Exemption for Foreign Income

Law
Dividends, branch profits and service fee income from overseas will be exempt from tax when remitted into Singapore.

Two conditions to be fulfilled:-

  • The country from which the income is received imposes a corporate tax rate of 15% or more and;
  • that some tax is actually imposed in that country.

Issue #1
Tax has to be paid in the country where the profits were earned.
It must be on a first-tier “subsidiary” level basis.

Issue #2
IRAS will need to examine and grant exemption only a case by case basis upon all conditions duly satisfied.

If total dividends paid do not exceed total cumulative taxed profits, then you should be all right on the assumption that taxed profits are deemed to have been distributed first. For a young company, it would be relatively easier to sort out the taxed income from untaxed income; and why they were untaxed.

However in circulars issued in May 2006 by IRAS, exemption for foreign income would still be applicable even if no tax suffered on those income given the following:-

  • utilisation of tax losses
  • existence of tax free capital gains

Conclusion

The exemption is a move in the right direction as observed by Mr Sandison. Especially when our neighbours in Malaysia and Hong Kong have already done this. Why is Singapore seems to be lagging behind in inplementing changes?

But are we still too careful in loosening the apron strings?

Reference – Singapore Tax Roundup – David Sandison, PricewaterhouseCoopers, The Directors’ Bulletin, Second Quarter 2006

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