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Taxable and Non-taxable Income

Taxable income is income that is subject to tax. Income 'accrued in' or 'derived from’ Singapore as well as income received from outside Singapore is taxable.
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e-Learning Video on the Taxability of Income

 

 

This video provides you with information on the taxability of income.

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What is Taxable Income

For Singapore tax purposes, taxable income refers to:

  1. gains or profits from any trade or business;
  2. income from investment such as dividends, interest and rental;
  3. royalties, premiums and any other profits from property; and
  4. 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).

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When Income is Taxable

A company is liable to pay tax in Singapore on income that is:

  1. accrued in or derived from Singapore; or
  2. 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:

  1. remitted to, transmitted or brought into Singapore;
  2. used to satisfy any debt incurred in respect of a trade or business carried on in Singapore; or
  3. 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.

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What is Non-Taxable Income

Capital Gains

Capital gains are not taxable. Examples of these are:

  1. gains on sale of fixed assets; and
  2. 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:

  1. certain shipping income derived by a shipping company under Section 13A and Section 13F;
  2. foreign-sourced dividends, branch profits & service income received by a resident company under Section 13(8); and
  3. company's gains on disposal of equity investments under Section 13Z. 
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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:

  1. 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;
  2. 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. 
  3. 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:

  1. is in the business of trading immovable properties (situated in Singapore or elsewhere);
  2. principally carries on the activity of holding immovable properties (situated in Singapore or elsewhere); or
  3. 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).

 

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  • My company received a Government grant. Is the grant taxable?

    If the grant is given to supplement the trading receipts or to defray operating expenses of the company, it is treated as revenue in nature. The grant will be taxed as part of the gains or profits from the trade or business, unless exemption from tax is provided under the provisions of the Singapore Income Tax Act.

    On the other hand, if the grant is given to the company to acquire capital assets, it is capital in nature and therefore, not taxable.

    For more information, please refer to Tax Treatment of Grants/ Payouts Commonly Received by Companies.

  • My company received donations. Are the donations taxable? Are expenses incurred to generate the donations tax deductible?

    If the donations are not voluntary gifts and are paid in return for benefits granted by the recipient organisation, these will become business receipts and constitute income that is taxable in the hands of the recipient. Expenses that are incurred to generate these taxable receipts are deductible provided they are wholly and exclusively incurred in the production of income, revenue in nature and not prohibited from deduction under the Income Tax Act. For more information on the deductibility of expenses, please refer to Business Expenses. If the company makes donations to an approved Institute of a Public Character (IPC) or to the Singapore Government which benefit the local community, tax deductions will be allowed. For more information on the deductibility of donations, refer to Donations.

  • Is income distribution from Real Estate Investment Trusts (REITs) taxable?

    The nature, tax treatment and applicable period/ Year of Assessment (YA) of each REIT distribution are reflected in the Annual Distribution Statement issued by the Central Depository Pte Ltd (CDP). 

    A REIT distribution is taxable in the relevant YA as reflected in the CDP statement, unless stated otherwise (e.g. distribution is tax-exempt or distribution is a return of capital). Where the distribution is taxable, the company is required to report the gross income indicated in the CDP statement, as taxable income in the Income Tax Return for the relevant YA.

    For more information on the tax treatment of REIT distributions, please refer to the e-Tax Guide on Income Tax Treatment of Real Estate Investment Trusts and Approved Sub-Trusts (refer to the section on Tax Treatment of the Unit Holder) (PDF, 598KB).

  • Is income received in the form of digital tokens such as Bitcoins taxable?

    Remuneration or revenue received in the form of digital tokens (such as Bitcoins) is subject to normal income tax rules. The receipt will be taxable if it is revenue in nature, and non-taxable if it is capital in nature.

    For details, please refer to Income Tax Treatment of Digital Tokens.

  • Is foreign-sourced income that is kept offshore (“foreign-sourced offshore income”) and used for payment of one-tier tax exempt dividends into the shareholder’s offshore bank account considered received in Singapore and subject to tax?

    No. The foreign-sourced offshore income used by a company in this manner does not constitute income received in Singapore from outside Singapore and is therefore not taxable.

    This is subject to the condition that the one-tier tax exempt dividend is paid directly into the shareholder’s offshore bank account and does not involve any physical remittance, transmission or bringing of funds into Singapore by the dividend paying company for the purpose of the dividend payment. 

  • A company has foreign-sourced income that is kept offshore (“foreign-sourced offshore income”). It gave an instruction to transmit the foreign-sourced offshore income from its offshore bank account to the Central Depository Pte Ltd (CDP)’s bank account in Singapore, for the payment of one-tier tax exempt dividends to its scripless shareholders. Is the foreign-sourced offshore income considered received in Singapore and subject to tax?

    No. The foreign-sourced offshore income used by a company in this manner does not constitute income received in Singapore from outside Singapore and is therefore not taxable.

    This is subject to the condition that the one-tier tax exempt dividend is paid directly into the CDP’s bank account and does not involve any physical remittance, transmission or bringing of funds into Singapore by the dividend paying company for the purpose of the dividend payment.

  • What is the amount of foreign-sourced income taxable if the income is applied to purchase any movable property which is brought into Singapore?

    It is the amount of foreign income which is applied to acquire the asset and not the asset's net book value or market value at the time the income was brought into Singapore.

     

  • Are the gains on disposal of properties taxable?

    The taxability of the gains on disposal of properties depends on whether the gains are revenue in nature (i.e., taxable) or capital in nature (i.e., not taxable). This is a question of fact.

    Generally, IRAS would apply the Badges of Trade to evaluate the taxability of the gains. All the factors are to be taken into consideration in the evaluation and no single factor is conclusive.

  • A company carries on a trade or business in Singapore. It maintains a foreign bank account which is used to receive income or funds and pay expenses for both trade and non-trade purposes (i.e. the bank account is made up of a mixed pool of funds from foreign-sourced offshore income and non-income sources). The company wishes to remit only the non-income funds into Singapore. How can the company prove to IRAS that only the non-income funds have been remitted?

    IRAS will accept the remitted funds as non-income funds if the taxpayer meets the following conditions:  

    a)     Taxpayer to provide an account of the funds from income and non-income sources before the date of repatriation, and show that after the repatriation, the funds remaining outside Singapore is no less than the amount of foreign-sourced offshore income which has yet to be repatriated. For the purpose of determining the amount of foreign-sourced offshore income which has yet to be repatriated, IRAS is prepared to allow any loss incurred overseas on revenue account to be offset against the foreign-sourced offshore income derived; or  

    b)     Taxpayer to demonstrate that the amount repatriated is not more than the non-income fund sent out net of any losses incurred on capital account.

    Example 1:
    Foreign-sourced offshore income of $1,000 and non-income amount of $500 were applied to acquire overseas investments of $1,500 in year 1. Overseas investments were subsequently disposed of at $1,800 in year 2 and the proceeds were brought into Singapore.

    The foreign-sourced offshore income of $1,000 is remitted and subject to tax in year 2.

    Example 2:
    Using the same example above, overseas investments were subsequently disposed of at $1,800 in year 2, and part of the proceeds of $500 was brought into Singapore.

    As the amount repatriated is not more than the non-income fund applied to acquire the investments, IRAS is prepared to accept that only non-income fund is repatriated.

     

  • A company carries on a trade or business in Singapore. Is the foreign-sourced offshore income used by the company to re-pay a loan (used as working capital in the company’s trade or business carrying on in Singapore) considered received in Singapore and subject to tax?

    Yes. The phrase “debt incurred in respect of a trade or business” is not confined to trade debts that have been claimed as tax deductible expenses for Singapore income tax purposes. It applies to any debt arising from a trade or business carried on in Singapore (e.g. debts arising from the acquisition of trade or business assets, including loans taken for acquiring such assets etc.). The foreign-sourced offshore income used by the company in this manner would constitute income received in Singapore from outside Singapore and is therefore taxable.

  • A passive investment holding company derives only passive foreign-sourced offshore investment income (e.g. foreign interest income or foreign rental income). Is the foreign-sourced offshore income used by the passive investment holding company to settle overseas expenses (e.g. overseas professional fees or interest expenses) considered received in Singapore and subject to tax?

    No. A passive investment holding company is not considered as carrying on a trade or business in Singapore, thus section 10(25)(b) is not applicable. The foreign-sourced offshore income used by the passive investment holding company in this manner does not constitute income received in Singapore from outside Singapore and is therefore not taxable.

    This is subject to the condition that the overseas expenses were paid directly into the payee’s offshore bank account and do not involve any physical remittance, transmission or bringing of funds into Singapore by the passive investment holding company for paying the overseas expenses.  

     

     

  • A company carries on a trade or business in Singapore. Is the foreign-sourced offshore income used by the company to settle non-trade debts (e.g. purchase an overseas investment that is not connected/ related to the company’s Singapore trade or business) considered received in Singapore and subject to tax?

    No. The overseas investment is not connected/ related to the company’s trade or business carrying on in Singapore, thus section 10(25)(b) is not applicable. The foreign-sourced offshore income used by the company in this manner does not constitute income received in Singapore from outside Singapore and is therefore not taxable.

    This is subject to the condition that the debt repayment in relation to the overseas investment is paid directly into the payee’s offshore bank account and does not involve any physical remittance, transmission or bringing of funds into Singapore by the company for payment of the overseas investment.

     

  • A Singapore-incorporated company is not resident in Singapore. All its business operations are carried on outside Singapore except for a Singapore registered office required under the Singapore Companies Act. Is foreign-sourced offshore income remitted into Singapore by such a company considered received in Singapore and subject to tax?

    Whether the company is operating in or from Singapore is a question of fact and degree. Particularly for a non-resident Singapore-incorporated company with no business presence in Singapore, IRAS would examine the facts and circumstances such as the reason/ purpose for incorporating the company in Singapore, nature of the company’s business activities, place of control and management of the business etc. in order to make the determination.