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The foreign-sourced income exemption lets a Singapore tax resident company bring certain foreign income home without Singapore tax. IRAS names three kinds of income and three conditions, all of which must be met. The rest of this page explains each one. Checked on .
Is foreign income taxed in Singapore?
Generally yes, when it is received in Singapore. IRAS says income from outside Singapore is taxed once it is remitted, transmitted or brought in. Where the income comes from a trade or business carried on in Singapore, it is taxed as it accrues, even if it stays abroad.
The flat corporate rate is 17%. Income taxed in the foreign country first may suffer tax twice, which is why IRAS offers reliefs.
IRAS lists three reliefs for tax resident companies:
- Exemption on specified foreign-sourced income, under Section 13(8) of the Income Tax Act.
- Exemption or a lower rate under a double tax agreement. See double tax agreements.
- A foreign tax credit for tax paid abroad against the Singapore tax on the same income.
What counts as received in Singapore?
Under Section 10(25) of the Income Tax Act, foreign income is received in Singapore when it is:
- remitted to, transmitted or brought into Singapore;
- used to pay a debt from a business carried on in Singapore; or
- used to buy movable property that is brought into Singapore.
As an administrative concession, income reinvested overseas and never brought in is not treated as received at that point. The tax is deferred until the investment is sold and the proceeds are brought into Singapore. A non-resident individual or foreign business that does not operate in or from Singapore is not taxed on foreign income it remits here.
Which foreign income can be exempt?
Only the three categories IRAS calls specified foreign-sourced income:
| Category | What it is |
|---|---|
| Foreign-sourced dividend | A dividend from a company that is not tax resident in Singapore |
| Foreign branch profits | Profits of a branch you run abroad |
| Foreign-sourced service income | Service income from abroad that does not arise from a business carried on in Singapore |
Interest and royalties from abroad are not on the list. Plan around that if you hold a loan or licence. The company must also be a Singapore tax resident. See tax residency of a company.
What are the three conditions?
IRAS says all three must be met under Section 13(9):
- Subject to tax. The income was taxed in the foreign country it came from. The rate can differ from the headline rate.
- Headline rate of at least 15%. The highest corporate income tax rate of that country is at least 15% when the income is received in Singapore.
- Beneficial. The Comptroller of Income Tax is satisfied the exemption benefits the Singapore company.
There is a safety valve on the first test. If the income is exempt abroad because of a tax incentive for real business activity there, IRAS treats the subject to tax test as met. You must keep a declaration and a copy of the incentive letter for at least 5 years.
What proof does IRAS accept for a foreign dividend?
For a dividend, tax means the dividend tax plus the underlying tax paid by the payer on the profits behind it. IRAS accepts:
- The payer's audited accounts for the financial period ending in the year before the year you receive the dividend, showing a positive current year tax, excluding deferred tax.
- Consolidated accounts of a stock exchange listed operating company, if the same positive tax shows. Investment holding companies are excluded.
- A bank certification, or a letter from the payer confirming foreign tax was paid on the income behind the dividend.
If you cannot get any proof, IRAS says the subject to tax condition is not met.
One more trap: a dividend is sourced where the payer is tax resident. If the payer is listed in one place but incorporated in another, IRAS may treat the incorporation country as the source, and the headline rate test fails if that country's rate is under 15%.
How do you claim the exemption?
Give these details in Form C: the nature and amount of the income, the country, the headline tax rate, and confirmation that foreign tax was paid. If you file Form C-S or Form C-S (Lite), put the same facts in the tax computation and keep the support for at least 5 years.
Expenses linked to the exempt income must be set against that income only. You cannot use them to reduce your other taxable profit.
What should you check before you bring the money in?
Work through this short list with your accountant before the transfer:
- Which of the three categories is it? If it is interest or royalties, the exemption does not apply, so look at the treaty and foreign tax credit routes.
- What is the highest corporate tax rate of the paying country today? It is the rate when you receive the income that counts, not the rate when you earned it.
- Can you prove tax was paid abroad? Ask for the payer's accounts or a confirmation letter early, since late requests are slow.
- Will the money be kept overseas? Under the concession, income reinvested abroad is not treated as received yet.
- Are any costs tied to this income? They must be matched against it.
Keep the file for at least 5 years from the relevant year of assessment. IRAS may ask for it after you file.
Independent guide
SingaporeCompanySetupGuide.com is an independent guide. We are not IRAS and we do not file tax returns. If you want a tax agent to check your foreign income and make the claim, use the quote form on this page. We pass your request to suitable providers, who reply with their own fees.
Sources
- IRAS, Companies receiving foreign income, https://www.iras.gov.sg/taxes/corporate-income-tax/income-deductions-for-companies/companies-receiving-foreign-income (categories, conditions, proof, claim steps)
- IRAS, Taxable and non-taxable income, https://www.iras.gov.sg/taxes/corporate-income-tax/income-deductions-for-companies/taxable-non-taxable-income (received in Singapore, reinvestment concession)
- IRAS, Corporate income tax rate, https://www.iras.gov.sg/taxes/corporate-income-tax/basics-of-corporate-income-tax/corporate-income-tax-rate-rebates-and-tax-exemption-schemes (17% flat rate)
