Double Taxation on Foreign Income
Singapore tax residents may claim Foreign Tax Credit (FTC) when filing their income tax returns in Singapore to avoid paying income taxes on the same income which was taxed in the foreign country and in Singapore.
Conditions for Claiming FTC
Anyone claiming Foreign Tax Credit must satisfy all of the following conditions:
- The individual must be a tax resident in Singapore for the relevant basis year;
- Tax has been paid or is payable on the same income in the foreign country; and
- The income is taxable in Singapore.
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:
- The actual amount of foreign tax paid; or
- The amount of Singapore tax attributable to the foreign income (net of expenses).
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.
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:
- Type of services rendered by the business;
- The country in which the services were rendered;
- 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;
- The amount of gross foreign income received for the year and how it was reflected in the profit & loss account;
- 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. 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:
- Foreign income tax has been paid on the income in the foreign country;
- 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
- 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:
- pooled foreign taxes paid on the qualifying foreign income; or
- total Singapore tax payable on the qualifying foreign income.
Example of the FTC Pooling system
|Foreign Country A (S$)||Foreign Country B (S$)||Total (S$)|
|Foreign income remitted||10,000||20,000||30,000|
|Foreign income tax paid||500||5,000||5,500|
FTC Pooling System Computation
|Total foreign income taxes paid in Countries A and B||5,500|
|Total Singapore tax payable on foreign income from Countries A and B||5,100|
|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 offsetting FTC ($5,100 - $5,100)||0|
For details, please refer to Foreign Tax Credit Pooling (PDF, 332KB).