Claiming Foreign Tax Credits (FTC) in Singapore

  • Post category:Singapore

The purpose of the Foreign Tax Credit program was to relieve multinational companies incorporated in Singapore of some of their tax burden.

The issue with expanding your business internationally is that various tax jurisdictions may impose separate taxes on you.

It could result in an extra tax obligation in every nation where you choose to conduct business. Ofcourse, when you send the money back to Singapore, you still have to worry about the IRAS taking a cut.  

Contact us for a Singapore company registration service.

Claiming Foreign Tax Credits (FTC) in Singapore

The government of Singapore has now implemented the Foreign Tax Credit scheme in addition to other measures to address the problem of double taxation. In addition, as the name implies, Singapore-registered businesses can obtain credits for taxes previously paid in other nations through the FTC system. 

The government has now implemented the Foreign Tax Credit scheme in addition to other measures to address the problem of double taxation. In addition, as the name implies, Singapore-registered businesses can obtain credits for taxes previously paid in other nations through the FTC system.

To deduct the amounts paid from your taxable income, simply include the information in your corporate income tax returns to the Inland Revenue Authority of Singapore (IRAS).

However, it should be noted that the kind of Foreign Tax Credit you choose to apply for will determine the extent of the tax benefits you receive.  

The Income Tax Act of Singapore currently provides provisions for two categories of Foreign Tax Credits: 

DOUBLE TAX RELIEF (DTR)

The Avoidance of Double Taxation Agreements (DTAs) that Singapore has signed with numerous foreign nations serve as the foundation for the Double Tax Relief (DTR) program. 

To offset the tax that an IRA would have to pay you on the same income, you can claim credits for the taxes you have already paid to foreign jurisdictions.

Naturally, this is only applicable to taxes paid in other nations that have a free trade agreement with Singapore. 

All DTA agreements, however, have different provisions. Therefore, to ensure that the terms and conditions of your Double Tax Relief claims are met, you may want to verify the DTA specific to your foreign country. 

You may refer to the link for more information on available double tax agreements. 

UNILATERAL TAX CREDIT (UTC)

You can move forward with a Unilateral Tax Credit (UTC) even though you won’t be able to use the Double Tax Relief for foreign taxes paid to nations without a bilateral tax agreement with Singapore. 

The purpose of the Unilateral Tax Credit is to give multinational companies operating in countries where Singapore has not yet signed a DTA access to the benefits of the Foreign Tax Credit. Additionally, the IRAS states that it covers taxes paid since the Year of Assessment (YA) 2009. 

CONDITIONS FOR CLAIMING FTC

All of the following requirements must be met by anyone claiming FTC:

  • The person must have been a Singaporean tax resident during the relevant base year;
  • Tax has been paid or is payable on the same income in the foreign country; and
  • The income is taxable in Singapore.

HOW TO CALCULATE FOREIGN TAX CREDITS IN SINGAPORE

Singapore does not have a set formula for figuring out Foreign Tax Credits. The taxes you pay to the foreign tax jurisdictions and the conditions outlined in the nation’s DTA with Singapore will determine the total amount you ultimately claim. 

To determine your company’s Foreign Tax Credit accurately, you should first make sure that the terms and conditions of the relevant DTA agreement are met. Take note that FTC is always less than:

  • The amount of tax on foreign income that the IRAS would impose.
  • The exact amount of taxes paid to the foreign tax authority.

HOW TO CLAIM FTC IN SINGAPORE

Despite being the organization responsible for handling Foreign Tax Credits in Singapore, the IRAS does not offer a dedicated platform for submitting claims. Therefore, you must include the claims in your corporate income tax return that you file.

Despite being the organization responsible for handling Foreign Tax Credits in Singapore, the IRAS does not offer a dedicated platform for submitting claims. Therefore, you must include the claims in your corporate income tax return that you file.

In this case, the filing type you should use is Form C. Form C-S, or C-S Lite cannot be submitted with Foreign Tax Credits.

You will also need to provide the IRAS with the appropriate paperwork to support your claim. It is not required to be attached to your company’s Form C submission; however, you should compile it and keep it on file in case the IRAS requests submission at a later time. 

DOCUMENTS SHOULD PROVIDE THESE DETAILS –

  • The relevant vouchers and receipts for withholding taxes. 
  • The applicable Double Taxation Agreement – is only for Double Tax Relief claims. 
  • The gross income of your business, the appropriate rate of withholding tax, and the total amount of taxes withheld.

You may include the equivalent amount in Singapore dollars and prepare this in a foreign currency. 

  • The date of the withholding tax receipt or voucher. 
  • The names of the parties that paid the foreign taxes. 
  • An overview of the services provided in the overseas countries. 
  • The basis for the claim. 
  • Clarification of whether or not a permanent establishment was used to generate the foreign income. 
  • A statement on the nature of the income. 

SINGAPORE FTC POOLING SYSTEM

To provide businesses with more flexibility in their FTC claims, lower the amount of Singapore taxes they must pay on remitted foreign income, and streamline tax compliance, the FTC pooling system was implemented in Budget 2011. When claiming FTC on income for which they have paid foreign tax, tax residents in Singapore have the option to choose the FTC pooling system.

QUALIFYING CONDITIONS FOR THE FTC POOLING SYSTEM

The individual or business’s foreign income must meet each of the following requirements:

  • Foreign income tax has been paid on the income in the foreign country;
  • At the time the foreign income is received in Singapore, the highest corporate tax rate (also known as the headline tax rate) of the foreign nation from which it originates is at least 15%; and
  • According to the Income Tax Act of 1947, a person or business in Singapore has the right to file an FTC claim if their income is taxable.

Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with claiming your Foreign Tax Credits in Singapore. 

FAQs

Can a business registered in Singapore apply for a foreign tax credit?

The FTC is only relevant in cases where Singapore taxes foreign earnings as well. If dividends or interest are received from sources outside of Singapore, they will probably be subject to taxation in the foreign nation during the year in question.

Can foreigners claim tax relief in Singapore?

Yes, tax relief is typically available to foreigners who reside in Singapore and pay taxes there. The Inland Revenue Authority of Singapore (IRAS) offers tax relief to help people lower their tax obligations.

What is the FTC incentive in Singapore?

A government program called the Singapore FTC Incentive intends to draw more FTCs to the city-state. It is subject to the Singapore Income Tax Act and provides several advantages, such as withholding tax exemptions and a concessionary tax rate of 8% on qualifying income.

What documentation do I need to provide when claiming FTC?

Before FTC claims can be taken into consideration, you must submit documentary evidence (such as dividend vouchers, withholding tax receipts, or letters from the foreign tax authority) demonstrating that the remitted income has been subject to tax in the foreign nation.