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What Foreign-Sourced Income is considered taxable?
The Inland Revenue Authority of Singapore (IRAS) generally defines foreign-source income as profits that arise from a trade or business carried on outside of Singapore.
This is accomplished through
a) tax exemptions on qualifying foreign-sourced income; and
b) an extensive network of double-tax avoidance treaties.
This includes profits derived from investments (such as dividends) from holding shares in foreign based companies, interest income or rental income–as well as income earned from royalties, premiums and other profits from foreign property.
To be considers taxable, foreign-sourced income must be 'received in Singapore'.
‘Received in Singapore’ explained
According to Singapore law, foreign-sourced income will be considered received in Singapore if it meets any of the following conditions:
What are the Tax exempted on taxable foreign-sourced income?
Under Singapore tax law, the following types of foreign-sourced income are tax exempt when received in Singapore:
Conditions for tax exemption
Foreign-sourced income must meet the following conditions to be exempt from taxation:
IRAS will consider the income “subject to tax” even if the income is exempt from tax in the foreign jurisdiction (e.g. income that qualifies for tax incentives in the foreign jurisdiction). Therefore, the actual tax paid in the foreign jurisdiction may be zero (or even negative) yet it will be considered subjected to tax and qualify for tax exemption in Singapore.
IRAS will requires companies to include the following information on their income tax return (Form C and Form C/S):
In order to take advantage of the “subject to tax” condition, a company does not have to submit any supporting documents with its income tax return. However, the following documents should be retained in the company’s records:
Understanding Double taxation relief on foreign income
To prevent double taxation on foreign income, Singapore has signed numerous Avoidance of Double Taxation Agreements (DTAs) with an extensive network of countries under IE Singapore.
Furthermore, if a foreign jurisdiction is not covered by a DTA, Singapore provides a Unilateral Tax Credit (UTC) for income sourced from such jurisdictions.
Under a DTA or UTC, companies can claim a tax credit on income that was taxed in a foreign jurisdiction, therefore, reducing or eliminating the taxes paid on such income in Singapore.
The company must satisfy all of the following conditions in order to claim FTC:
Companies in loss position
No FTC will be given to a company in a loss position.
Companies with permanent establishments overseas
When a company has a permanent establishment (PE) overseas and the income is derived through that PE, the income will generally be taxed overseas. A FTC would be granted only if the income is also taxed in Singapore.
Companies deriving passive income
Passive income (e.g. interest, dividend) derived from outside Singapore will generally be taxed overseas in the year of receipt. Such income will be taxed in Singapore in the year of remittance; a FTC will be given when the income is taxed in Singapore.
For companies claiming DTR, the amount of FTC to be claimed is subject to the specific terms and conditions as specified in the DTA with the relevant treaty partner.
FTC is the lower of:
Computing Singapore tax attributable to the foreign income
The amount of the FTC granted should be computed on a "source-by-source and country-by-country" basis.
With effect from YA 2012, a company may elect for the FTC pooling system whereby FTC on various foreign income may be pooled together and need not be computed on the above basis.
Worked Example (85KB) on computation of FTC on a "source-by-source and country-by-country" basis.
The claim for FTC should be made when you file your Income Tax Return, Form C. Companies claiming FTC cannot use Form C-S.
Documents supporting your claim for FTC need not be submitted with your Form C. However, the following information/ documents must be prepared and retained:
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