In addition to being assessed for Singapore taxes on foreign sourced income that is incidental to their Singapore based operations, a Singapore resident company is also required to pay Singapore taxes on any foreign sourced income that is remitted into Singapore.
When is Foreign Income Taxable to a Singapore Company?
Foreign income is taxable to a Singapore Company when it:
- is received through a Singapore partnership
- is incidental income to the trade or business carried out by your company. This would mean that any online orders from foreign clients, being incidental to your primary operation in Singapore, would be included in your Singapore tax assessment.
- is remitted into Singapore.
It is important to understand the difference between operating your business in Singapore and operating your business overseas. If your business is carried on in Singapore then all income relating to this business is taxable in Singapore, even if you make sales overseas and don’t bring that money into Singapore. Conversely, income that is generated from a business located and run in a foreign country will only be taxed in Singapore if it is remitted into Singapore.
The rule regarding remittance of foreign sourced business income applies to both resident and non-resident companies.
Mitigating the Tax Impact on Taxable Foreign Income
Double tax agreements or unilateral tax credits in respect of foreign tax that has been paid, will mitigate, or even eliminate the impact of being taxed in multiple tax jurisdictions. This means that if the foreign tax paid is higher than Singapore taxes, there is unlikely to be any additional tax impact on foreign income that is also taxed in Singapore.
In addition, where certain conditions are met, foreign dividends, foreign branch profits, and foreign service fees remitted into Singapore may remain exempt from Singapore tax.
Foreign sourced dividends, branch profits, and services income is exempt from Singaporean tax if not remitted into Singapore.
Foreign Investment Income Remitted into Singapore
Specified foreign investment income (foreign sourced dividends, foreign branch profits and foreign sourced service income) that is remitted into Singapore is exempt from tax in Singapore. For the exemption to be granted all 3 of the following conditions must be met:
- The foreign income must have been subject to tax in the foreign jurisdiction.
- The foreign tax in the country of origin must be at least 15% at the time the foreign income is received in Singapore
- The Comptroller of Income Tax must be satisfied that the tax exemption is beneficial to the Singapore tax resident company.
If all conditions are met, then this income will not be taxed in Singapore.
By excluding such specified foreign investment income from assessment in Singapore, your company may benefit from a reduction in compliance regulations and potentially complex tax calculations.
Singapore Business Income that is Remitted Overseas
If your Singapore resident company remits Singapore sourced income to an overseas bank, business branch, subsidiary, or other recipient, the tax laws of that tax jurisdiction will determine if taxes are also assessed at that location.
So far as Singapore taxes are concerned, income earned under Singapore’s tax jurisdiction will be taxed in Singapore. Any double tax agreements between the foreign jurisdiction and Singapore, will likely ensure that your company is not excessively taxed on such income.
Summary of Corporate Tax Obligations in Singapore
In summary, a Singapore resident corporation will be assessed on any locally earned income, any incidental business income earned overseas, and any foreign income that is remitted into Singapore.
This does leave open an opportunity for a Singapore based business to operate branches that are set up and run in an overseas location, without having to be concerned with Singapore taxes.
However, it should be noted that Singapore has one of the lowest tax rates in the world. As long as there is a double tax agreement in place or a unilateral tax credit applied in relation to foreign taxes paid, then remitting the foreign income into Singapore may not result in additional tax obligations.