Foreign Tax Credit

Foreigners who are residents may claim Foreign Tax Credit to avoid paying tax twice on the same income.

Double Taxation on Foreign Income

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

Residents may claim Foreign Tax Credit to avoid being taxed twice on the same income. 

Conditions for Claiming FTC

Anyone claiming Foreign Tax Credit must satisfy all of the following conditions:

  1. The individual must be a tax resident in Singapore for the relevant basis year;
  2. Tax has been paid or is payable on the same income in the foreign country; and
  3. The income is subject to taxation in Singapore.

Calculating 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 is the lower of:

  1. The actual amount of foreign tax paid; or
  2. The amount of Singapore tax attributable to the foreign income (net of expenses).

Trade Income

When a business 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.

Passive Income

Passive income (e.g. interest, dividend) derived from outside Singapore will be taxed in Singapore in the year of remittance.

Claiming FTC

The claim for FTC should be made when you file your annual income tax return. (Form B or Form P). The FTC claim should be shown in your sole proprietors and/or partnership's tax computation.

You must forward documentary proof (e.g. withholding tax receipts, letter from the foreign tax authority, or dividend vouchers) to show that the remitted income has been subject to tax in the foreign country before FTC claims can be considered.

When making a FTC claim on foreign-sourced service income, please provide:

  1. Type of services rendered by the business;
  2. The country in which the services were rendered;
  3. Whether the services were rendered through a permanent establishment in the foreign country. If so, state the location and function of the office in the said country;
  4. The amount of gross foreign income received for the year and how it was reflected in the profit & loss account;
  5. Relevant documents to show that tax had been paid in the foreign country. 

FTC Pooling System

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

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

Qualifying Conditions for FTC Pooling System

The foreign income received by the individual or business must satisfy all of the following conditions:

  1. Foreign income tax has been paid on the income in the foreign country;
  2. 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
  3. The income is subject to tax in Singapore and the individual or business is entitled to claim for FTC under the Income Tax Act.

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

Calculating FTC under the Pooling System

FTC under the Pooling System is the lower of:

  1. the amount of Singapore tax attributable to the foreign income under pooling (net of expenses); or
  2. the actual amount of pooled foreign tax paid on the same pool of foreign income.
 Before 2011 Budget ChangeAfter 2011 Budget Change: New FTC pooling system 

 FTC is allowed:

  1. on a source-by-source and country-by-country basis
  2. based on an amount that is the lower of:
    1. foreign tax paid; and
    2. Singapore tax payable on that foreign income

 

Effective YA 2012, FTC is allowed:

  1.  by pooling all foreign taxes paid on qualifying foreign income
  2. based on an amount that is the lower of:
    1. pooled foreign taxes paid on qualifying foreign income; and
    2. total Singapore tax payable on qualifying foreign income
 Foreign Country A (S$) Foreign Country B (S$) Total (S$) 
 Foreign income remitted10,000 20,000 30,000 
 Foreign income tax paid5005,000 5,500 
 Foreign Country A (S$)Foreign Country B (S$)   Total (S$) 
 Foreign income tax paid 500 5,000 5,500
 Singapore tax payable on the foreign income (based on prevailing corporate tax rate of 17%)1,700 3,400 5,100 
 FTC allowed ( the lower of foreign tax paid and Singapore tax payable on each FI) 500 3,400 3,900

 Net Singapore tax payable on the foreign income after ofsetting FTC ($5,100 - $3,900)

   1,200
 Total (S$)  
 Total foreign income taxes paid in Countries A and B5,500
 Total Singapore tax payable on foreign income from Countries A and B5,100 
 FTC allowed (lower of total foreign taxes and total Singapore tax payable on foreign income from Countries A and B)5,100 
 Net Singapore tax payable on the foreign income after ofsetting FTC ($5,100 - $5,100)
 Tax savings on applying FTC pooling ($5,100 - $3,900)1,200 

 For details, please refer to  Foreign Tax Credit Pooling  (e-Tax Guide, 180 kb).

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