Tax exemption of foreign-sourced Income in Singapore
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Foreign income refers to income derived from outside Singapore. Usually, such income is taxed twice, first in the foreign jurisdiction and the second in Singapore. There are certain tax benefits that are available in Singapore to avoid double taxation.
Below we will discuss tax exemption on foreign-sourced income more.
- What foreign-sourced income are exempted?
- Qualifying conditions for tax exemption
- How to get an exemption
What foreign-sourced income are exempted?
Under section 13(9) of the Income Tax Act, exemptions under the FSIE scheme are applicable to the specific categories listed below.
Foreign sourced dividend
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. A dividend is a foreign-sourced dividend if it is paid by a non-Singapore tax resident company. This also applies to foreign dividend, which may be the income of a trade or business that has been continued in Singapore by a specific resident payer. Additionally, there is no shareholding requirement to enjoy the tax exemption.
Foreign branch profits
Foreign branch profits are profits that have been generated by the business operation of a Singapore company that has been registered as a branch in a foreign country. Do take note that this does not include non-trade or non-business income of the foreign branch.
Foreign sourced service income
Foreign sourced service income is income that has been generated by a resident taxpayer for services that have been provided through a permanent place of operation in a foreign country. This could mean a place for management, an office, or a particular amount of floor space at the disposal of the particular resident taxpayer.
Qualifying conditions for tax exemption
- The foreign income has been subjected to tax in the foreign jurisdiction from which they were received (also known as the “subject to tax” condition). The rate at which the foreign income has been taxed can differ from the headline tax rate.
- Exemptions can only be applied when the “foreign headline tax rate” in the foreign jurisdiction from where the income is received is at least 15%, and the income has already been subjected to tax in that specific country.
- The comptroller is satisfied that the tax exemption would be beneficial to the person residing in Singapore.
How to get an exemption
To get a tax exemption, you need to provide the information listed below in your Income Tax Return (Form C):
- Nature and amount of income received
- Jurisdiction from which the income is received
- Headline tax rate of the foreign jurisdiction
- Confirmation that the foreign tax has been paid in the jurisdiction from which the income was received (to fulfil the “subject to tax” condition
If you are filing Form C-S instead, you need to include the above information in the company’s tax computation and retain any supporting documents.