Singapore is renowned for its alluring tax structure, which includes measures to promote foreign investment and domestic economic activity. Singapore has a territorial tax system, meaning that only income earned there is taxable. One of the crucial components of Singapore’s tax regime is its approach to foreign-sourced income.
Singapore foreign sourced income taxation is levied on the revenue obtained from sources outside Singapore. Understanding Singapore’s taxation of this income is crucial for people and companies doing business abroad.
In this article, we will explore the concept of Singapore’s foreign sourced income taxation, including details on tax reliefs, exemptions, and foreign tax credits.
What is Foreign-Sourced Income?
Revenue derived by a Singaporean corporation in a country other than Singapore is referred to as foreign-sourced income. This type of revenue is often taxable in Singapore when sent to and received there. Foreign income that is generated from a trade or operations conducted there is subject to Singaporean taxation as soon as it is earned irrespective of the fact that it is received in Singapore.
Understanding Singapore’s foreign sourced income taxation is crucial for people and companies doing business abroad. According to the IRAS, only earnings that are the property of a citizen or Singaporean entity shall be subject to Singapore foreign sourced income taxation when it is received from outside.
According to IRAS explanations, the phrase “received in Singapore” denotes the following:
- Sent, delivered or transported to Singapore.
- Utilized to pay off debts related to trades or businesses conducted in Singapore.
- Utilized to buy any movable property that is then imported into Singapore, such as machinery, raw materials, etc.
Reliefs on Foreign-Sourced Income Taxed in Singapore
Foreign-sourced income taxed in Singapore is frequently subject to double taxation—once in the overseas nation and another in the nation.
Residents of Singapore who pay taxes may be eligible for certain tax reliefs to lessen the effects of double taxation, including:
- Exclusion from taxation or a deduction in the amount of tax due on certain foreign income earned in a country that has a Double Taxation Avoidance Treaties with Singapore.
- Section 13(8) of the Income Tax Act of 1947 exempts certain overseas-sourced income from taxation, including dividends, earnings generated by overseas branches, and service-related earnings.
- International tax credits for taxes made in a different nation against the Singapore tax due on the same earnings.
Exemptions from Certain Singapore Foreign Sourced Income Taxation
Companies that are subject to Singapore taxation may be excused from paying taxes on certain foreign-sourced revenue that is repatriated to Singapore.
The following types of foreign-sourced income taxed in Singapore could be eligible for tax exemption provided certain requirements are met, which are detailed below:
- Dividend from abroad
- Foreign branch earnings
- Revenue from services provided abroad
Qualification Requirements for Tax Exemption
Exemption from Singapore foreign sourced income taxation is provided when all three of the following three requirements are satisfied, according to Section 13(9) of the Income Tax Act of 1947:
- The overseas nation from whom the foreign revenue was earned has imposed taxes on it (referred to as the “subject to tax” criterion). The headline tax rate can vary from the rate at which revenue from abroad was charged.
- When overseas revenue is obtained in Singapore, the overseas nations’ maximum business income tax rate (also known as the international headline tax rate criterion) is not less than 15%.
- The Singaporean taxpayers of the corporation will benefit from the tax waiver, according to the Comptroller of Income Tax.
When determining whether a dividend is liable to tax when it is collected from abroad, the withholding tax on the premium as well as the fundamental taxes on the earnings from which the dividend originates will be put into consideration.
If the revenue is tax-exempt in the overseas nation due to tax breaks given for significant company operations performed in that nation, the IRAS would also consider the subject to tax criterion fulfilled. To automatically claim the tax waiver, no special paperwork is needed.
How to Claim Tax Relief?
To enjoy the tax exemption, you have to provide the following information while filling out your Corporate Income Tax Return (Form C):
- Kind and volume of money received
- The country or region where the earning is generated from
- The overall tax rate for the foreign country
- A declaration indicating the country where the revenue is received has received proof that overseas tax has been paid. This fulfills the “subject to tax” requirement.
Foreign Tax Credit in Singapore
According to the FTC Scheme, corporations can claim a tax credit for international taxes paid on earnings from abroad sources up to the value of Singapore taxes due on the same revenue. Due to this, firms are protected from paying double taxes and aren’t taxed on the same revenue more than once.
Protection from Double Tax on Singapore Foreign Sourced Income Taxation
Singapore maintains a vast network of Double taxation treaties with various nations to avert paying two taxes on foreign-sourced income taxed in Singapore. Avoidance of a double taxation agreement (DTA) is a pact between Singapore and another country. It helps prevent residents in one jurisdiction from being subjected to having their earnings taxed twice on the other territory. Through the DTA, the Singapore firm is given relief from additional taxes by being allowed to seek a credit for the overseas taxes paid against the Singapore taxes due on the same revenue.
Through its territorial tax structure and tax exemptions, the method of getting foreign-sourced income taxed in Singapore gives companies a major competitive edge when doing business abroad. A favorable business environment is created when it is possible to enjoy tax savings on overseas earnings and when exemptions and credits are accessible to both domestic and international businesses.
For any further queries regarding foreign-sourced income taxed in Singapore, consult with our experts at Odint Consultancy.
No, Singapore tax residents can only take advantage of tax exemptions on eligible overseas income that complies with specific requirements, like being subject to tax in the overseas country at a rate of at least 15% and being transferred to Singapore.
Yes, even if the earnings are not taxable, enterprises as well as people in Singapore are obliged to record their foreign-sourced income in their tax reports. The tax authorities should get an accurate disclosure.
Singapore has Double Tax Agreements (DTAs) with numerous nations to prevent double taxes. By these accords, businesses and individuals may claim international tax credits to reduce their Singapore tax obligations.
Due to Singapore’s adoption of a territorial tax structure, only income obtained within Singapore or received there is subject to taxation. Singapore does not typically tax foreign-sourced income until it has been received there or transferred there.
Double taxation agreements aid in preventing citizens of one jurisdiction from having their income taxed twice in the other. By allowing the Singapore company to claim a credit for the foreign taxes paid against the Singapore taxes owed on the same revenue, the DTA relieves the Singapore firm of additional taxes.