e-Learning Video on the Taxability of Income
This video provides you with information on the taxability of income.
What is Taxable Income
For Singapore tax purposes, taxable income refers to:
- gains or profits from any trade or business;
- income from investment such as dividends, interest and rental;
- royalties, premiums and any other profits from property; and
- other gains that is revenue in nature.
Deductions such as business expenses, capital allowances and reliefs can be claimed to reduce taxable income, which leads to lower taxes.
For more details on deductions, please refer to Business Expenses or watch this video on the Tax Deductibility of Expenses (4m 59s).
When Income is Taxable
A company is liable to pay tax in Singapore on income that is:
- accrued in or derived from Singapore; or
- received in Singapore from outside of Singapore.
Income Received from Abroad
Under Section 10(25) of the Income Tax Act, income from outside Singapore is considered received in Singapore when it is:
- remitted to, transmitted or brought into Singapore;
- used to satisfy any debt incurred in respect of a trade or business carried on in Singapore; or
- used to purchase any moveable property (such as equipment, raw material etc.) brought into Singapore.
Section 10(25) will be applied to tax foreign income received in Singapore only if the income belongs to an individual* who is resident in Singapore or an entity which is located in Singapore. Hence, non-resident individuals and foreign businesses which are not operating in or from Singapore can remit their foreign income to Singapore without being taxed on the income. This removes the concern that section 10(25) will discourage foreigners and foreign businesses from using Singapore's banking and fund management facilities.
As an administrative concession, foreign income which is applied towards overseas investments without being repatriated to Singapore will not be treated as having been received in Singapore under section 10(25) at the point of reinvestment. This means that the taxing point of the foreign income is deferred till when the investment is realised and the proceeds are brought into Singapore. This is in line with the Government's effort in promoting regionalization of Singapore's businesses.
If you are subject to tax on foreign-sourced income, you will continue to be entitled to claim tax reliefs or credits available under section 50, 50A or 50B of the Income Tax Act in respect of the foreign tax paid or payable on such income. For more information, please refer to Foreign Tax Credit.
* From 1 Jan 2004, all foreign-sourced income received in Singapore by resident individuals, except those received through a Singapore partnership, will be exempt from tax where the Comptroller is satisfied that the exemption will be beneficial to them.
What is Non-Taxable Income
Capital Gains
Capital gains are not taxable. Examples of these are:
- gains on sale of fixed assets; and
- gains on foreign exchange on capital transactions.
Income Exempted from Tax
Certain types of income are specifically exempted from tax under the Income Tax Act, subject to conditions. Examples of these are:
- certain shipping income derived by a shipping company under Section 13A and Section 13F;
- foreign-sourced dividends, branch profits & service income received by a resident company under Section 13(8); and
- company's gains on disposal of equity investments under Section 13Z.
Non-taxation of Companies' Gains on Disposal of Equity Investments under Section 13Z
Section 13Z of the Income Tax Act exempts from tax, the gains derived by a company ("divesting company") from the disposal of ordinary shares in another company ("investee company") which are legally and beneficially owned by the divesting company, if immediately prior to the date of the share disposal:
a. the divesting company holds at least 20% of the ordinary shares in the investee company whose shares are being disposed; and
b. the divesting company maintains the minimum 20% shareholding in the investee company for a continuous minimum period of 24 months prior to the disposal.
For share disposals in other scenarios, the tax treatment of the gains/ losses arising from share disposals will be determined based on an evaluation of the facts and circumstances of the case under the Badges of Trade.
Scope of Section 13Z
Section 13Z applies to companies' disposal of ordinary shares from 1 Jun 2012 to 31 Dec 2027. It is applicable regardless of whether the investee company is incorporated in Singapore or elsewhere; and listed or non-listed.
Section 13Z does not apply to:
- disposal of shares by a partnership, limited
partnership or limited liability partnership where one or more of the partners
is a company or are companies;
- a divesting company whose gains or profits from the disposal of shares are included as part of its income based on the provisions of Section 26* of the Income Tax Act; and
* Types of companies covered under Section 26 of the Income Tax Act include: (i) insurers other than life insurers; (ii) life insurers; and (iii) composite insurers. - disposal of non-listed shares in an investee company that is in the business of trading Singapore immovable properties or principally carries on the activity of holding Singapore immovable properties (other than the business of property development).
As announced in Budget 2020, to
ensure consistency in the tax treatment for property-related businesses,
Section 13Z will not apply to disposal of non-listed shares in an investee company
that:
- is in the business of trading immovable properties
(situated in Singapore or elsewhere);
- principally carries on the activity of holding immovable properties
(situated in Singapore or elsewhere); or
- has undertaken property development activities (in
Singapore or elsewhere). An exception is where the immovable property developed
is used by the investee company to carry on its own business to derive trade
income; and where the investee company did not undertake any property
development activity in the past 60 months before the disposal of shares.
These changes will
apply to shares disposed on or after 1 June 2022.
For more information, please refer
to the e-Tax Guide
on Certainty of Non-taxation of Companies' Gain on Disposal of Equity Investments (PDF, 346KB).