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For companies

What is double taxation?
Types of relief/credit on foreign income
What is double tax relief (DTR)?
What is unilateral tax credit (UTC)?
What are the qualifying conditions for claiming foreign tax credit (FTC)?
How to calculate foreign tax credit (FTC)?
How to claim foreign tax credit (FTC)?
Foreign tax credit (FTC) pooling system

What is double taxation?

Foreign income earned by a Singapore company may be subject to taxation twice - once in the foreign country, and a second time when the foreign income is remitted into Singapore.

Foreign tax credit (FTC) is granted by allowing the Singapore tax resident company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.

Types of relief/credit on foreign income

  1. Double tax relief (DTR)
  2. Unilateral tax credit (UTC)

What is double tax relief (DTR)?

A DTR is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax residents to claim a credit for the amount of tax paid in the foreign country against the Singapore tax that is payable on the same income.

A company is a tax resident of Singapore if the control and management of its business is exercised in Singapore.

What is unilateral tax credit (UTC)?

For countries with which Singapore does not have a DTA, UTC may be allowed for foreign tax paid by Singapore tax residents on the following types of income derived from foreign country if such income is repatriated to Singapore:

  1. Income derived from any professional, consultancy and other services rendered in any territory outside Singapore (with effect from YA 2003)
  2. Any royalty derived from outside Singapore (with effect from YA 2004) where the royalty is:
    • not borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore); or
    • not deductible against any income accruing in or derived from Singapore.
  3. Dividend income
  4. Employment income
  5. Branch profits

With effect from YA 2009, UTC will be granted on all foreign-sourced income received in Singapore by Singapore tax residents from non-DTA countries.

What are the qualifying conditions for claiming foreign tax credit (FTC)?

The company must satisfy all of the following conditions in order to qualify for a claim for FTC:

  • The company is a tax resident in Singapore for the relevant basis year;
  • Tax has been paid or is payable on the same income in the foreign country; and
  • The income is subject to taxation in Singapore.

How to calculate foreign tax credit (FTC)?

The amount of FTC 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.

FTC

= Lower of:
  • The actual amount of foreign tax paid; or
  • The amount of Singapore tax attributable to the foreign income (net of expenses).

Administrative Practice: Method of computing Singapore tax attributable to the foreign income (net of expenses)

As an administrative practice, where the expenses incurred on a particular source of foreign income are not separately accounted for, the following formula may be used to compute the amount of Singapore tax attributable to that foreign income:

A  /  B  x  C  x  D

where:

A is the gross taxable income from a particular source which qualifies for foreign tax credit;

B is the total of the gross taxable income from all sources;

C is the aggregate chargeable income from all sources, net of partial tax exemption or tax exemption for new start-up companies; and

D is the Singapore tax rate applicable on the income qualifying for foreign tax credit.

Please see Worked Example (16KB).

If the company is in a loss position, no FTC will be given. 

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 FTC 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 foreign tax credit (FTC)?

The claim for FTC should be made when you file your annual income tax return (Form C). Documents supporting your claim for FTC need not be submitted with your income tax return (Form C). However, the following information/ documents must be prepared and retained#:

  • Country in which foreign tax was paid;
  • Nature of the income;
  • Description of the services rendered, and whether the income was derived through a permanent establishment in the foreign country and your basis for this claim, if applicable;
  • Name of the payer;
  • Date of withholding tax receipt/ voucher;
  • Gross amount of income, withholding tax rate and amount of tax withheld in foreign currency (include the corresponding S$ amount);
  • For a claim of double tax relief (DTR), the relevant Article of the Double Taxation Agreement under which the tax was withheld; and
  • Withholding tax receipt/ voucher*.

* If this is not available, a letter certifying that foreign tax has been paid or will be paid** on the income remitted may be submitted instead. The certification must be made by either a director/ auditor of the company, a public accountant in Singapore or a public accountant in the country in which the income was derived.

** IRAS may require the company to give confirmation of the amount of foreign tax paid after it has been paid.

# The relevant information/ documents must be retained for a period of at least five years from the relevant YA. These information/ documents should be submitted to the Comptroller of Income Tax upon request. For more information on record keeping, please refer to Record Keeping Essentials for Businesses.

Foreign tax credit (FTC) pooling system

The FTC pooling system was introduced in the Singapore Budget 2011 to give businesses greater flexibility in their claim of FTCs, reduce their Singapore taxes payable on remitted foreign income, as well as to simplify tax compliance.

With effect from YA 2012, Singapore tax residents may elect for the FTC pooling system when claiming FTC on income for which they have paid foreign tax.

What are the qualifying conditions?

The company must satisfy all of the following conditions:

  • Foreign income tax is paid on the income in the foreign country from which the income is derived;
  • The highest corporate tax rate (headline tax rate) of the foreign country from which the income is derived is at least 15% at the time the foreign income is received in Singapore; and
  • The company is entitled to claim for FTC under the Income Tax Act and there is Singapore tax payable on the income.

Where the above conditions are not met, or where companies choose not to elect for FTC pooling system, the current FTC rules will apply.

How to calculate foreign tax credit (FTC)?

= Lower of:

  • the amount of Singapore tax attributable to the foreign income under pooling (net of expenses); or
  • the actual amount of pooled foreign tax paid on the same pool of foreign income.

An example of how the FTC pooling system works is attached (56KB).

For details, please refer to the e-Tax Guide, Foreign Tax Credit Pooling (152KB).

 

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Last Updated on 23 June 2014


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