In Singapore, tax resident and non-resident companies are generally taxed in the same manner, but tax resident companies can enjoy certain benefits for their foreign source income in Singapore, such as:
- Exemption or reduction in tax imposed on specified foreign income that is derived in a jurisdiction that has an Avoidance of double Taxation Agreement with Singapore;
- Tax exemption on specified foreign income such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income: foreign-sourced exemption scheme;
- Foreign tax credit for the taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income; and
- Tax exemption for new start-up companies
I) Foreign-sourced exemption scheme
As a general rules, Singapore sourced incomes are taxable normally in Singapore. However, foreign-sourced incomes will be subject to Singapore taxes to the extent that they are received in or remitted to Singapore.
An income is generally considered as being received or remitted in Singapore if received into a Singapore bank account.
Conversely, a foreign-sourced income that is not received or remitted in Singapore will not be taxable in Singapore. Nonetheless, certain foreign-sourced incomes that are received or remitted in Singapore by a Singapore tax company will be exempted if they meet certain criteria.
Foreign-sourced Incomes that can be exempted from tax under the foreign-sourced exemption scheme (the “Exemption Scheme”) in Singapore are the following:
- foreign-sourced dividend;
- foreign branch profit; or
- foreign-sourced service income.
A dividend will be considered as a foreign-sourced dividend if it is paid by a non-Singapore tax resident company to a tax resident company and remitted in Singapore. Moreover, there is no shareholding requirement to enjoy the Exemption Scheme.
Foreign-sourced service income
For service incomes, is a bit more complex than dividend, indeed the fact that the service income is paid by a non-Singapore tax resident company to a tax resident company and remitted in Singapore will not be sufficient to qualify the service income as foreign-sourced.
To qualify for the Exemption Scheme, service incomes will be considered as foreign-sourced if the services are provided through a fixed place of operation in a foreign country. If the services are not provided through a fixed place of operation in a foreign country, the service incomes will be considered Singapore-sourced and be taxed in Singapore.
2) Qualifying conditions to benefit from the Exemption Scheme
Under the Exemption Scheme, foreign-sourced dividends, foreign branch profits and foreign-sourced service incomes received by specified resident taxpayers are exempt from tax if the following qualifying conditions are met:
- “Subject to tax” condition;
- “Foreign headline tax rate of at least 15%” condition; and
- “Beneficial tax exemption” condition.
Subject to tax
The specified foreign income must have been subject to tax in the foreign country from which the income is received. For the purpose of this “subject to tax” condition, tax paid or payable on foreign-sourced dividends received in Singapore includes that:
- The dividend tax, which is income tax levied on the dividend by the foreign country of source; and
- The underlying tax, which is income tax paid or payable to the foreign countries on the income out of which the dividend is paid.
Foreign tax rate:
The foreign headline tax rate refers to the highest corporate tax rate of the foreign country in the year the specified foreign income is received in Singapore. It must be at least 15%.
Beneficial Tax Exemption:
Inland Revenue Authority of Singapore must be satisfied that the tax exemption would be beneficial to the specified resident company. Where Comptroller of Income Tax considers that the tax exemption is not beneficial to the resident company, the company can claim reliefs for foreign tax paid.
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