Tax Treatment of Foreign-Sourced Income
In Singapore, taxes are imposed on income earned or accrued in Singapore, as well as foreign-sourced income remitted into Singapore. The Government has received feedback that while a company may qualify for foreign tax credit to offset the taxes payable on remitted foreign-sourced income, it may find the tax credit system administratively cumbersome.
The Government has therefore introduced the foreign-sourced income tax exemption regime to simplify and mirror the foreign tax credit system. Under this regime, foreign branch profits, service income and dividends are exempt from tax upon remittance into Singapore, if conditions are met. All other sources of foreign income continue to be subject to the foreign tax credit system. Please refer to IRAS’ website for more details on the foreign-sourced income tax exemption regime.
In Budget 2011, the Government also announced the introduction of foreign tax credit pooling if the following conditions are met:
i. income tax is paid on the income in the foreign jurisdiction from which the income is derived;
ii. the headline tax rate of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign income is received in Singapore; and
iii. there is Singapore income tax payable on the foreign and the taxpayer is entitled to claim for foreign tax credit under the Income Tax Act.
Please refer to IRAS' website
for more details on the foreign tax credit pooling system.
In Budget 2003, the Government announced that foreign-sourced dividends, branch profits and service income (collectively "specified foreign-sourced income") derived by any person resident in Singapore will be exempted from tax. This is known as the foreign-sourced income tax exemption regime and under this regime, the specified foreign income is exempt from tax if the following conditions are met:
i. the specified foreign-sourced income has been subjected to tax in the foreign jurisdiction from which the income is received;
ii. the headline tax rate of the foreign jurisdiction from which the specified foreign-sourced income is received is at least 15%; and
iii. the Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.
Section 13(12) Exemption
Where the above conditions cannot be met, tax exemption is granted under section 13(12) of the Income Tax Act on foreign-sourced income which falls within the scenarios specified in the IRAS e-tax guide on “Income Tax: Tax Exemption under Section 13(12) for Specified Scenarios, Real Estate Investment Trusts and Qualifying Offshore Infrastructure Project/Asset”.
Applications for tax exemption under section 13(12) on the foreign-sourced income which do not fall within the scenarios can be made to the Ministry of Finance before the foreign income is received in Singapore.
Applications should be made using the following form:
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For more details, please refer to the information and e-tax guides found at IRAS' website.