As per Income Tax Act of Singapore, for Singapore resident companies, the corporate tax is imposed on the income of that is earned from Singapore or received in Singapore from outside Singapore (subject to certain exemptions).
The first part deals with the income that has a source in Singapore. The second part is the income with a source outside Singapore and received in Singapore subject to certain qualified exemptions commonly known as Tax Exemptions On Foreign Sourced Income Received In Singapore. Non-resident companies and foreign businesses which are not operating in or from Singapore can bring their foreign income to Singapore without fear of being taxed on the income.
To answer the question whether your Singapore resident company's overseas income is subject to taxation in Singapore, you need to determine which one of the following applies to you.
Check 1: Did you "receive" the overseas income in Singapore?
Foreign sourced income that is not received in Singapore is tax exempt. There has been considerable debate on what constitutes the term "foreign sourced income received in Singapore". In order to avoid confusing taxpayers, the Inland Revenue Authority of Singapore has made efforts to clarify the meaning of foreign sourced income received in Singapore and how it affects a company’s tax liabilities. The term "foreign sourced income received in Singapore" broadly refers to money coming into Singapore from overseas. As per IRAS clarifications, the term "foreign sourced income received in Singapore" implies the following:
Funds Coming Into Singapore
This is under the IRAS section 10(25)(a) clarification, which says: “any amount from any income derived from outside Singapore which is remitted to, transmitted or brought into Singapore”. It refers to money, dividends or other forms of monetary payment being paid into a Singapore-based bank account belonging to your Singapore-based company from an overseas source. It could also be cash, cheques and other types of money orders being physically brought into Singapore and received by your company. This money that your company receives should be the result of your business activities, such as sales, service fees, consultation etc and contributing to your revenue or profit.
Suppose your company is arranging goods from China a buyer from Australia. After you supply your client with goods, he transfers money into your company's Singapore-based account, be it with a Singapore bank or a foreign bank with Singapore operations. This is deemed to be foreign sourced income received in Singapore. If on the other hand, your client pays the money into your company's Hong Kong-based bank and it stays there, then it does not fall inside the "income received in Singapore" boundaries.
Debts Payments
Section 10(25)(b) of the IRAS clarification states: “any amount from any income derived from outside Singapore which is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore”.
If your company owes money in Singapore, whether it is to a supplier, a bank or as a result of legal proceedings, and you use overseas-acquired earnings to pay all or part of it, the money used is considered "income received in Singapore". The money could have been residing in an overseas-based bank account for a long time. However, once you use it to settle a debt in Singapore, it is counted as foreign sourced income. The key point here is that the debt is being paid off inside Singapore, not overseas. For this to happen, the money must somehow be brought into Singapore.
Goods and Movable Property
Section 10(25)(c) states: “any amount from any income derived from outside Singapore which is applied to purchase any movable property which is brought into Singapore”. Movable property, also known as movables, refers to items that can be moved from one place to another. As opposed to real estate, land or other types of fixed property which cannot be moved.
For an individual, movable property is his or her personal belongings. For your company, it may refer to goods, raw materials, equipment and other movables that are directly connected to your business. How does it relate to "income received in Singapore"? Well, it has to do with what you bring into Singapore, whether it is in the form of money or goods. If your company earns money overseas and keeps those funds in a foreign-based bank account, then that does not apply as overseas income that is taxable in Singapore. However, if you use those funds to buy equipment overseas and then you ship those items into Singapore, then the money used for those purchases becomes overseas "income received in Singapore".
One concern is how much tax the IRAS can charge for goods that may have depreciated in value. IRAS has clarified that the taxation will be based on how much was originally paid for the movable property and not its book value or net worth at any given date.
IRAS has also issued the following clarifications to address various concerns raised:
- Based in Singapore – foreign sourced income is only taxable if it applies to a company that is based in Singapore. Foreign-based companies with no Singapore office are able to use Singapore-based banks and fund management institutions without fear of being taxed.
- Overseas investment – you can use your foreign-acquired income to invest in additional assets as long as they stay out of Singapore. However, your company cannot use those investments or expenses as a basis to claim for tax deductions in Singapore.
- Non-income funds – IRAS is willing to exempt non-income funds from taxation if you are able to provide proof that the money has nothing to do with business-related income. To do this, you should specify income and non-income and provide dates from when the non-income money was remitted to Singapore. You must show proof that the income amounts were not touched.
- You can show that the money sent to Singapore is not more than the capital minus any losses incurred. IRAS will also allow you to set off any overseas losses against foreign sourced income received in Singapore.
Check 2: For foreign income "received" in Singapore, did you pay taxes overseas?
Assuming the overseas income earned by your company is considered as "received in Singapore" as per Check 1 above, whether or not this income is subject to taxation in Singapore depends on if it was subject to taxation overseas. Foreign sourced income that is received in Singapore can be tax exempt if the following conditions are met:
- the headline tax rate of the foreign jurisdiction from which the income is received is at least 15%; and
- the specified foreign income has been subjected to tax in the foreign jurisdiction from which it was received.
If you overseas income received in Singapore does not not meet the above conditions, the said income is liable to taxation in Singapore. However, IRAS will give you a tax credit on whatever tax you did pay overseas even if there is no double-taxation agreement in place. Singapore wants to make sure that your corporate income is not subject to double-taxation under any circumstances.
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