Tax Exemption of Foreign-Sourced Income

To enhance Singapore’s attractiveness as a business hub and to boost Singapore’s services export, tax exemption may be given to certain foreign-sourced income.

The Tax Exemption

A Singapore tax resident company can enjoy tax exemption on its specified foreign income that is remitted into Singapore.

Categories of Foreign-Sourced Income

The three categories of specified foreign income are:

  1. Foreign-sourced dividend
  2. Foreign branch profits
  3. Foreign-sourced service income

Qualifying Conditions for Tax Exemption

Under Section 13(9) of the Income Tax Act, tax exemption will be granted when all of the following three conditions are met :

  1. The highest corporate tax rate (headline tax rate) of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign income is received in Singapore;
  2. The foreign income had been subjected to tax in the foreign jurisdiction from which they were received (known as the "subject to tax" condition). The rate at which the foreign income was taxed can be different from the headline tax rate; and
  3. The Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

Getting the Exemption

To enjoy the tax exemption, you have to provide the following information in your Income Tax Return (Form C/ P):

  • Nature and amount of income received;
  • Jurisdiction from which the income is received;
  • Headline tax rate of the foreign jurisdiction; and
  • Confirmation that foreign tax has been paid in the jurisdiction from which the income was received. This is to satisfy the "subject to tax" condition.

If you are filing Form C-S instead of Form C, the above information is to be included in the company's tax computation and any supporting documents/ information should be retained*.

* 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 Business Records That Companies Must Keep.

"Subject to Tax" Condition

To meet this condition, the specified foreign income received in Singapore must have been subject to tax in the foreign country from which the income is received.

 

New! For the purpose of this “subject to tax” condition, tax paid or payable on foreign-sourced dividend received in Singapore includes:

  1. the dividend tax, which is income tax levied on the dividend by the foreign country of source; and
  2. the underlying tax, which is income tax paid or payable by the dividend paying company on the income out of which the dividend is paid.

“Subject to tax” concession for substantive business activities

The Comptroller will regard the "subject to tax" condition as being met if the income is exempt from tax in the foreign jurisdiction due to tax incentive(s) granted for substantive business activities carried out in that jurisdiction. The following documents must be prepared and retained*:

  1. A declaration by the company that the foreign jurisdiction has exempted the foreign income from tax because of substantive business activities carried out by the company in that jurisdiction; and
  2. A copy of the tax incentive certificate/ approval letter issued by the foreign jurisdiction. In the case of a foreign-sourced dividend, a dividend voucher (if available) stating that the dividend is exempt from tax due to tax incentive granted to the payer company for carrying out substantive business activities in that foreign jurisdiction will be sufficient.

 

Documents to substantiate that the underlying tax has been paid on the foreign-sourced dividend New!

You can provide the following documents to substantiate that the underlying tax has been paid on the income out of which the foreign-sourced dividend is paid:

a) Audited accounts of the foreign payer company

Currently, to demonstrate that their foreign-sourced dividend has suffered underlying tax, taxpayers can provide the audited accounts of the foreign payer company for the financial period ending in the year prior to the year the dividend is received in Singapore whereby the accounts show a positive current year tax (excluding deferred tax expense).

For details, refer to the e-Tax guide Tax Exemption for Foreign-Sourced Income (121KB).

From 20 July 2016, as a concession, IRAS is prepared to accept the consolidated accounts of the foreign payer company and its group companies as proof that the “subject to tax” condition has been met, provided that the foreign payer company is:

- a company listed on a stock exchange; and

- an operating company carrying out substantive business activities (investment-holding is excluded). This must be supported by evidence such as description in the consolidated accounts or any official publication showing the principal activities of the foreign payer company to be such (as opposed to the Group).

Under this concession, the consolidated accounts of the foreign payer company and its group companies for the financial period ending in the year prior to the year the dividend is received in Singapore must show a positive current year tax (excluding deferred expense).

For example, if the dividend is received in Singapore on 30 June 2014, the consolidated accounts of the foreign payer and its group companies for the financial year ending in 2013 must show a positive current year tax.

b) Alternative documents accepted

IRAS will also accept the following documents showing that the income of the foreign payer company has been subject to tax (or that it is enjoying tax incentive on its substantive business activities):

- a certification from the bank through which the taxpayer invested into the foreign payer company; or

- a confirmation letter from the foreign payer company that foreign tax has been paid on the income out of which dividends are paid.

If you are unable to secure any proof that tax has been paid on the income of the foreign payer company, the “subject to tax” condition will not be considered as met. 

IRAS may review and modify the use of the alternative documents should there be any cases of abuse. 

* 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  Business Records That Companies Must Keep.

Expenses Incurred in Respect of Foreign-Sourced Income

All expenses incurred in respect of foreign-sourced income received in Singapore which qualifies for tax exemption shall be deducted against such foreign-sourced income, and will not be available for deduction against any other taxable income.
  • Malaysia and Hong Kong do not impose any dividend tax on dividends paid out by their companies. My company received foreign-sourced dividends from our Malaysia and Hong Kong subsidiaries. Would the foreign-sourced dividends satisfy the “subject to tax” condition given that there is no dividend tax levied on dividends paid out by the subsidiaries?

     

    New! For the purpose of the “subject to tax” condition, the Comptroller would regard this condition as met so long as the Malaysia and Hong Kong subsidiaries had paid or would be paying tax to the respective countries (i.e., Malaysia and Hong Kong) on the income out of which the dividend is paid.

     

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