the two countries.

The DTA also provides for reduction or exemption of tax on certain types of income.

Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a DTA. To find out who are our treaty partners, please refer to the List of Avoidance of Double Tax Agreements.

Paul Hype Page & Co. will give you more information and assistance on policy updates, compliance regulations and changes to tax conditions. Corporate tax in Singapore.

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IRAS (Singapore’s Tax Authority) governs Singapore’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.

Singapore attracts investments from around the world by reducing its corporate income tax rate and introducing different tax incentives. Singapore has one of the lowest corporate tax rates in the world.

As your company’s Tax agent , Paul Hype Page & Co Chartered Accountant  will be fully responsible for the practice of ensuring that these conditions are met. It is important that we be highly qualified and well versed in local regulations and corporate laws, as we are responsible for the upkeep of important company files, tax reports and tax records.