Are you wondering whether foreign source income taxable in singapore? We explain further below.
WHAT IS SINGAPORE FOREIGN-SOURCED INCOME?
Singapore Tax Policy On Foreign-Sourced Income refers to income earned by a Singapore resident while working overseas, as well as income earned by a foreigner while working in Singapore.
Profits from a trade or business conducted outside of Singapore are generally considered to be foreign-source income, generally through operating subsidiaries in other jurisdictions, according to the IRAS (Inland Revenue Authority of Singapore).
This includes income from rental or interest income, royalties, premiums, and other gains from international activities. It also includes income from investments (such as dividends from owning shares in foreign-based corporations).
People frequently confuse foreign-sourced income with foreign income. The fact that trade income is produced through commercial operations outside of Singapore (i.e., foreign income) does not imply that the income is from abroad.
Foreign-sourced income can be understood more simply by assuming that the source income was taxed somewhere; otherwise, Singapore tax will likely be due. To put it another way, it is unlikely that having a Singapore corporation would allow you to make money while paying no taxes elsewhere.
Income received in Singapore includes:
- Sent, delivered, or transferred to Singapore
- used to pay off debts related to trades or businesses conducted in Singapore
- used to buy any movable property that is then imported into Singapore, such as machinery, raw materials, etc.
TAXATION OF FOREIGN-SOURCED INCOME IN SINGAPORE
In Singapore, certain forms of foreign income are exempt from taxes. The income must pass the following requirements in order to be exempt from taxes:
- The “subject to tax” condition meant that the foreign income had been subject to tax in the foreign country where it was received. The rate at which the foreign income was taxed can be different from the headline tax rate;
- the highest corporate tax rate (foreign headline tax rate condition) of the foreign jurisdiction from which the income is received is at least 15% at the time the foreign income is earned in Singapore;
- and The IRAS is satisfied that the tax exemption would be advantageous to the person residing in Singapore.
Where a dividend is received from abroad and is subject to tax, any withholding tax on the dividend, as well as the underlying tax on the income from which the dividend is paid, will be taken into consideration.
For instance, there is no withholding tax if a dividend is received from a Hong Kong-based business. However, the subject to tax conditions would be satisfied if the income had been taxed in Hong Kong (where the headline rate is 16.5%).
If the income is exempt from tax in the foreign jurisdiction as a result of tax incentives given for significant business activities carried out in that jurisdiction, the IRAS will also consider the subject to tax condition satisfied. The IRAS requires written confirmation of the tax exemption.
The country in which the company’s income is sourced is referred to as the foreign headline tax rate condition. For instance, a corporation that is listed on a stock exchange in one country (like Hong Kong) but is tax resident in another country may pay a dividend (for example, the Cayman Islands).
Therefore, it cannot be assumed that the dividend originates in the country where the dividend-paying corporation is listed.
IRAS may consider dividends not originating in the jurisdiction of listing when a dividend-paying corporation is formed outside the country where it is listed unless there are facts to the contrary.
If the jurisdiction where the dividend-paying firm is formed has a headline tax rate of less than 15%, the headline tax rate criterion will be deemed to be unmet in this case.
FOREIGN TAX CREDITS IN SINGAPORE
The income will be taxable in Singapore if it does not adhere to the aforementioned requirements.
However, any foreign taxes paid will be refundable against the tax due on that income.
For instance, if a Malaysian firm that has borrowed money from a Singaporean company receives interest income from the Malaysian company, the Malaysian company must withhold withholding tax at the amount of 10% from the payment.
The corporation will pay tax in Singapore at a rate of 17%, and because Malaysian taxes are refundable, less tax will be paid in Singapore. The amount of the eligible tax credit is only equal to the income tax paid in Singapore.
As a result, the tax credit will only be as high as the 7% tax that must be paid in Singapore if the Singaporean firm is only paying, say, 7% tax on its profits (due to tax breaks on the first $200,000 of income).
Before determining the net amount that is subject to tax and, consequently, the amount of Tax that is payable on that income, any expenses incurred in Singapore that are attributable to that income must be subtracted from the income, taking into account the tax payable in Singapore on any foreign income.
SINGAPORE TAX RELIEFS ON FOREIGN INCOME
Income earned outside of Singapore is referred to as foreign income. Such income is typically taxed in Singapore when it is sent to and received there. Regardless of whether it is received in Singapore, foreign income that results from a trade or company conducted there is subject to Singaporean taxation at the time it is accrued.
Foreign income is frequently taxed twice: once in a foreign country and once in Singapore.
Residents of Singapore who pay taxes may be eligible for certain tax reliefs to lessen the effects of double taxation, including:
- Tax exemption on specified foreign-sourced income, such as foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947.
- or reduction in tax imposed on such foreign income that is derived in a jurisdiction that has an Avoidance of Double Taxation Agreement with Singapore
- Singapore tax due on the same income less international tax credits for taxes paid in the foreign jurisdiction
What is foreign sourced income in Singapore?
Foreign sourced income refers to income earned by a Singapore tax resident or company from outside Singapore.
How do I report my foreign sourced income to the tax authorities in Singapore?
You can report your foreign sourced income in your annual tax return using the relevant sections and schedules provided by the Inland Revenue Authority of Singapore (IRAS). You may also need to provide supporting documentation to verify the source and amount of the foreign income.
What is foreign-sourced income deemed received in Singapore?
When money is deposited into a Singapore bank account, it is typically seen as having been received or sent to Singapore.
A foreign-sourced income, on the other hand, that is neither received nor sent to Singapore will not be subject to Singaporean taxation.
Is foreign-sourced income taxable in Singapore?
In general, foreign income received in Singapore is not taxable unless it is acquired by a Singaporean person through a Singaporean partnership.
How is foreign-sourced income taxed?
Singapore residents may be taxed on foreign-sourced income if it is received in Singapore and is related to their employment, business, or profession. Non-residents who work in Singapore are generally taxed only on income earned in Singapore. However, there are some exceptions and exemptions available, including tax treaties with other countries to prevent double taxation
Is income tax applicable on foreign income?
If a tax resident of Singapore earns foreign income from employment, business, profession, or vocation that is received in Singapore, that income may be taxable in Singapore. This is known as “remitted income”.
On the other hand, non-residents of Singapore are generally only subject to tax on income earned in Singapore. However, there are some exceptions, such as if a non-resident individual is a director of a Singapore company and receives director’s fees from that company.
What is foreign-sourced income deemed received in Singapore?
Income derived by a Singaporean corporation in a country other than Singapore is referred to as foreign sourced income. Only if it is received in Singapore, then it is taxable income. Remitted to, transferred, or carried into Singapore are all considered to be received in Singapore.