Foreign-sourced income refers to earnings derived from sources outside of Singapore. Typically, Singapore taxes such income upon its entry or receipt within its borders, resulting in double taxation as the income has already been taxed in the foreign country.
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.
Tax Breaks on Foreign-Sourced Income in Singapore
3 methods that company can enjoy tax breaks on foreign income as follows:
Tax Exempted Foreign Sourced Income in Singapore
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 in Singapore 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 in Singapore For Foreign-Sourced Income
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 3 conditions are:
Furthermore, once all three conditions are satisfied, the individual or company may begin enjoying tax exemptions granted.
Receiving a Tax Exemption on Foreign-Sourced Income in Singapore
To receive a tax exemption for foreign-sourced income in Singapore, certain information must be supplied in the income tax return. These include:
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 Credits: How to Claim Tax Breaks on Foreign-Sourced Income in Singapore?
Under normal circumstances, foreign income earned by a company based in Singapore is subject to taxation twice. The jurisdiction where the income originates may tax it. Additionally, Singapore may tax the income when it is remitted here. However, Singapore companies can avoid double taxation using foreign tax credits or exemptions.
Income from a foreign permanent establishment is usually taxed in the foreign country. Moreover, a foreign tax credit will only be granted if this income is also subject to Singapore tax.
Conditions to claim foreign tax credit are listed below.
A foreign tax credit is divided into two categories namely:
Double Tax Relief
Double tax relief is provided for under a Double Taxation Agreement (DTA).
Singapore residents can claim foreign tax credits for foreign taxes paid on foreign-sourced income. Additionally, the credit is capped at the lower of the foreign tax paid and the Singapore tax owed. Moreover, if a Double Taxation Agreement (DTA) exists, the credit is subject to its provisions.
Unilateral Tax Credits
Unilateral tax credits are available for Singapore tax residents who receive foreign-sourced income from countries without a DTA. Additionally, the country of origin generally taxes dividends and interest, considered passive income, in the year they are received. Singapore also taxes this income when it is remitted here. However, Singapore provides a foreign tax credit to offset the taxes paid in the foreign country.
Our Thoughts
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. Moreover, to gain more assurance you can even get an advance tax judgment from IRAS.
FAQs
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.
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.
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.
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.enterprisesg.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 |
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