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Tax Exemption Guidance for Singapore

In most cases, the income tax paid by a Singapore-based corporation from outside Singapore is not levied by Singapore. This is an important feature of the tax laws of Singapore. It can be particularly helpful in reducing the tax liability of resident companies in foreign trade or commerce. This article provides brief guidance of Singapore’s income tax treatment obtained by a Singapore corporation from outside the country.

Range of tax exemption for income obtained from foreign sources

The government of Singapore has continuously tried to encourage the nation’s foreign investment and funds to support or improve its economic circumstances and preserve its credibility as the easiest place for foreign entrepreneurs to do business. As part of this initiative, to exclude foreign-sourced income from being subject to any additional tax in Singapore, the government has liberalized tax laws of types of dutiable goods in Singapore.

A person and company resident in Singapore can benefit from a tax exemption. Its defined foreign income from Singapore on or after 1 June 2003.

Foreign specific incomes are:

  • Dividends from foreign sources;
  • Gains in the overseas branch; and
  • Profits from foreign-sourced services

The inland revenue authority Singapore (IRAs) has recently revised its website to guide identifying the origin country for dividend income. If a foreign dividend-paying business listing in one jurisdiction on the stock exchange, but is a tax resident in another.

1.    Exemption from dividends from foreign sources

Through section 13(8) of the income tax act, foreign-sourced dividends can exempt from tax in Singapore. One of the three mandatory qualifying requirements for tax exemption under section 13(9) is that, at the time the foreign income is from Singapore, the maximum corporate tax rate of the foreign jurisdiction from which the income must be at least 15 percent.

2.    The dividends origin

As such, in the state in which the dividend-paying corporation is tax-resident, dividends must be sourced. Therefore, if the dividend-paying corporation is a tax-paying company residing in Singapore, the dividend is consider to be from Singapore. Conversely, if a dividend is paid by a non-Singapore tax-resident corporation, it is foreign-sourced.

3.    Probable scenario

A business listing on the stock exchange in one jurisdiction. However, it is a tax resident in another may pay a foreign-sourced dividend. The IRAs have claimed in the above-mentioned case. It cannot be inferred that the dividend-paying company’s listing jurisdiction is the source of the dividend.

With the dynamic taxation on foreign-sourced income in Singapore and a set of pro-business tax rules and offering structure including one of the lowest corporate income tax rates of 17 percent, Singapore will continue to draw foreign investors and entrepreneurs for the formation of companies. Also read: the importance of customers’ feedback for a brand.

Where a dividend-paying corporation incorporates outside the jurisdiction where it is classified, unless there are facts to prove otherwise, the county executive may treat the dividends as not originating in the listing jurisdiction. In such a case, if the jurisdiction in which the dividend-paying corporation is organized has a headline tax rate of less than 15 percent, the’ headline tax rate requirement’ would be presumed not to have been met.

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