In Singapore, corporate tax is applied to certain types of income under the Income Act of Singapore. This tax is imposed on:

  • Income generated in Singapore
  • Income that was received in Singapore, but generated outside of the country

The latter of the two is considered foreign-sourced income and, barring certain exceptions, is subject to taxation.

What Qualifies as Taxable Overseas Income?

Overseas income is subject to taxation in Singapore if:

  • The work you perform overseas is part of your work in Singapore.
  • The income is received in Singapore through a partnership within Singapore.
  • You are employed in a foreign country on behalf of the Singapore Government.
  • The overseas income was considered service income, unless it qualifies for an exemption.
  • You run a business or trade in Singapore, and you run a business or trade overseas that is incidental to your business in Singapore.

If your overseas income is subjected to taxation in a foreign country, you may qualify for double taxation relief, which would prevent you from being taxed twice on your income.

Determining whether the income fits into the above categories can sometimes be a complex endeavor. Things can get tricky when trying to ascertain whether the profit is sourced in Singapore and whether the income is sourced overseas, but received in Singapore.

There are a few ways to gauge whether the income fits into one of the two above scenarios.

  • Where and How the Income Was Generated: Determine which operations produced the income, and the location of those operations.
  • Location of Contracts for Purchase and Sale: The locality of the income can also be determined by considering the location of where the contracts for purchase and sale were effected. Effected not only includes where the contract was executed, but where the deal was negotiated and concluded.
  • Location of Commission Agent Activities: If the business obtains commission through deals with suppliers or buyers, the location of the commission activity must be considered. If the activity takes place in Singapore, the income will be considered as sourced in Singapore.
  • Lack of Overseas Presence: If a Singapore business generates income overseas but has no overseas presence, the income is typically considered as sourced in Singapore.

Determining Whether Foreign Income Was Received in Singapore

Even if the income is foreign-sourced, it would be considered tax-exempt if the income was not actually received in Singapore.

Determining whether foreign-sourced income is “received” in Singapore can be complicated and is a subject that has been debated heavily. To clarify the requirements and avoid confusion, the IRAS (Inland Revenue Authority of Singapore) offers the following guidelines:

Foreign Income Used to Pay Debts in Singapore

The IRAS states that any foreign-sourced income used to satisfy debts incurred by a business or trade operating in Singapore is considered income received in Singapore.

Simply put, if your business uses income derived from overseas to pay debts owed in Singapore, that money falls into the category of “income received in Singapore.” It does not matter whether that income was sitting in a foreign bank account for several years, if it is brought into the country to pay off debts, it is “received in Singapore.”

Foreign Income Brought Into Singapore

IRAS considers any income derived from outside of Singapore and brought into, transmitted to or remitted to Singapore as “received in Singapore.”

If foreign-sourced money, dividends or other forms of payment are paid to a bank account in Singapore owned by a Singapore company, it is “received in Singapore.” The money should be a result of the company’s activities and adds to the company’s profit or revenue.

Foreign Income Used to Purchase Movable Property or Goods

According to the IRAS, foreign-sourced income used to purchase movable property is considered “received in Singapore.” Movable property does not refer to land or real estate, which are fixed property. Rather, movable property refers to your belongings, goods, equipment and materials that are related to your business.

If you use income generated overseas to purchase equipment overseas and have that equipment delivered to Singapore, that income would be considered “received in Singapore.”

Foreign Income Generated by Companies Outside of Singapore

Overseas income is only subject to taxation if it applies to a Singapore-based company. If a foreign-based company has no offices in Singapore, it is free to use banks and wealth management firms in the country without the money being subject to taxation in Singapore.

Foreign Income Used for Overseas Investments

Foreign-sourced income may not be subjected to taxation if it is used for investments outside of Singapore. The company may not use these expenses or investments as a basis for tax deduction claims in Singapore.

Tax Exemption for Overseas Income

If the foreign-sourced income is considered “received in Singapore,” it may qualify for exemption if the income is subject to overseas taxation. To qualify for exemption, the income must meet all of the following requirements:

  • The overseas jurisdiction’s highest corporate tax rate was 15% or higher at the time the income was generated.
  • The foreign-sourced income was subject to taxation in the overseas jurisdiction it was received.

To obtain the exemption, you must include the following information when filling out your Income Tax Return:

  • The foreign jurisdiction where the income was received
  • The nature of the income and the amount of income you received
  • The headline tax rate of the foreign jurisdiction
  • Proof that the foreign tax was paid in the respective jurisdiction

The last point satisfies the IRAS “subject to tax” condition.

If the overseas income meets these requirements, it may be exempt from corporate tax. However, if you have overseas income received in Singapore that does not meet these requirements, it will likely be subject to taxation.

With that said, the IRAS will provide you with a tax credit for any taxes you pay overseas even if the country does not have a double-taxation agreement in place. This credit will prevent you from being subjected to double-taxation on the same income.

Determining whether income is considered foreign-sourced and received in Singapore can be a complicated matter. For this reason, hiring a tax professional is advised.

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