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Payments that are subject to withholding tax

Introduction to Withholding tax in Singapore

Under the Singapore Income Tax Act, a Singapore entity or individual making payment(s) of a specified nature to a non-resident company or individual (known as payee) is required to withhold a percentage of that payment and remit the amount withheld (known as ‘Withholding Tax’) to the IRAS. Withholding tax is only applicable to non-resident’s income generated or sourced in Singapore.

Who is a non-resident?

In Singapore, the tax residency of a company is determined by the place in which the business is controlled and managed. A key factor in determining where the control and management is exercised is the location where the company’s Board of Directors meet to make strategic decisions.

A company is considered a tax resident in Singapore when the control and management of the company is exercised in Singapore. As such, a Singapore branch office of a foreign company is considered as a non-resident as its control and management is with its parent foreign company. It should also be noted that the place of incorporation does not necessarily indicate the company’s tax residency.

Meanwhile, a non-resident individual is an individual who is employed or physically present in Singapore for less than 183 days in a calendar year. For individuals, withholding tax is only required for non-resident professionals, non-resident public entertainers and non-resident directors.

A foreign professional is an individual exercising profession or vocation independently under a contract for service and not as an employee of a company. Examples of a foreign professional are as follows:

  • A foreign expert invited by government bodies, statutory boards, or private organisations to impart their technical expertise in Singapore;
  • A foreign speaker or academic conducting seminars or workshops;
  • Queen’s Counsel;
  • Consultant, trainer, coach; and
  • An individual who operates through a foreign firm

A public entertainer includes:

  • Stage, radio or television artiste and musician; and
  • Athlete (sportsman in any sporting events or tournaments)

However, foreign individuals who work behind the scenes e.g. crew, choreographers, directors in the entertainment scene or horse trainers, coaches, personal trainers for sporting events are not considered as public entertainers.

A foreign professional/public entertainer is considered a non-resident when he/she is in Singapore for less than 183 days in a calendar year.

Details on withholding tax for non-resident directors are covered in another article here.

What is subject to withholding tax?

Withholding tax only applies to payments of specified nature and this is listed under Section 45 of the Singapore Income Tax Act. The rate of withholding tax depends on the nature of the payment. However, in cases where Singapore has entered into an Avoidance of Double Taxation Agreement (DTA) with the country where the non-resident resides, the rates specified in the DTAs of the respective countries would apply and the tax rate may be lower.

The types of payment and the applicable withholding tax rates can be referred in details here.

When to file and pay withholding tax?

The e-filing and payment of withholding tax are due on 15th of the second month from the date of payment to the non-resident. The date of payment is defined as the earliest of the following dates:

  1. When the payment is due and payable based on the agreement or contract, or the date of the invoice in the absence of any agreement or contract.
  2. When payment is credited to the account of the non-resident or any other account(s) designated by the non-resident
  3. The date of actual payment

Late penalty fees will be imposed when payment and filing are not received by the due date.

If the tax remains unpaid by the due date,

  • A penalty of 5% will be imposed on the unpaid tax
  • An additional penalty of 1% will be imposed if the tax remains unpaid within 30 days from the due date. This is imposed for each completed month that the tax remains unpaid, subject to a maximum penalty of 15%.

How to file?

From 1 July 2016, the withholding tax form can only be filed electronically via S45 e-Services. To access this e-Service, the payer must log in to myTax portal using CorpPass. It is an offence under Section 94(2) of the Income Tax Act if withholding tax is not filed electronically from 1 July 2016.

When e-filing, the payer must select the appropriate nature of payment.

Multiple payments for a single engagement

If a payer makes multiple payments within a 60 day period to the same non-resident professional or public entertainer in respect of the same engagement, the payer can consolidate the payments into one e-filing and payment to the IRAS. The due date for e-filing and payment would be 15th of the second month from the date of the last payment to the non-resident.

Claiming relief/exemption under the Avoidance of Double Taxation Agreement (DTA)

If the non-resident is residing in one of the countries which Singapore has entered a DTA with, the rates as specified in the agreement will be applicable instead of the current withholding tax rates. At at 1 January 2019, Singapore has 85 comprehensive ratified tax treaties.

Non-resident company may use the S45 Double Taxation Relief Tax Rate Calculator for Companies to determine if it is eligible for Double Taxation Relief/Exemption and find the applicable tax rate under the DTA.

Where tax treaty applies, the payer will have to

  • Check the “Double Taxation Relief” box during e-filing.
  • Obtain the original Certificate of Residence (COR) certified by the foreign tax authority from the non-resident payee.
  • Submit the COR to IRAS by 31 March of the following year if the claim is for current year or within 3 months from the date that the withholding tax is e-filed if the claim is for preceding years.

On the other hand, non-resident professional may use the Tax Treaty Calculator for Non-Resident Professionals (Form IR586) to determine if he/she is eligible for tax treaty exemption.

Where tax treaty applies, the payer will have to

  • Check the “Claim for relief under Avoidance of Double Taxation Agreement (DTA)” box during e-filing.
  • Obtain a signed copy of Form IR586 from the non-resident professional. This is not required to be submitted to the IRAS unless requested. All documents and records are to be retained for 5 years.

Reference

IRAS page on types of Payment & the Applicable Withholding Tax Rates 

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The Importance of Record-Keeping

Record-keeping

Record-keeping

IRAS has recently come out with a well-prepared video clip on the importance of record-keeping for self-employed persons such as insurance agent and real estate agent. The following is a brief summary of the points from the clip.

A commission agent (e.g. insurance agent, real estate agent etc.) is considered as a self-employed person. As a self-employed, he or she should file the income earned under business income and is required to prepare 2 or 4-line statement for income tax filing.

It is important to note that IRAS does not accept estimates in tax reporting. As such, all sales should be recorded to ensure accurate reporting of revenue and claims should be based on actual amounts stated on bills or receipts. Keeping proper business records will allow income earned and businesses expenses incurred to be readily determined for tax filing purposes, thereby reducing tax compliance costs.

Some examples of the types of records a self-employed person is required to keep include:

  • Source documents that substantiate all business transactions e.g. receipts and invoices issued to customers or received from suppliers, bank statements;
  • Accounting records, schedules documenting a business’ assets and liabilities, profits and losses; and
  • Any other written records of transactions related to the business.

A good practice would be to photocopy thermal receipts so as to keep them legible before they fade over time. In addition, if a supplier does not provide receipts, payment vouchers should be prepared with details of the expense (e.g. date of purchase, payee’s name, purpose of incurring the expense, nature of the item and the amount) and signed by the supplier.

A self-employed person is required to retain business records for minimally 5 years. IRAS may periodically request to review business records. Failure to keep records may result in expenses claimed being disallowed, penalties or both.

Besides keeping proper records, it is important for self-employed persons to ensure that only allowable business expenses are claimed in their individual tax returns.

The following business expenses are allowable:

  • The expenses incurred in producing the income
  • The expenses related to the business
  • The expenses which are not personal and private in nature
  • The expenses which are not capital in nature

For more information on allowable business expenses, please visit the link here.

In summary, it is the responsibility of commission agents to ensure proper business records and accounts of business transactions are kept for at least 5 years. With a record keeping system in place and a habit of updating the records diligently, the business will benefit in the long run.


References

IRAS video clip on the Importance of Record-keeping

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Tax treatment on Remuneration of Non-Resident Directors

As per the Singapore Company Act, a company incorporated in Singapore is required to have at least one resident director. While it is compulsory for a company incorporated in Singapore to have a resident director, a company can also appoint non-resident directors to oversee the overall functioning of the company. The company may decide to compensate the non-resident directors for the services performed. Thus it is important to understand the tax obligations in relation to the compensation made to the non-resident directors and to ensure compliance with the regulations.

For tax purposes, a company director is a member of the board of directors of a company. A company director who is physically present in Singapore for less than 183 days in the year preceding the Year of Assessment (YA) is considered a non-resident director.

Director’s remuneration subject to tax includes both cash and non-cash payments:

  • salary;
  • bonus;
  • director’s fees;
  • accommodation provided and
  • gains from stock options or other share ownership plans etc.

From 1 January 2016 onwards, directors travelling into Singapore for business purpose will not be taxed on the following benefits-in-kind:

  • Airfare paid by employers for directors to attend board meetings
  • Accommodation
  • Travelling and entertainment expenses incurred for business purposes
  • Per diem allowance at or below the acceptable rate of S$141 per day.

A non-resident director may receive remuneration in the following ways:

  • In the capacity as a Board Director;
  • In the capacities as a Board and Executive Director; or
  • In the form of gains from exercising of stock options or vesting of stock awards.

Depending on the capacity in which he receives remuneration, the tax obligations applicable are different.

Capacity as a Board Director

A Singapore tax-resident company paying remuneration to a non-resident director is required to withhold 22% of that payment with effect from YA 2017. The amount withheld (also known as ‘Withholding Tax’) has to be paid to IRAS. This is regardless where the board meeting was held or whether the non-resident director was physically working in Singapore.

The tax resident company is required to file the Form IR37 and pay the withholding tax to the IRAS by 15th of the second month from the date of payment of the director’s remuneration. Thereafter, the IRAS will issue a Confirmation of Payment (CP) to the company.

The non-resident director does not have to file a tax return as the company has withheld tax at source.

Capacity as a Board and Executive Director 

A company can appoint a non-resident director as an executive director (e.g. Chief Executive Officer, Managing Director etc.) to run the daily business operations. Remuneration received in the capacity as an executive director will be treated as employment income and not subject to withholding tax.

Should an individual receive remuneration in the capacity as a non-resident director and executive director, only the income derived in the capacity of a non-resident director is subject to withholding tax as detailed above. In addition, the company should prepare a Form IR8A to report the director’s remuneration and a separate Form IR8A to report the employment income received in the capacity as an executive director. The employer must provide copies of the Form IR8As to the director for tax filing purpose.

The non-resident director in turn has to file a tax return declaring the employment income.

Gains from exercising of stock options or vesting of stock awards

For non-resident directors receiving gains from exercising of stock options (ESOP) or vesting of stock awards (ESOW), the tax resident company should file the Form IR21A to report the gains from ESOP/ESOW within 30 days from the date of exercise, assignment, release or acquisition of the shares. A tax bill will be issued to the non-resident director for tax payment.

Tax Clearance 

When a non-Singapore citizen employee ceases employment as an executive director or leaves the country for a period exceeding three months, the employer must seek tax clearance and ensure that the employee settles all his outstanding taxes.

Conclusion

Many foreign companies are setting up operations in Singapore with foreign individuals as company directors. As the tax obligations differ for non-resident directors and executive directors, it is important for companies to distinguish the role(s) of the foreign individual i.e. whether the individual is a board director, executive director or both, so as to ensure compliance with the regulations.


References

IRAS page on Remuneration of Non-Resident Directors
IRAS page on Tax for non-resident directors 

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Income Tax and GST Treatment of Virtual Currencies

Digital Currencies

Digital Currencies

Virtual currency is an emerging digital asset, designed to function as a medium of exchange, which may be used to pay for goods or services, or held for investment. In some environments, it operates like “real” currency (i.e. the coins and banknotes designated as legal tender) but it does not have legal tender status in any jurisdiction.

Virtual Currencies as Mode of payment

Due to the growing popularity of virtual currencies, some businesses in Singapore accept virtual currencies as a mode of payment for goods and services they provide / make payment for goods or services using virtual currencies. Businesses that choose to accept virtual currencies remain subject to normal income tax rules. These businesses should record the sales based on the open market value of the goods or services in Singapore dollars, not in virtual currency.

However, if the open market value of the goods or services cannot be determined (e.g. the goods or services are only traded with virtual currencies), the virtual currency exchange rate at the point of transaction may be used.

Trading in Virtual Currencies

Besides accepting virtual currencies as a mode of payment, some businesses in Singapore may buy and sell virtual currencies.

As there are no capital gains taxes in Singapore, businesses that buy virtual currencies for long-term investment purposes enjoy a capital gain from the disposal of these virtual currencies are not subject to tax.

However, if businesses are buying and selling virtual currencies in the ordinary course of their business, the profits derived from trading in the virtual currencies will be subject to tax. Profits derived by businesses, which mine and trade virtual currencies in exchange for money are also subject to tax.

To determine if the gains from disposal of virtual currencies are profits of a trade or capital gains from investment, the facts and circumstances of the transaction will be examined. Here are some factors considered:

  1. Motive – whether there was an intention to trade at the time of the acquisition of the virtual currencies
  2. Frequency of transactions – extensive buying and selling of the virtual currencies would suggest the existence of a trade as compared to an isolated transaction.
  3. Holding periods – Shorter holding periods would be indicative that the virtual currencies were held for trading instead of investment.
  4. Circumstances of the realisation – Certain situations will less likely to be considered as trading e.g. to tide over cashflow issues, foreclosure threat by creditors etc.
  5. Mode of financing – Short-term financing would suggest the existence of a trade.
  6. Other factors – Availability of documentation maintained by the company to indicate its intention, whether there were any feasibility studies conducted etc.

GST Treatment of Virtual Currencies

As the adoption of virtual currencies continues to grow, it is also crucial to understand the GST implications arising from the use of virtual currencies.

In Singapore, GST is chargeable on goods and services categorised as taxable supplies. Taxable supplies are further categorised as standard-rated or zero-rated.  Standard-rated supplies are goods sold or services provided locally. Meanwhile, zero-rated supplies, which GST is chargeable at 0%, are goods exported overseas or services classified as international services under Section 21(3) of the GST Act.

To determine the GST treatment of virtual currencies, we need to ascertain if virtual currencies is a supply of goods or services. For GST purposes, virtual currencies (e.g. Bitcoins) are not considered as ‘money’, ‘currency’ or ‘goods’ for GST purposes. Instead, the supply of virtual currency is treated as a supply of services, which does not qualify for GST exemption.

Selling Virtual Currencies

For a GST-registered business which sells virtual currencies as a principal, it will have to charge GST on the sale of the virtual currencies, unless the sale is made to a person belonging outside Singapore.

For a GST-registered business that acts as an agent to facilitate the sale of virtual currencies, it needs to charge GST on the commission fees it receives, unless the service is supplied to a person belonging outside Singapore.

Meanwhile, GST-registered virtual currency exchange located in Singapore will need to charge GST on the trading fees that it charges.

Buying Goods or Services Using Virtual Currencies

When a business buys goods or services using virtual currencies, the transaction will be considered as a barter trade. Here, two supplies are made – one by the supplier who supplies the goods and services, and another by the buyer who supplies the virtual currencies.

If the respective supplier is GST-registered, GST needs to be charged on each supply (i.e. the supply of goods and services and the supply of virtual currencies).

As a concession, GST needs not be charged if virtual currencies are used to exchange for virtual goods or services within the gaming world. However, if virtual currencies are exchanged for real monies, goods or services, GST will need to be charged.

Importing Goods Paid by Virtual Currencies

Goods imported and paid for using virtual currencies are subject to the same import GST rules and reliefs as those paid for using real currencies.

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References:

  1. https://www.iras.gov.sg/IRASHome/GST/GST-registered-businesses/Specific-business-sectors/e-Commerce/#sale_of_virtual_currency
  2. https://www.iras.gov.sg/irashome/Businesses/Companies/Working-out-Corporate-Income-Taxes/Specific-topics/Income-Tax-Treatment-of-Virtual-Currencies/
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IRAS Update- October 2018

IRAS Update

IRAS Update

Request for Income Tax Return (Form C-S/ C) and Notification of New Financial Year End
In the past, it is required to submit hard copy form to Inland Revenue Authority of Singapore (“IRAS”) to request for Income Tax Return (Form C-S/ C) for new companies. However, this is no longer a requirement with effect from 18 October 2018. Companies required to file the first corporate tax return for YA 2018 can proceed to e-File the return directly via the File Form C-S/ C e-Service. There is no need to request for a YA 2018 return from IRAS.

Request for Income Tax Return (Form C-S/ C) for companies previously granted waiver to submit tax return
Another update announced by IRAS in the month of October 2018 is related to the request for Income Tax Return (Form C-S/ C) for companies previously granted waiver to submit tax return. If the company has recommenced its business or has started to receive income in 2017, the company can email ctmail@iras.gov.sg to request for an Income Tax Return for YA 2018 with the following details:

  1. Subject header: “Recommencement of business and request for Income Tax Return”
  2. Name and Unique Entity Number (UEN) of the company;
  3. Date of recommencement of business and new principal activity (if applicable); and
  4. Date of receipt of other source(s) of income e.g. interest, dividend, rent, etc. (if applicable)

Update of Financial Year End
Companies that have changed their financial year end can update IRAS directly by logging in to mytax.iras.gov.sg and updating via the “Update Corporate Profile/ Contact Details” e-Service.

Change of Company Name and Registered Address
When a company has changed its name and/ or registered office address, the change is to be filed with the Accounting and Corporate Regulatory Authority (ACRA) online via www.bizfile.gov.sg. There is no need to inform or update IRAS separately of the change in name or address. IRAS will update its records based on the information filed with ACRA on a weekly basis.

Update of Functional Currency
If your company’s functional currency is not in “Singapore Dollar”, you have to inform IRAS by logging in to mytax.iras.gov.sg and update it via the “Update Corporate Profile/ Contact Details” e-Service.

 

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CorpPass

CorpPass

CorpPass

CorpPass is a corporate digital identity for businesses and other entities (such as non-profit organisations and associations) to transact with Government agencies online. Managed by Government Technology Agency (GovTech), CorpPass is the single login method for G2B transactions from 1 September 2018. CorpPass also allows business owners greater control, with the flexibility of granting employees separate roles to access government digital services. CorpPass has also been made available to foreign registered entities and individuals without SingPass, to transact with certaingovernment agencies in Singapore.

Registration
If you have not set up your CorpPass account, please refer to the PDF ‘Setting Up CorpPass1’. Alternatively, you can refer to CorpPass website here for well-documented user guides.

Authorisation of Third Party Entity

After CorpPass registration, please refer to the PDF ‘Authorise and Manage Third Party Entity1’ (Slide 9 onwards). This will enable you to authorise a third party entity (e.g., tax agent) to access the e-services (e.g., Corporate Tax (Filing and Applications)) on your behalf.

Please do let us know if you require assistance with the above. We can act as your company’s CorpPass admin, creating and managing user accounts and managing G2B Transcatons on your behalf.

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1 These user guides are downloaded from the link here

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Claiming GST Incurred Before GST Registration

GST incurred before the business is registered for “GST” can be claimed if certain conditions are met. IRAS has produced a reference guide on this topic in assessing your claims, conditions for claiming pre-registration GST and documents to maintain to claim pre-registration GST.

The very first step of this process is to complete the “pre-registration GST Checklist for Self-Review of Eligibility of Claim”, which can be downloaded from IRAS link here, to assess eligibility to make a claim on GST incurred on business purchases made before GST registration.  This checklist also includes a calculator feature to help you compute the amount of Pre-registration GST claimable.

 

Flowchart for Pre-registration Claims on Goods

Flowchart for Pre-registration Claims on Good1

In summary, the business must satisfy all of the following conditions for claiming Pre-registration GST incurred on Goods.

  1. The goods are purchased or imported by your business for the purpose of making taxable supplies (standard-rated supplies and zero-rated supplies);
  2. For goods acquired within 6 months before the date of your GST registration, the goods are still held by your business at GST registration;
  3. For goods acquired more than 6 months before the date of your GST registration, the goods have not been consumed (i.e. used) or supplied by your business before the date of your GST registration; and
  4. The pre-registration GST claims are not disallowed under Regulation 26 and 27 of the GST (General) Regulations.

 

 

 

 

Flowchart for Pre-registration Claims on Property Rental, Utilities and Services

Flowchart for Pre-registration Claims on Property Rental, Utilities and Services1

The business must satisfy all of the following conditions for claiming Pre-registration GST incurred on Property Rental, Utilities and Services.

  1. The expenses are incurred by your business for the purpose of making taxable supplies (standard-rated supplies and zero-rated supplies);
  2. The expenses are incurred by your business within 6 months before the date of your GST registration;
  3. The expenses are not directly attributable to supplies made by your business before the date of your GST registration; and
  4. The pre-registration GST claims are not disallowed under Regulations 26 and 27 of the GST (General) Regulations.

 

 

 

 

 

 

Apportionment of Pre-Registration GST

Pre-registration GST is allowable only to the extent that the goods or services acquired are used or to be used for taxable supplies made after GST registration.

If some of the goods acquired within 6 months before your GST registration date have been sold, transferred or disposed of, you are required to apportion the GST incurred according to the actual units held at your registration date.

If the goods acquired by you more than 6 months before your GST registration date have been used to make supplies straddling your GST registration (i.e. supplies before and after GST registration) or have been partially consumed before your GST registration, you are required to apportion the GST incurred.

Similarly, if the services, property rental or utilities acquired by you are used to make supplies straddling your GST registration, you are required to apportion the GST incurred. Only the portion of GST that is attributable to the supplies made after registration is claimable.

Documents to Maintain to Claim Pre-registration GST

To claim Pre-registration GST incurred on goods, you are required to maintain a stock account showing:

  • quantities purchased;
  • quantities used in the making of other goods;
  • date of purchase; and
  • date and manner of subsequent disposal of both the quantities purchased and quantities used in the making of other goods

For services, you are required to maintain a list showing:

  • description of services purchased;
  • date of purchase; and
  • date of disposal of the service (if any)

In addition, you are required to support your claims with evidence such as tax invoices, import permits, payment evidence, etc.

When and how to Claim Pre-registration GST

You should claim pre-registration GST in your first GST return provided that you satisfy all the conditions for claiming pre-registration GST.

The value of taxable purchases and corresponding GST amount should be included in Box 5 and Box 7 respectively.

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1 Inland Revenue Authority of Singapore (2018). IRAS e-Tax Guide GST: Pre-registration Claims on Goods and Services (For Businesses Registered for GST on or after 1 July 2015) (Third Edition).

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Foreign-sourced income in Singapore

In Singapore, taxes are imposed on income derived from or accrued in Singapore, as well as foreign-sourced income received in Singapore. With the increase of globalisation, it is not surprising that many tax-resident companies in Singapore are deriving income from overseas. Such income (referred to as foreign income) is taxable in Singapore when remitted to and received in Singapore, which may result in double taxation – once in the foreign country, and a second time when the foreign income is remitted into Singapore.

There is no universal rule to determine whether an income is Singapore-sourced or foreign-sourced. It depends on the nature of the profits and of the transactions which give rise to such profits. The following points can be used as a guide when determining the source of the income:

  1. Identify the operations which produced the relevant profits and ascertain where those operations took place.
  2. If there is no business presence overseas and the principal place of business is located in Singapore, profits earned by that business are likely to be treated as sourced in Singapore.
  3. Determine the place where the contracts for purchase and sale are effected (i.e negotiated, concluded and executed) for profits earned from trading in goods and commodities.
  4. For businesses earning commission, determine where the activities of the commission agent are performed. If such activities are performed in Singapore, the income will be treated as sourced in Singapore.

If an income is determined to be foreign-sourced, it is important to determine whether it is received in Singapore. Under Section 10(25) of the Income Tax Act, income from outside Singapore is considered received in Singapore when it is:

  1. remitted to, transmitted or brought into Singapore in the form of cash, cheque, dividends, electronic transfer etc.;
  2. used to pay off any debt incurred in respect of a trade or business carried on in Singapore; or
  3. used to purchase any moveable property brought into Singapore (e.g. equipment or raw materials connected to your business).

There are concerns that Section 10(25) will discourage foreigners and foreign businesses from using Singapore’s banking and fund management facilities. However, foreign income received in Singapore will only be taxable if the income belongs to an individual who is resident in Singapore or an entity which is located in Singapore. Hence, non-resident individuals and foreign businesses which are not operating in or from Singapore can remit their foreign income to Singapore without being taxed on the income.

As mentioned earlier, foreign-sourced income may be taxed twice – once in the foreign jurisdiction and a second time in Singapore when it is remitted here. However, there are tax benefits available to alleviate the double taxation suffered.

From 1 Jun 2003, a Singapore tax resident company can enjoy tax exemption on its specific foreign income that is remitted into Singapore under the foreign-sourced income exemption (FSIE) scheme. The three categories of specified foreign income are:

  1. Foreign-sourced dividend
  2. Foreign branch profits
  3. Foreign-sourced service income

Under Section 13(9) of the Income Tax Act, tax exemption will be granted when all of the following three conditions are met :

  1. The highest corporate tax rate (headline tax rate) of the foreign country from which the income is received is at least 15% at the time the foreign income is received in Singapore;
  2. The foreign income had been subjected to tax in the foreign jurisdiction from which they were received. The rate at which the foreign income was taxed can be different from the headline tax rate; and
  3. The Comptroller is satisfied that the tax exemption would be beneficial to the resident company.

Getting the Exemption
To enjoy the tax exemption, you have to provide the following information in your Income Tax Return (Form C/ P):

  • Nature and amount of income received;
  • Jurisdiction from which the income is received;
  • Headline tax rate of the foreign jurisdiction; and
  • Confirmation that foreign tax has been paid in the jurisdiction from which the income was received. This is to satisfy the “subject to tax” condition.

If you are filing Form C-S instead of Form C, the above information is to be included in the company’s tax computation and any supporting documents/ information should be retained*.

“Subject to Tax” Condition
To meet this condition, the specified foreign income received in Singapore must have been subject to tax in the foreign country from which the income is received.

For the purpose of this “subject to tax” condition, tax paid or payable on foreign-sourced dividend received in Singapore includes:

  1. the dividend tax, which is income tax levied on the dividend by the foreign country of source; and
  2. the underlying tax, which is income tax paid or payable by the dividend paying company on the income out of which the dividend is paid.

“Subject to tax” concession for substantive business activities
The Comptroller will regard the “subject to tax” condition as being met if the income is exempt from tax in the foreign jurisdiction due to tax incentive(s) granted for substantive business activities carried out in that jurisdiction. The following documents must be prepared and retained*:

  1. A declaration by the company that the foreign jurisdiction has exempted the foreign income from tax because of substantive business activities carried out by the company in that jurisdiction; and
  2. A copy of the tax incentive certificate/ approval letter issued by the foreign jurisdiction. In the case of a foreign-sourced dividend, a dividend voucher (if available) stating that the dividend is exempt from tax due to tax incentive granted to the payer company for carrying out substantive business activities in that foreign jurisdiction will be sufficient.

If FSIE does not apply, resident companies may claim tax credits instead to alleviate the double taxation suffered. The following are the types of tax credits that may be claimed:

  • Unilateral tax credit (UTC) – This is for income remitted from countries which Singapore does not have a Double Taxation Agreement (DTA) with; or
  • Double taxation relief (DTR) – This is for income remitted from countries which Singapore has a DTA with.

Expenses Incurred in Respect of Foreign-Sourced Income
All expenses incurred in respect of foreign-sourced income received in Singapore which qualifies for tax exemption shall be deducted against such foreign-sourced income, and will not be available for deduction against any other taxable income.

Further Readings
Tax Exemption of Foreign-Sourced Income


Disclaimer: This guide is intended as a general guide only, and the application of its contents to specific situations will depend on the particular circumstances involved. Accordingly, readers should seek appropriate professional advice regarding any particular tax issue that they encounter, and this guide should not be relied on as a substitute for this advice. While all reasonable attempts have been made to ensure that the information contained in this guide is accurate, Enston accepts no responsibility for any errors or omissions it may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies on it.

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A Brief Guide on Singapore Corporate Taxation

Singapore Merlion

In 2015, Singapore has been ranked as the most business-friendly economy for the tenth year in a row by World Bank. Many factors have contributed to Singapore’s competitive edge: easy access to capital, strategic location, excellent infrastructure, ease of doing business etc. And one prominent factor is Singapore’s tax-friendliness.

Overview

In Singapore, income accrued in or derived from Singapore and income received in Singapore from overseas are taxable. IRAS assesses the amount of tax based on the income earned by the company in the preceding financial year. In other words, the income earned in the financial year 2016 will be taxed in 2017, which is referred to as Year of Assessment (YA) 2017.

With effect from 2010, all companies are taxed at a flat rate of 17% on its chargeable income i.e. taxable revenues less tax-allowable expenses. In addition to the competitive tax rate, Singapore government offers incentives, subsidies and schemes which lowers the effective tax payable further.

Here are some of the tax schemes available to lower the tax payable:

I) Tax Exemption Scheme for New Start-Up Companies

To promote entrepreneurship and support the growth of local enterprises, this scheme was introduced in YA 2005. This is available to all new companies except investment holding companies and companies engaged in development of properties.

To be eligible for this scheme, companies must satisfy the following qualifying conditions:

  1. Incorporated in Singapore;
  2. Tax resident in Singapore for that YA;
  3. Have no more than 20 shareholders. (there must be at least one individual shareholder holding at least 10% of the issued shares)

Qualifying companies can enjoy full exemption on the first $100,000 chargeable income and a further 50% exemption on the next $200,000 of chargeable income for the first three consecutive YAs.

II) Partial Tax Exemption for Companies (PTE)

From the fourth YA onwards, companies can enjoy the partial tax exemption.

All companies can enjoy PTE, unless they have already claimed the Tax Exemption Scheme for New Start-Up Companies. Qualifying companies can enjoy:

  • 75% tax exemption on the first $10,000 of chargeable income; and
  • A further 50% tax exemption on the next $290,000 of chargeable income.

III) Corporate Income Tax Rebate

All companies (including Registered Business Trusts, non-resident companies that are not subjected to final withholding tax and companies with income taxed at a concessionary tax rate) are granted 50% corporate income tax rebate, subjected to an annual cap of $20,000, for YA 2016 and YA 2017.

IV) Productivity and Innovation Credit Scheme (PIC)

Under PIC, companies have to carry out active business operations in Singapore and engage in one of the following six qualifying activities:

  1. Acquisition and Leasing of PIC IT and Automation Equipment
  2. Training of Employees
  3. Acquisition and Licensing of Intellectual Property Rights
  4. Registration of Patents, Trademarks, Designs and Plant Varieties
  5. Research and Development
  6. Investment in Design Projects

Qualified companies can opt for the following to boost tax savings:

Tax Deductions/Allowances 400% tax deductions/allowances on up to $400,000 of spending per year in each of the qualifying activity.
Cash Payout Convert up to $100,000 of total spending in all six activities for each YA into a non-taxable cash payout.
For qualifying expenditure incurred:

  • From YA 2013 to 31 July 2016, the cash payout rate is 60%.
  • On or after 1 Aug 2016 to YA 2018, the cash payout rate is 40%.


V) Tax Breaks on Foreign Income

With the increase of globalisation, it is not surprising that many tax-resident companies in Singapore are deriving income from overseas. Such income (referred to as foreign income) is taxable in Singapore when remitted to and received in Singapore, which may result in double taxation – once in the foreign country, and a second time when the foreign income is remitted into Singapore.

To alleviate the double taxation suffered, resident companies may claim the following:

Foreign Tax credit (FTC)

Under FTC, companies may claim credits for the foreign tax paid against the Singapore tax payable on the same income. There are two ways to claim:

  • Unilateral tax credit (UTC) – This is for income remitted from countries which Singapore does not have a Double Taxation Agreement (DTA) with; or
  • Double taxation relief (DTR) – This is for income remitted from countries which Singapore has a DTA with.

Tax Exemption of Foreign-Sourced Income (FSIE)

Under FSIE, a Singapore tax-resident company can enjoy tax exemption on specified foreign income (i.e. foreign-sourced dividends, foreign branch profits and foreign-sourced service income) provided that the following conditions are met:

  • The headline corporate tax rate of the foreign country from which the income is received is at least 15%;
  • The foreign income has been subjected to tax in the foreign country; and
  • The Comptroller is satisfied that the tax exemption would be beneficial

FTC Pooling System

Introduced in 2011, the FTC Pooling system provides greater flexibility to businesses in their FTC claims, reduces the tax payable in Singapore on remitted foreign income and simplifies tax compliance. Under this system, resident companies may elect to aggregate the foreign taxes paid.

To be eligible:

  • The headline corporate tax rate of the foreign country from which the income is received is at least 15%;
  • Foreign income tax is paid on the income in the foreign country from which the income is derived;
  • The company is entitled to claim FTC under the Income Tax Act; and
  • There is tax payable on the foreign income in Singapore.

VI) Tax Residency of Company

The basis of taxation is generally the same for resident and non-resident companies. However there are certain benefits that are available to resident companies only.

Some of the benefits include:

  • Tax benefits under DTA concluded between Singapore and treaty countries;
  • FSIE; and
  • Tax exemption for new start-up companies.

To determine the tax residency of a company, the location where the business is controlled and managed will be looked at. This would mean that a company is a tax resident in Singapore when the control and management of the company is exercised in Singapore.

VII) Withholding Tax on Non-Resident Companies

For non-resident companies, when payment of a specified nature (e.g. interest, commission, fee in connection with any loan or indebtedness; royalty etc. 1) is made to them, tax must be withheld.

The rate of withholding tax depends on the nature of payment. For example, 15% has to be withheld for payment of interest derived by non-resident companies through operations carried on outside Singapore.

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