Is foreign sourced income of a Singapore company taxed in Singapore?
Yes. Singapore adopts a territorial-based tax framework. So, for Singapore tax resident companies which earn foreign sourced income AND remit them into Singapore, it is taxed.
What are provisions of foreign sourced income exemption scheme for a Singapore company?
As detailed in Sections 13 (7A) to 13 (11) of the Singapore Income Tax Act (ITA), companies can benefit from the foreign sourced income exemption scheme (FSIE), if the foreign-sourced income relate to qualifying foreign dividend, foreign branch profits, and foreign-sourced service income.
What are provisions for avoidance of double taxation for a Singapore company?
Singapore has a foreign tax credit (FTC) scheme, which allows a company to claim credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income. Under this, two types of credit or relief can be claimed.
- Double Tax Relief (DTR) – a credit relief provided under Singapore’s of Double Tax Agreements (DTAs);
- Unilateral Tax Credit (UTC)
The government, in 2011, also introduced a Foreign Tax Credit (FTC) pooling system to give businesses greater flexibility in their FTC claims, reduce the taxes payable on foreign income, and to simplify tax compliance.
When can a Singapore company benefit from FTC or FSIE?
Yes, but only when the headline corporate tax rate in the from which the income is received is at least 15 percent, and the tax has already been paid in that particular country at the prevailing rates.
What are conditions under the foreign sourced income exemption scheme?
Generally, tax exemption applies to foreign dividend, foreign branch profits and foreign-sourced service income remitted into Singapore if the following conditions are satisfied:
- The foreign income had been subject to tax in the foreign jurisdiction from which they were received (known as the “subject to tax” condition);
- The highest corporate tax rate (foreign headline tax rate condition) of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign income is received in Singapore; and
- The Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.
Important points to note for a company to avail itself of foreign sourced income exemption
Important to note are “subject to tax” and “foreign headline tax” conditions. In addition, for foreign service income, the service income must be earned from “fixed place of operation” in the foreign jurisdiction.
Also, it is very important to note that IRAS comes down hard on the practice of “treaty shopping”.
What are the common mistakes to avoid while claiming tax exemption for foreign-sourced dividends?
Two most common mistakes are:
- dividends must meet the “headline tax rate” condition, i.e. the dividends were received from countries less than 15% headline tax rate; and
- dividends must meet the “subject to tax” condition, e.g. the dividends were distributed from a company which is part of a group and the income of the company was found not to be subject to tax
How can a Singapore company claim tax exemption in its foreign-sourced income?
A Singapore tax resident company applying for treaty benefits provided under the DTA with a tax treaty partner, may be required to submit a tax reclaim form issued by the tax treaty partner to IRAS.
In Singapore, IRAS issues a Certificate of Residence (COR) to companies declaring their tax residency in Singapore.
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