Filing of Income Tax Computations in Functional Currencies other than Singapore Dollars

Companies that prepare their financial statements in non-Singapore dollars (S$) functional currencies are to prepare their tax computations in the same non-S$ functional currency. However, all amounts declared in the Income Tax Return must be in S$.

General rules on filing of income tax computations in non-S$ functional currencies

The functional currency is the currency of the primary economic environment in which a business operates.  A company is required under the Financial Reporting Standards of Singapore (FRS) to determine its functional currency and present its financial statements in that currency.

For companies that prepare their financial statements in non-S$ functional currencies, all items in the tax computation up to the chargeable income (after applying the partial or full tax exemption) should be in the non-S$ functional currency.

Update of functional currency before filing of income tax return  

 NewIf your company’s functional currency is not in “Singapore Dollar”, you have to inform IRAS by logging in to mytax.iras.gov.sg and update it via the "Update Corporate Profile/ Contact Details" e-Service. You may refer to the following user guides for more information:

   • “Update Corporate Profile/ Contact Details” User Guide (company) (1.17MB)
   • “Update Corporate Profile/ Contact Details” User Guide (tax agent) (1.25MB)

 

Impact on Filing of Income Tax Return

The Income Tax Return (Form C-S/ C) and relevant appendices must be completed in S$. Companies that prepare their financial statements and tax computations in non-S$ functional currencies are required to translate the relevant non-S$ items into S$ equivalent amounts using the average rate for purposes of completing the Form C-S/ C.

If there is a change in functional currency from S$ to non-S$ (i.e. financial statements and tax computations for previous YAs were prepared in S$), companies need to apply transitional rules to translate existing S$ balances into the non-S$ functional currency. These companies may refer to Paragraphs 5.1 to 5.7 of the e-Tax Guide Filing of Income Tax Computations in Functional Currencies other than Singapore Dollars (208KB) for more details. 

Average rate

This is computed using the average of the month-end exchange rates for the financial period that constitutes the basis period. The exchange rates supplied by the Monetary Authority of Singapore (MAS) should be used for this purpose. For example, if the basis period of company for YA 2018 is from 1 Jan 2017 to 31 Dec 2017, the average rate will be the average of the month-end exchange rates from 1 Jan 2017 to 31 Dec 2017.

To retrieve the average exchange rate, you should:

  1. Refer to MAS web page which lists the foreign exchange rates
  2. Select the relevant boxes to get the month-end exchange rate for the relevant financial period.  For example, to get the rates S$=US$ for Jan to Dec 2017, the following should be selected:
    • Start year: 2017
    • End year: 2017
    • Start month: Jan
    • End month: Dec
    • Frequency: Monthly
    • S$ per unit of: US Dollar
  3. Click “Download” to download the rates and calculate the average rate by adding the month-end rates and dividing by the number of months in that financial period. 
    2017 Exchange Rate

Translation of specific items in the tax computation

The rules below apply to existing companies and new companies:

Items Translation method for tax computation

Current year items including

  • current year tax adjusted profit/ loss
  • current year capital allowances
  • other sources of income
  • current year donations
The current year items will be reflected in the tax computations based on the actual non-S$ functional currencies values as shown in the companies' financial statements.
Tax written down value (TWDV) of assets transferred under Section 24

Section 24 election may be made on sale of assets between related parties. The effect of the Section 24 election disregards the sale except for the change in person entitled to the allowances. In other words, the transaction will not be considered a sale but a transfer of the assets and its allowances from the seller to the buyer.


If the buyer and seller have different functional currencies, the TWDV of the assets in the seller's functional currency must be translated to the buyer's functional currency, using the exchange rate prevailing at the date of sale.

Loss items under group relief system

The group relief system enables the current year unutilised capital allowances/ trade losses/ donations (“loss items”) of one company to be deducted from the assessable income of another company in the same group.


The loss items will be transferred out based on the functional currency of the transferor.


If the functional currencies of the transferor and claimant are different, these items should be translated into the claimant's functional currency at the average rate for the relevant YA.

Amounts exempted under the partial or full tax exemption Companies can enjoy tax exemption on their chargeable income under partial tax exemption or full tax exemption scheme for start-ups.  The exempt amounts are granted in S$. These S$ amounts should be translated into the non-S$ functional currency using the average rate for the relevant YA. 
 Tax payableThe tax payable in S$ should be computed by multiplying the companies' chargeable income (after applying the partial or full tax exemption) in non-S$ with the corporate tax rate and the average rate for the relevant YA.
Foreign tax credit (FTC)

Foreign tax credit is to be allowed based on the lower of the Singapore tax payable on the foreign sourced income (net of allowable deductions) or the foreign tax paid.


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 if they meet qualifying conditions.  FTC under the Pooling System is the 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.

The Singapore tax payable in S$ on the foreign sourced income should be computed by multiplying the relevant amount of the foreign sourced income (reflected in non-S$) by the corporate tax rate and the average rate for the relevant YA.


The foreign tax paid in S$ should be computed by multiplying the actual amount paid (or reflected) in the functional currency, by the average rate for the relevant YA.

Receipt of S$ dividends and interest These S$ amounts should be translated into the recipient's functional currency by the average rate for the relevant YA.  

Please refer to paragraphs 5.8 to 5.28 of the e-Tax Guide Filing of Income Tax Computations in Functional Currencies other than Singapore Dollars (208KB) for more details of the translation methods.

  • How are the expenditure caps under section 14Q, Renovation or Refurbishment (R&R) works and Productivity and Innovation Credit (PIC) scheme computed if my company’s functional currency is non-S$?

    The total amount allowed on qualifying R&R works incurred should not exceed S$300,000 for every three consecutive years. Similarly, the total amount allowed on qualifying PIC expenditure incurred should not exceed the combined expenditure cap for the relevant YAs (e.g. S$1,200,000 for YAs 2016 to 2018).

     

    There are two methods that companies can use to compute the R&R and PIC expenditure cap. IRAS will accept any of the two methods but it must be applied consistently across all expenditure that are subject to expenditure cap and across all the YAs. Please refer to the following illustrations of the two methods to compute the expenditure cap:

    - Section 14Q (R&R expenditure) (65KB)

    - PIC expenditure cap (66KB)

  • Under the loss carry-back relief system, the maximum amount of current year unutilised capital allowances and trade losses (collectively referred to as “qualifying deductions”) that can be carried back to the immediate preceding YA is capped at S$100,000. How do I compute the non-S$ equivalent of the S$100,000 cap if my company’s functional currency is non-S$?

    The amount carried back must not exceed S$100,000 in the YA in which the qualifying deductions arose. The company has to convert the S$100,000 into non-S$ equivalent using the average exchange rate of the YA in which the qualifying deductions arose.

    Example:

    A company's functional currency is US Dollars (US$). The company wants to carry back its YA 2016 trade loss to YA 2015. Its tax computations before carrying back the loss are as follows:

     

    YA 2018
    (US$)

     YA 2017
    (US$)
    Adjusted profit/ (loss) (80,000)90,000
    Chargeable income before partial tax exemptionNIL90,000
       
    Unutilised loss c/f80,000NIL
       
    Average exchange rateUS$1: S$1.3^US$1: S$1.4^

    The maximum amount of YA 2018 loss that the company can carry back to YA 2017 is capped at US$76,923 [S$100,000 / 1.3].

    Its tax computations after carrying back the US$76,923 loss are as follows:

     YA 2018
    (US$)
    YA 2017
    (US$)
    Adjusted profit/ (loss)(80,000)90,000
    Less: Loss carried back76,923(76,923)*
    Chargeable income before partial tax exemptionNIL13,077
       
    Unutilised loss c/f3,077NIL

    * Note: In this case, the YA 2017 S$ equivalent of the loss carried back is S$107,693 [US$76,923 x 1.4], which is acceptable even though it exceeds the S$100,000 cap.

    ^ The foreign exchange rate used in this example is for illustrative purpose only and is not reflective of the actual exchange rate. For the lists of  the foreign exchange rate, please refer to MAS webpage.  

    Please refer to paragraph 6.7 of the e-Tax Guide Carry-Back Relief System (Second Edition) (752KB) for more details.

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