An Overview of Singapore’s Corporate Tax Regime

Singapore is also reputed to have a friendly tax regime in doing business. To businesses, particularly those with international business or foreign investments, it is important to know how various forms of income are favored. The article is a professional and convincing guide to businesses and financial officers, offering the most important aspects of dividends, capital gains, and foreign-sourced income remittance in the Singapore tax law.

Businesses intending to invest or organize overseas activities require information on taxable and exemptible items and circumstances and level of conditions. Going through these regulations, you will like how Singapore has maintained competitiveness and control over the regulations.

Dividends: Local and Foreign

Local Dividends on One-Tier Corporate Income Tax System.

In the one-tier corporate tax regime in Singapore, corporate income tax paid by a resident of Singapore company on its earnings is final. This implies that once such a company pays dividends to its stockholders, such a dividend is not subject to additional taxation in the possession of the beneficiaries.

As an example, when the company makes a taxable amount of profit in Singapore, and subject to corporate income tax on such profit, and subsequently makes a dividend to the shareholders, then the dividend is not charged at the shareholder level. In the case of non-resident shareholders, generally the same exemption applies, but withholding tax may or may not be payable and/or treaty issues may arise based on residence.

Dividends of foreign origin Taxable vs. Exempt.

The situation with companies in Singapore, which receive foreign dividends, i.e. dividends of companies based off-shore, is a more complex regime.

When the dividends of foreign source are remitted (or deemed remitted) in Singapore, they are liable to taxation in Singapore. But there are exemptions allowed under the Income Tax Act Sections 13(8) and 13(12) in case some requirements are fulfilled. These typically include:

• The dividend and the foreign income have been taxed at the foreign jurisdiction.
• The host country has a minimum headline rate of corporate tax of 15.
• The exemption should help the company and it should be documented where the source of the dividend originated and the underlying profits have been assessed.

These regulations imply that a lot of foreign dividends may be exempted, however, firms have to make sure they fit the criteria and have proper evidence to prove exemption claims.

Capital Gains: General Rule and New Developments.

Generally, Capital Gains are not taxed.

Historically, the capital gains are not taxable in Singapore. In case a firm sells shares, property or any other assets that are not in the normal conduct of a trade or business, then the gain obtained is generally considered to be capital in nature and not an income and thus does not attract taxation.

However, there are caveats. In the event a company is dealing with trading in shares, property or assets, the disposal gains may be taxed as revenue (ordinary income) and taxed according to normal corporate taxation. Companies seeking to operate in financial markets should also understand how to obtain a Capital Markets Services (CMS) license in Singapore for fund management to ensure compliance with local regulations.

New Regime: Gains on the Disposition of Foreign Assets in 10L (since 2024)

Since 1 January 2024, Singapore has a new regime introduced under Section 10L of the Income Tax Act that focuses on the gains of disposal of foreign asset- movable or immovable property located outside Singapore. This profit can be subject to taxation under some circumstances.

Key features include:

• The gains are subject to taxation upon receiving or determined to be received in Singapore.
• The subject disposing of the asset has to be a covered entity, meaning, it has to satisfy certain substantive condition like local presence or economic substance.
• Exceptions are there where the seller is not a resident, lacks economic nexus to Singapore, or has adequate business substance.

This trend implies that firms that have high foreign investment holdings must look beyond dividend payments, but also at the structure of foreign asset disposals, as well as the tax residence of the entity.

Foreign Income and Remittance Regulations.

What Counts as Foreign-Sourced Income and Remittance.

Foreign-sourced income is income that arose outside Singapore obtained and is not a trade or business that is conducted in Singapore. These include foreign dividend, foreign branch profits, and foreign sourced service income.

Being remitted or remitting such foreign income into Singapore through transmission, settling a debt, or acquiring movable property situated in Singapore is referred to as remittance (or being deemed to be remitted).

Alternatively, when the foreign sourced income is retained offshore and never remitted, some form of taxation can be either deferred or avoided based on the situation.

Foreign Tax Credit and Exemptions.

In order to prevent double taxation, Singapore offers various types of relief:

• Foreign Tax Credit (FTC): In case a Singapore company gets an income in a foreign country, which has already been taxed on the foreign country, the company can often claim a credit of the foreign tax paid in order to offset its tax liability on the Singapore company.
• Section 13(8), 13(9), and 13(12): tax exemption apply to foreign-sourced dividends, branch profits and service income that is brought into Singapore by resident companies under some conditions, such as 15% foreign jurisdiction tax rate and evidence of foreign tax payment.

These mechanisms imply that the foreign income does not necessarily become taxable when repatriated. A careful planning company can take advantage and utilize exemptions or credits with the view to lowering the total tax exposure.

The Complete Assembly: Strategy and Compliance.

Incentive Issues to the Corporate Decision-Maker.

Companies should consider the following aspects in order to become compliant and maximize their tax position:

Status of residence of the company in which management and control is undertaken because this influences the eligibility to most exemptions.

The tax rate and the taxation on the income in foreign jurisdiction whether taxed there which are the central ones in order to claim exemptions under Sections 13(8) and 13(12).

• The nature of gains: it is important to establish whether gains are of a capitalistic or revenue nature since there may be different taxations imposed on the trading deal.
• Remittance timing: learning how and when to bring in Singapore income or gains to prevent the accidental situations of deemed remittance.

The Regime encourages Investment and does not pay tax twice.

The tax regime in Singapore has some distinct benefits to global investing firms so long as they observe the local regulations:

• Local dividends are tax efficient, and there is no extra taxation on taxpayers.
• A capital gains of investment disposals may be frequently sheltered when organized as capital as opposed to trading transactions.
• The mechanisms used in tax credit and foreign sourced income exemption are good in deterring the aspect of a double taxation.

All these characteristics make Singapore an attractive location to anchor companies, investment funds and multinational headquarters to give them flexibility and certainty.

How This Relates to Tax Treatment of Dividends, Capital Gains, and Foreign Income

This topic is central to understanding how dividends and capital gains are taxed for companies in Singapore.

In case a Singapore resident company makes such profits as dividends, such dividends are not subject to any additional tax according to the one-tier system. Taxation of foreign dividends is not levied until repatriated, and numerous exemptions can be made provided the conditions necessary, such as foreign taxation, minimum rate and documents are fulfilled.

The capital gains are not subject to tax in Singapore, unless they are related to the trading operation or subject to the new Section 10L regime. In the meantime, foreign-sourced income is regulated by the remittance regulations, according to which the timing and the means of remittance have a direct influence on taxable income. Corporates should thus keep proper records, make good foreign tax compliance and also make use of the treaty or statutory reliefs where feasible.

Conclusion to An Overview of Singapore’s Corporate Tax Regime

Singapore has a transparent and friendly tax system to businesses that have to deal with dividends, capital gains, and foreign sourced income. Under the one-tier corporate system local dividend is tax-exempt, capital gains are usually not subject to tax with some exception, and foreign income can be exempt or taxed with credits in case of meeting some conditions. In international business, a clear understanding of these principles ensures that the international businesses are compliant, efficient and the benefits of Singapore tax regime are achieved to the optimum.