Determine the company’s tax resident status
The company’s tax resident status in Singapore is determined by the location where the company manages and controls its business. If the control and management of its business is carried out in Singapore, the company is based in Singapore. Under the double taxation (DTA) agreement signed between Singapore and the State party, the overseas income of a resident company may be subject to tax-exempt or low-tax withholding powers.
Source of income
- The following points can be used as a guide to determine the source of a particular income:
- Determine the operations that generate the relevant profits and to determine the location of these operations;
- Determining where the contract of sale is effective (where profits are made from traded goods), for example, negotiating, signing and executing the contract;
- For companies that earn commissions for their business, it is necessary to determine where their agents work. If these activities are carried out in Singapore, the income will be considered to be from Singapore.
- For income that has been determined to come from a foreign country, it is next necessary to determine whether the income is collected in Singapore. Income from outside Singapore is considered to be collected in Singapore if:
- to transfer, send or bring into Singapore in the form of cash, cheque, interest, electronic transfers, etc.;
- to pay off any trade or commercial debts made in Singapore;
- Used to purchase any liquid assets brought into Singapore (e.g., equipment or raw materials related to your business).
Double Taxation Avoidance Agreements, DTA
The purpose of the double taxation agreement between Singapore and another country is to exempt taxation of income earned by tax residents of one country in another country which may arise as a result of the application of their respective domestic tax laws. The agreement also makes clear the right to tax different types of income derived from cross-border economic activities between Singapore and the State party. The agreement also provides for tax relief for certain types of income.
Tax-exempt terms and methods for Singapore’s overseas income
- Singapore Tax Residents Company may benefit from the foreign-sourced income exemption (FSIE) Scheme from foreign sources and enjoy tax exemption in the following specific overseas income:
- Dividends from overseas;
- Profits of overseas branches;
- Revenue from overseas services.
- Companies must meet all of the following criteria in order to be eligible for double taxation relief.
- The company is based in Singapore;
- Under the terms of the agreement on avoidance of double taxation, the company’s taxes on the same income in a foreign country have been paid or included in the amount payable;
- This income must have been or will be remitted to Singapore and should be taxed in Singapore.
- Tax residents to obtain tax exemption must meet three conditions:
- When receiving the income from overseas in Singapore, the annual tax rate of the overseas country that generated the income is at least 15%;
- The income has been taxed overseas;
- The Bureau considers that the exemption will benefit the tax payer.
- Tax-exempt application information:
- Income and amount;
- The source of income;
- Tax has been paid in the foreign jurisdiction in which the income was obtained
The type of tax credit for Singapore’s overseas income
- Unilateral Tax Credit – If the income is remitted from a country that does not have a Double Taxation Avoidance Agreement (DTA) with Singapore;
- Double Taxation Relief (DTR) – If income is remitted from a country with which Singapore has a Double Taxation Avoidance Agreement (DTA) agreement.
Benefits of DTAs
The main purpose of double taxation agreements is to determine when and how taxes are to be imposed in countries where income-generating activities or payments are made, and they can define the jurisdiction of cross-border transactions.
While individuals or companies apply for tax relief from overseas tax and prevent international tax evasion by authorizing the exchange of information between the Tax Offices of States parties, each country’s right to tax is clearly defined.
Only residents can benefit from the DTA application, and Chapter 2 of the Singapore Income Tax Act defines residents as follows:
- Individual resident: An individual residing in Singapore in the year preceding the tax year, except for a temporary departure that is reasonable and does not contradict the determination that the individual is a resident of Singapore.
- Includes individuals who actually resided or were employed in Singapore for 183 days or more in the year preceding the tax year (except for company directors).
- A company or group – means a company or group whose management and control is within the territory of Singapore, and the company is a Singapore resident enterprise