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Singapore has a progressive tax framework. Taxation in
Singapore is based on territorial policy whereby individuals and companies are
taxed on incomes generated in Singapore or foreign sourced income remitted into
Singapore. With globalization blurring the borders across markets, Singapore
has also made provisions for tax exemption on qualifying foreign sourced income
remitted to Singapore. The exemption that came into effect since June 2003 has
exalted the attractiveness of Singapore as a regional business hub.
Singapore has been progressively
relaxing the taxation policy on foreign sourced income in order to encourage
repatriation of incomes earned abroad. This has enhanced the competitiveness of
Singapore, which has evolved into a hub for fund and wealth management
industry.
The article below
explains the tax treatment of foreign sourced income under the foreign-sourced
income exemption (FSIE) scheme provided under Sections 13 (7A) to 13 (11) of
the Income Tax Act (ITA) of Singapore.
Scope of application of FSIE
It applies to all Singapore
tax resident individuals and companies receiving foreign- sourced income in
Singapore. From 1 January 2004 it is also applicable to resident individuals
receiving the specified foreign income through a partnership in Singapore.
For the purpose of
qualifying for tax exemption, considerable attention is paid to facts such as
the nature of foreign income, what activities or services contributed to the
earning of the income, how much of the activities or operations that earned the
income was conducted outside Singapore and whether the specified tax payer has
a permanent establishment abroad.
Foreign individuals
and companies who are not residents of Singapore for the purpose of taxation
are free to bring in money into their Singapore bank accounts without any fear
of attracting any tax liability.
What constitutes foreign sourced Income
Income that does not
arise from a trade or business carried on in Singapore is considered as foreign
sourced income. The act also clearly specifies what categories of incomes are
entitled to exemption under the FSIE scheme.
The specified foreign
incomes are:
Foreign-sourced
dividend – a dividend is a foreign-sourced dividend, if it is paid by a
non-Singapore tax resident company.
Foreign branch profits
– profits generated by business operation of a Singapore company registered as
a branch in a foreign country. It excludes non-trade or non-business income of
the foreign branch.
Foreign-sourced
service income – income generated by a resident taxpayer for services provided
through a fixed place of operation in a foreign country.
Note: fixed place of
operation inter alia includes a place of management, an office, or a certain
amount of floor space at the disposal of the specified resident taxpayer. Such
a place must also have features of permanence.
If the taxpayer cannot prove that the service income is
earned through such a fixed place of operation in the foreign country, then it
will be treated as Singapore sourced income and subjected to local taxes,
although in reality the income originated outside Singapore.
Contact us
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