Stellar Guide | Tax Reliefs on Foreign Income in Singapore

Tax Reliefs on Foreign Income

Foreign income, which refers to income derived from outside Singapore, is generally taxable in Singapore when it's remitted to and received in the country. If this income arises from a trade or business conducted in Singapore, it's taxable upon accrual, irrespective of its receipt in Singapore.

Often, foreign income undergoes double taxation - initially in the foreign jurisdiction and subsequently in Singapore. However, Singapore offers tax reliefs to its residents to mitigate this double taxation, such as:

Exemption or reduction in tax on specific foreign income derived in a jurisdiction with an Avoidance of Double Taxation Agreement (DTA) with Singapore.
Tax exemption on certain foreign-sourced incomes like foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947.
A foreign tax credit for taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income.

Claiming Benefits under Avoidance of Double Tax Agreements (DTA)‍

A DTA is an agreement between Singapore and another jurisdiction (a DTA partner) to prevent double taxation of income earned in one jurisdiction by a resident of the other. Only Singapore tax residents and tax residents of the DTA partner can avail the benefits of a DTA.

The purpose of DTAs is to define the taxing rights between Singapore and its DTA partner on various types of income resulting from cross-border economic activities. DTAs also provide for tax rate reductions or exemptions.

If the DTA benefit isn't a tax exemption but a tax rate reduction, the Singapore company might have to pay tax in both the foreign jurisdiction and Singapore. However, the DTA offers relief for this double taxation by allowing the Singapore company to claim a credit of the foreign tax suffered against its Singapore tax payable on the same income.

For Singapore Tax Resident Companies

‍Singapore tax resident companies can claim DTA benefits when they derive foreign income from a DTA partner. To claim these benefits, the company must:

Apply for a Certificate of Residence (COR), certifying that a company is a tax resident of Singapore for claiming tax benefits under the DTAs.
Seek IRAS’ certification of a tax reclaim form if required by the DTA partner.

For Tax Resident Companies of DTA Partners

‍Tax residents of DTA partners can claim DTA benefits when they derive income from Singapore. They need to show IRAS that they are tax residents of the DTA partner by submitting a certified Certificate of Residence from their country/territory of residence.

Tax Exemption on Specified Foreign-Sourced Income

‍Singapore tax resident companies can enjoy tax exemption on specific foreign-sourced income remitted into Singapore. This foreign-sourced income refers to income not arising from a trade or business conducted in Singapore.

The three categories of this income are:

Foreign-sourced dividend
Foreign branch profits
Foreign-sourced service income

To qualify for this tax exemption under Section 13(9) of the Income Tax Act 1947, all three conditions must be met:

The foreign income has been subject to tax in the foreign jurisdiction it's received from.
The highest Corporate Income Tax rate of the foreign jurisdiction is at least 15% when the foreign income is received in Singapore.
The Comptroller of Income Tax is convinced that the tax exemption benefits the Singapore tax resident company.

Expenses Incurred in Respect of Foreign-Sourced Income

‍All expenses related to the foreign-sourced income that qualifies for tax exemption in Singapore must be deducted against this income. These expenses can't be deducted against any other taxable income.

How to Claim Tax Exemption

‍To avail the tax exemption, companies must provide specific information in their Corporate Income Tax Return (Form C). If filing Form C-S/ Form C-S (Lite) instead of Form C, this information should be included in the company's tax computation.