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Presentation by Inland Revenue Authority of SingaporeFor tax seminar held on 4 Oct 2016

Twitter.com/IRAS_SG Facebook.com/irassgiras.gov.sg

Seminar on Taxation of Investment Holding Companies


AgendaOverview of Corporate Tax

Basis of Assessment

Scope of Tax

Filing Obligations

Investment Holding Company

What is an investment holding company

Types of income earned by an investment holding company

Deductible expenses

Basis of assessment

Things to note

Common mistakes

Investment Dealing Company

What is an investment dealing company


AgendaCompany in the Business of Making Investments

What is a company in the business of making investments

S10E Restriction

Tax Exemption for Foreign-Sourced Income

Foreign tax credit

Double taxation issue

Current tax treatment

What is a double taxation agreement

Examples of double taxation agreement

Calculating the foreign tax credit

Foreign Tax Credit Pooling System

Case Studies

Question & Answer


After this seminar, you will:

Understand basic taxation of investment holding company

Understand a company’s annual tax filing obligations

Be able to prepare a tax computation and e-File your Form C-S/ C for an investment holding company


Basis of AssessmentIncome is assessable on a preceding financial year basis

Year of Assessment (YA)

year in which income tax is charged

current YA is YA 2016

Basis Period for a YA

the period of income relevant to the YA

e.g. 1 Jan 2015 to 31 Dec 2015 (YA 2016)

1 Apr 2014 to 31 Mar 2015 (YA 2016)

1 Jul 2015 to 30 Jun 2016 (YA 2017)

Overview of Corporate Tax

9© 2016 Inland Revenue Authority of Singapore. All Rights Reserved.

Taxable Income

Income tax is payable on:

Income received in Singapore from outside Singapore

(i.e. foreign income received in Singapore)

E.g. Rental income from rented properties in Singapore

E.g. Interest income from a foreign bank outside Singapore that is remitted to Singapore

Income accruing in or derivedfrom Singapore

(i.e. income sourced in Singapore)




Overview of Tax Filing ObligationsTo File ByEstimated Chargeable Income (ECI): 3 months after accounting year endIncome Tax Return (Form C-S/ C) : 30 November or 15 Dec if e-File

Illustration:

YA 2016Basis period: 1 Jan 2015

to 31 Dec 2015 File ECI for YA 2016(3 months after

accounting year ended 31 Dec 2015)

File Income Tax Return for YA 2016

31 Mar 2016 30 Nov 2016

Accounting year end: 31 Dec 2015

1 Jan 2015


All companies are required to prepare the following:

Audited/ Unaudited Accounts

Detailed Profit and Loss Statement

Tax Computation and Supporting Schedules

Preparation of Accounts & Tax Computation



As announced in Budget 2016, compulsory e-Filing of ECI ,Form C-S/ C will be implemented in stages, starting with thelarger companies:


New!


e-File ECI at mytax.iras.gov.sg


All companies are required to file an estimate of chargeable income(ECI) within 3 months after end of financial period

E.g. Financial year ended 30 Jun 2015ECI for YA 2016 must be filed by 30 Sep 2015

IRAS will issue ECI reminder letter in last month of financial year

Companies do not need to file ECI if: Annual revenue is not more than $1 million; and ECI* is nil Companies that do not qualify for the above concession must file their ECI within 3 months after end of financial period, even if they do not receive the ECI reminder letter

* before deducting exempt amount under the partial tax exemption or tax exemption scheme for new start-up companies


Log in to https://mytax.iras.gov.sgusing your SingPass / IRAS Pin after you have been authorised by the company at EASY. 1

2



• Refer to our user guide on to file ECI (Home>e-Services>Businesses>Companies >File Estimated Chargeable Income (ECI))

Things to note when filing ECI

Enter ECI to be taxed at 17% before deducting exempt amount.



e-File Income Tax Return (Form C-S/ C) at mytax.iras.gov.sg

All companies, including investment holding companies, are required to file the income tax return (Form C-S/ C) by 30 Nov

A NIL return is required

Due date for filing tax return for YA 2016: is 30 Nov 2016

No extension of time beyond 30 Nov 2016

Exception: If you e-File Form C-S/ C, the filing due date is extended until 15 Dec 2016



Income Tax Return

File Form C and Appendix on Additional Information on Income & Deductions (Form IRIN 301)

File Form C-S (Simplified Tax Filing for Small Companies)For companies that meet qualifying conditions

OR



Qualifying Conditions for Filing Form C-S

* For an investment holding company, revenue refers to its investment income (e.g. 1-tier dividend income and interest income).


Note: Companies that do not meet the conditions have to submit to IRAS a full set of tax returncomprising the Form C, financial accounts, tax computation and supporting schedules.

Company: Does not claim any of the following:

• Is incorporated in Singapore • Has an annual revenue* of

$1 million or below • Derives only income taxable

at 17%

• Carry-back of Current Year Capital Allowances/Losses

• Group Relief• Investment Allowance • Research & Development Tax

Allowance• Foreign Tax Credit and

Tax Deducted at Source


Form C-S is a shortened 3-page Income Tax Return forsmall companies

Not required to submit financial accounts, tax computationand supporting schedules with Form C-SMust still prepare and submit to IRAS upon request

e-Filing of Form C-S at mytax.iras.gov.sg


Refer to IRAS’ website at iras.gov.sgBusinesses > Companies > Filing Taxes (Form C-S/ C) > Guidance on Completing Form C-S/ C


Companies that do not meet the conditions for filing Form C-S have to submit Form C

A complete set of Income Tax Return (Form C) consists of:Form CForm IRIN 301 (Additional Information on Income & Deductions)Audited/ Unaudited accounts Not required to be submitted if full set of financial accounts has been

filed with ACRA in XBRL formatDetailed profit and loss statement Tax computation and supporting schedulesRelevant forms (e.g. group relief form, R&D claim form)

Filing of Form C



3 Modes of e-Filing of Form CImplemented 3 modes of filing:

Online Form C (similar to e-Form C-S)Complete the Form C template online at mytax.iras.gov.sg

Form C (Upload)Download a softcopy of Form C (PDF version) onto your PC / laptopComplete it at your convenienceUpload the completed Form C and relevant attachments at mytax.iras.gov.sg

External Value NetworkBulk submission by tax agent through a dedicated platform, which bypasses EASY

Corporate Tax Obligations

For guidance, refer to IRAS’ website at iras.gov.sg- Businesses > Companies > Filing Taxes (Form C-S/ C) > Guidance on Completing

Form C-S/ C- e-Services > Businesses > Companies > File Income Tax Return (Form C)


Company Administrator

e-Services Authorisation System (EASY)

Company Staff/ Tax Agent

Login to mytax.iras.gov.sg

Use e-Services

Access Code and SingPass/

IRAS Pin

Authorise

SingPass/IRAS Pin

START!

How to Access e-Services including e-File Form C-S/ COverview of Corporate Tax



Online system that allows organisations to authorise their employees/ third party to access e-Services on their behalf

All authorisations of staff and directors/ tax agent must be doneat EASY

Log in to EASY using your company’s Access Code*


*Access Code is a unique password issued and sent to company’s registered address shortly after its incorporation. Please request a new Access Code if you have misplace your access code or its existing Access Code is no longer valid. The request form is available at IRAS website iras.gov.sg e-Services > Businesses > Companies > EASY


Log in to EASY

Access Code application form

Log in using your individual SingPass OR IRAS Pin




Preparer

Approver IRAS

• A preparer prepares the application/ form for submission to an Approver

• The preparer does not have the rights to submit directly to IRAS

• An Approver will approve or edit, and submit the application/ form to IRAS

• The approver can also prepare the application/ form and submit it to IRAS (for companies without the Preparer role)




Contact Points with

IRAS

Filing of ECI and

Form C-S/ C

Applying for Certificate

of Residence

(COR)

Applying for Waiver to

Submit Income Tax Return by

a Dormant Company

Checking on the status of

returns and/ or assessments

Requesting for copies of

correspondences or notices

Lodging of Objections

Corporate Tax e-Services at myTax Portal



Company’s Filing ObligationsEstimated Chargeable Income

(ECI)Income Tax Return

(Form C-S/ C)

When to file Within 3 months after end of financial year

(e-Filing of ECI via myTax portal is strongly encouraged)

Waiver of ECI filing: You do not need to file ECI for a particular financial year if:• annual revenue is not more than $1 million; and• ECI is nil

If you are filing Form CSubmit a complete tax return comprising of the following:- Form C and appendix (Form IRIN 301) - audited/unaudited financial statements and detailed P/L- tax computation and supporting schedules

e-File Form C by 15 Dec or submit paper Form C by 30 Nov of each year

If you are filing Form C-Se-File Form C-S by 15 Dec or submit paper Form C by 30 Nov of each year

Notification of filing requirement

Company will receive a reminder letter to file the ECI in the last month of the financial year

A tax return filing package will be sent to the company’s registered address by May of each year

Failure to file Estimated assessment may be raised* Estimated assessment may be raised* Letter of Composition and/or Summons may be

issued

If you are in a tax loss position

A NIL ECI (ECI = 0) is required unless the company has met the qualifying conditions for waiver of ECI filing

Submit an Income Tax Return (Form C-S/ C)

# Please authorise yourself/third party as an “Approver” for Corporate Tax Matters via the e-Services Authorisation System (EASY) * If you disagree with the estimated tax assessment, please lodge an objection within two months from the date of the Notice of Assessment with your reasons for not filing on time and grounds of objection


Principal activity is the passive holding of investments

Owns investments such as properties and shares for thelong-term

Derives investment income, passive in nature, such as:

Dividend [S10(1)(d)]

Interest [S10(1)(d)]

Rental income [S10(1)(f)]


What is an Investment Holding Company


Dividend Income - S10(1)(d)

Singapore-sourced Dividend Income

Current Tax Treatment

Singapore adopts a one-tier corporate tax system

Tax paid by a Singapore company on its chargeable income is the final tax

Therefore, all dividends paid by a Singapore company are exempt from tax in the hands of the shareholders




Foreign-sourced Dividend Income


Foreign-sourced dividend received in Singapore is taxableat 17% (i.e. current corporate tax rate) unless tax exempt

For Singapore tax residents, double taxation is relieved by:

Double taxation relief under tax treaties or

Unilateral tax relief



Tax Exemption for Foreign-sourced Dividend

Granted to all persons resident in Singapore

Provided the following conditions are met:

Foreign-sourced dividend income has been subjected to tax in foreign jurisdiction;

Headline tax rate of foreign jurisdiction is at least 15%; and

Beneficial for tax exemption




Dividend Income - S10(1)(d)Concessionary “group” Treatment


All investments in shares and stocks are divided into 4 groups

Group 1 Non-income producing shares (whether local or foreignshares)

Group 2 Shares which generate tax-exempt dividend income(e.g. one-tier and foreign-sourced dividend incomeremitted to Singapore in the year and exempted fromtax)

Group 3 Income producing shares in overseas companies wheredividend income is remitted to Singapore in the year andtaxable in Singapore.

Group 4 Income producing shares in overseas companies wheredividend income is not remitted to Singapore in the year.


Dividend Income - S10(1)(d)Concessionary “group” Treatment

Group 1Expenses are not deductible as the expenses incurred on theshares do not produce dividend income taxable in Singapore.

Group 2Allows the deficit (expenses in excess of dividend income)arising within a group from any block of shares for a particularyear to offset the net dividend income for the same year fromother blocks of shares within the same groupNet deficit of any group shall be disregarded




Group 3Allows the deficit (expenses in excess of dividend income)arising within a group from any block of shares for a particularyear to offset the net dividend income for the same year fromother blocks of shares within the same groupNet deficit of any group shall be disregarded

Group 4Expenses are not deductible as the expenses incurred on theshares do not produce dividend income taxable in Singapore butmay be carried forward*.


* Refer to e-Tax Guide “Liberalised treatment of expenses incurred in Singapore to deriveforeign income” on IRAS’ website. www.iras.gov.sg

Concessionary “group” Treatment


Example of the Concessionary “group” Treatment

Shares in company

Net dividend income / (deficit)

Withoutconcession

Withconcession

A $1m $1m $1m

B ($2m) Disregarded ($2m)

Net dividend income: $1m NIL*

A company remits the dividend income it receives from foreigncompanies A and B (i.e. same group).


* Net deficit is disregarded



Interest Income - S10(1)(d)


Taxable at 17% (i.e. current corporate tax rate) when accrued in or remitted to Singapore

For Singapore tax residents receiving foreign-sourced interest income, double taxation is relieved by:





Rental Income - S10(1)(f)


Taxable at 17% (i.e. current corporate tax rate) when accrued in or remitted to Singapore

For Singapore tax residents receiving foreign-sourced rental income, double taxation is relieved by:





Block Basis Concession

The income producing properties form a single “block”;where net rental loss from one property is deductible againstnet rental income from other properties

This excludes owner-occupied or vacant properties





Example of the “Block Basis Concession”

Without concession

With concession

Property A:Net rental income of $30,000 $30,000 $30,000

Property B: Net rental loss of $40,000 Disregarded ($40,000)

Net rental income $30,000 NIL*

A company rented out its properties A and B.

* Net loss will be disregarded



Type of Income Tax Treatment

Dividend

All dividends paid by a Singapore company are exemptfrom tax in the hands of the shareholders

Foreign-sourced dividend received in Singapore is taxableat 17% (i.e. current corporate tax rate), with tax exemptionor tax relief available subject to qualifying conditions

Dividend income is taxed on a group treatment basis

Interest Interest income is taxed when accrued in or remitted toSingapore

Rental Source of rental income is based on where the property is

situated

Rental income is taxed on a block basis

Summary of Common Types of Passive Source IncomeInvestment Holding Company


Deductible expensesDirect expenses Statutory and Regulatory

expensesIndirect expenses

What is it? • Expenses directly incurred to earn investment income

• Expenses incurred in accordance with statutory and regulatory provisions

• Expenses not directly incurred to earn investment income

Deductibility • Deductible against the respective source of investment income

• Before YA 2014, allowed as an administrative concession

• From YA 2014, deductible under S14X of the ITA

• Apportion to the respective source of investment income

• Generally not deductible• As a concession, indirect

expenses not exceeding 5% of the total gross investment income is deductible

• Apportion to the respective source of investment income

Examples • Custodian fees (for income producing shares)

• Property tax, insurance, repairs & maintenance (for rental properties)

• Interest expense (on loan taken to acquire shares / property)

• Accounting fees• Annual listing fees• Audit fees• Bank charges• Income tax service fees• Printing and stationery• Secretarial fees

• Directors' fees• Office rental• Office telephone charges• Office water and light• Staff salaries• Transport expenses

(exclude expenses incurred on S-plated cars which are not deductible)



Example 1 (One source of income)

Investment income $ Rental income 3,000

Expenses $ Property tax 300Repair of property 500Audit fee 2,000Secretarial fee 1,000Bank charges 500Staff salaries & CPF 1,000

Direct expenses

Statutory expenses

Indirect expense

YA 2016



Rental income

Less: Direct expensesProperty tax Repair of property

Less: Statutory expensesAudit fee Secretarial feeBank charges

Less: Indirect expensesLess: Staff salaries & CPF (Lower of actual

expense or 5% of gross rental income)

$

300500

2,0001,000

500

$3,000

800

3,500

150Net rental income / loss

Chargeable Income before exempt amount

Tax payable @17%

NIL*

NIL

NIL

Tax computation (One source of income)

* Net rental loss is disregarded.



Example 2 (Multiple sources of income)

Investment income $ Rental income 2,000Interest income 8,000Total 10,000

Expenses $ Property tax 300Repair of property 1,200Audit fee 2,000Secretarial fee 1,000Bank charges 500Staff salaries & CPF 1,000

Direct Expenses

Statutory expenses

Indirect expense

YA 2016



Common expenses $ Audit fee 2,000Secretarial fee 1,000

Bank charges 500Staff salaries & CPF (capped at 5% of total investment income of $10,000)

500

Total 4,000

Source of income

Share of common expenses

$

Rental 4,000 x (2,000 / 10,000) 800

Interest 4,000 x (8,000 / 10,000) 3,200

Apportion common expenses to each source of income:

Tax computation (Multiple sources of income)

Statutory expenses



Rental income

Less: Direct expensesProperty tax Repair of property

Less: Share of common expenses

Net rental income

$

3001,200

$2,000

1,500

800

NIL*


Interest income

Less: Direct expenses

Less: Share of common expenses

Net interest income

8,000

NIL

3,200

4,800

* Net rental loss is disregarded.




What is exempt amount?

$Chargeable income before exempt amount 4,800

Less: Exempt amount ($4,800 @ 75%) 3,600

Chargeable income after exempt amount 1,200

Tax payable @ 17% 204.00Less: Corporate income tax rebate (50% x $204) 102.00Net tax payable 102.00

What is CIT rebate?



Tax Exemption Scheme for New Start-up CompaniesThe following companies incorporated after 25 Feb 2013 arenot eligible for the tax exemption scheme:

1) Property development companies Any company that buys or leases land and arranges for a

building to be built on land in order to lease, manage orsell the building

2) Investment holding companies A company whose principal activity is that of investment

holding Derives investment income such as rental, dividend or

interest income

Companies that do not qualify for this scheme will still beeligible for partial tax exemption



Partial tax exemption on chargeable income taxed at 17% of up to $300,000:

Maximum Exempt Amount is $152,500 for each YA

Partial Tax Exemption

First $10,000 @ 75% $7,500

Next $290,000 @ 50% $145,000

Total $300,000 $152,500



Example

Chargeable Income (CI) before Exempt Amount

(2)

120,000

Net CI after Exempt Amount $167,500

Less: Exempt Amount

1. (75% x 10,000) 7,500(50% x 290,000) 145,000 152,500

(1)

320,000

2. (75% x 10,000) 7,500(50% x 110,000) 55,000 62,500

Partial Tax Exemption

$57,500



Corporate Income Tax (CIT) Rate & Tax Rebate

Applicable for YA 2013 to YA 2017*

All companies will receive a corporate income tax (CIT) rebate of the following:

• 30% CIT rebate, capped at $30,000 per YA for YA 2013 to YA 2015; and• 50% CIT rebate, capped at $20,000 per YA for YA 2016 and YA 2017*

CIT rebate is computed on the tax payable after deducting tax set-offs (e.g. foreign tax credit)

Administratively, companies need not factor in the CIT rebate when filing the Estimated Chargeable Income and Form C-S/ C as IRAS will compute and allow it automatically.

17%Corporate Tax Rate

Corporate Income Tax Rebate


* Budget 2016 Enhancement


Things to Note

1. Expenses attributable to non-income producing investments are not deductible

Example:

1. Interest expense incurred to acquire shares that did not yield dividend

2. Property tax incurred for vacant property not rented out



Things to Note

However, an investment holding company can claim current year loss items transferred to it under the group relief system

2. Deficit/loss (expenses in excess of income) from any source of investment is to be disregarded, and cannot be:

Set-off against the income of another source

Carried forward to offset future income

Transferred out under the group relief system

Carried back to the immediate preceding YA



Things to Note

3. Not eligible to claim capital allowances on plant and machinery purchased (e.g. computers).

4. Not eligible to claim for tax benefits under the Productivity & Innovation Credit (PIC) scheme.

.Reason: An investment holding company is not carrying on a

trade or business



Things to Note

5. Industrial Building Allowance (IBA)* is only deductible against the income derived from investments which produce income.

Any IBA that is not fully utilised in a YA is not disregarded.

Unutilised IBA can be carried forward to offset future income, subject to the following conditions:

No substantial change in shareholding

The company continues to derive rental income from the industrial building


* IBA has been phased out. The above note is applicable only to companies who had incurredcapital expenditures on the construction or purchase of industrial buildings or structures on andbefore 22/02/2010.


Things to Note

6. Is income distribution from Real Estate Investment Trusts (REITs) taxable?


The nature, tax treatment and applicable period/Year of assessmentof each REIT distribution are reflected in the Annual DistributionStatement issued by the Central Depository Pte Ltd (CDP).

A REIT distribution is taxable in the hands of corporate unit holdersunless stated otherwise* in the CDP statement.

The REIT distribution is taxable in the Year of Assessment asreflected in the CDP Statement.

* E.g. Distribution is tax-exempt, distribution is a return of capital, etc.


Things to Note

7. Declaration in Form C-S (No IBA/LIA claims)

Items to Declare in e-Form C-S Investment Holding

“Net Profit/Loss before Tax as per Accounts” ( Box 1 of Part B)

To“Unutilised Losses brought forward”

(Box 14 of Part B)

Enter "0"

“Separate Source Income” (Part B, Boxes 15a to 17)

“Revenue” (Box 21 of Part C) and other boxes, where applicable



Things to Note8. Declaration in e-Form C-S (With IBA / LIA claims)

If gross rental income after deductible expenses (before IBA / LIA) is negative, enter “0” in the line item “Net Rental Income”.

Claims for IBA / LIA against rental income should be entered in the line item “Current Year Capital Allowances”

Includes IBA / LIA claims for YA 2016



Common MistakesClaim for non-deductible expenses:

Capital expenditure e.g. acquisition costs of investments;stamp duties and legal fees incurred for purchase of investments; advertising and commission incurred to secure the first tenant for investment property

Pre-commencement expensese.g. Repairs and maintenance incurred prior to commencement of the tenancy of investment property

Claim for indirect expenses over and above 5% of the total gross investment income

Indirect expenses are allowed as a concession but capped at 5% of gross investment income



Common MistakesTax computation presented in trading company’s format

e-Form C


For a sample of tax computation for investment holding company, you can refer to IRAS’ website at iras.gov.sg Businesses > Companies > Working out Corporate Income Taxes > Specific Industries> Investment Holding Companies


Common MistakesUnutilised losses arising from investments is carried forward to future years of assessment

Unutilised losses arising from investments cannot be carried forward to future years ofassessment. To complete “0” for:• Part 2, Box 18 to 24 of e-Form C; or• Part B, Box 11 to 14 of e-Form C-S

e-Form C



SummaryItems Tax Treatment Method of Claiming

Deductible expenses

1. Direct expenses Deduct against each source of income

2. Statutory expenses Apportion to each source of

income3. Indirect expenses capped at 5% of gross investment income

LossesLosses cannot offset:

N.A. • Other sources of income• Future income

Capital Allowances Not allowable, except IBA Claim IBA against income

source Loss Not allowable N.A.Carry-back

Group Relief loss items

Cannot transfer out loss items (except unutilised current year IBA) but can claim loss items transferred to it

Claim loss items transferred to it to arrive at CI



Section 10(1)(a) of ITA


Principal activity is to carry on a business of investment dealing

Owns investments such as properties and shares as a form oftrading stock

To derive trade income from purchase and sale of investments[S10(1)(a)] e.g. gain on sale of real properties and shares

What is an Investment Dealing Company



Investment Dealing CompanyS10(1)(a)

Taxability/ deductibility of gains/ losses of sale of investment

Taxable/ deductible

Deductibility of expenses Expenses allowed in accordance with S14 & S15

Losses Can offset other sources of income/ future income

Capital allowances - Allowable- Unabsorbed CA can offset other sources/ future income

Summary


Company in the Business of Making Investments

Section 10(1)(a) subject to Section 10E of ITA


Principal activity is that of carrying on a business of making investments

Owns investments such as properties and shares for the business of making investments; e.g. a business of letting immovable properties or service apartments

To derive investment income as a trade [S10(1)(a)], subject to S10E restriction

What is a Company in the Business of Making Investments

Refer to e-Tax Guide on IRAS’ website at iras.gov.sgQuick links > e-Tax Guides > Search > Ascertainment of Income from Business ofmaking Investment



S10E Restriction

a. Any outgoings or expenses incurred in respect of investmentswhich do not produce any income are not deductible;

b. Any outgoings or expenses incurred in respect of investmentswhich produce income are only deductible against the incomederived from such investments. The balance of any outgoingsand expenses which cannot be set off in that year shall bedisregarded;

c. Capital allowances are only deductible against the incomederived from investments which produce income. The balanceof any allowances which cannot be set off in that year shall bedisregarded;




S10E Restriction (cont’d)d. IBA is only deductible against the income derived from

investments which produce income. But any IBA which cannotbe fully utilised by the entity in a YA is not disregarded


Unutilised IBA can be carried forward to offset future income, subject to the following conditions:

No substantial change in shareholding

The company continues to derive rental income from the industrial building (whether or not it is in the business of letting of investment property)


* IBA has been phased out. The above note is applicable only to companies who had incurredcapital expenditures on the construction or purchase of industrial buildings or structures on andbefore 22/02/2010.


SummaryBusiness of making investments S10(1)(a) subject to S10E

Taxability/ deductibility of gains/ losses of sale of investment

Not taxable/ not deductible

Deductibility of expenses Only expenses incurred on income-producing investments allowed

Losses Cannot offset other sources of income/ future income

Capital allowances - Allowable- Unutilised CA cannot offset other sources/ future income



Tax Exemption For

Foreign-Sourced Income

Tax Exemption For

Foreign-Sourced Income


Granted to all persons resident in Singapore on the followingsources of foreign income received in Singapore on or after 1 Jun2003:

Tax Exemption for Specified Foreign-source income

Foreign-sourced income has been subject to tax in foreign jurisdiction;

Headline tax rate of foreign jurisdiction is at least 15%; and

Beneficial for tax exemption

Qualifying conditions


Foreign-sourced dividends

Foreign branch profits

Foreign-sourced service income(Rendered in the course of person’s trade through a fixed placeof operation in foreign jurisdiction)


To complete:

e-Form C Box 15 of Part 1(Exempt Income / Loss for Current

Year of Assessment ) Additional Information - Box 20 of Part D (Exemption

on Foreign Dividends, Branch Profits and Service Income Received in Singapore.

e-Form C-S Box 2 of Part B of (Non-Taxable Income)

No need to submit supporting documents unless called upon to do so

How to Claim

Refer to e-Tax Guide on IRAS’ website iras.gov.sgHome > Quick links > e-Tax Guides > Search > Tax Exemption for Foreign-Sourced Income



Foreign Tax Credit (FTC)


When companies derive income from a foreign jurisdiction, their income may be subjected to tax both in the foreign jurisdiction and Singapore (i.e. taxed once in the foreign jurisdiction and then in Singapore)

Example:

Singapore(2nd Tax)

Malaysia(1st Tax)

Rental income remitted into Singapore

Country of Source i.e. where the rental income arises

Country of Residencei.e. where the income is received

Double taxation issue

Company A’s property

Company A

Foreign Tax Credit


For Singapore tax residents, double taxation is relieved by:

Double taxation relief (DTR)

Available to foreign-sourced income remitted from jurisdictions which Singapore has concluded an Avoidance of Double Taxation Agreement (DTA) with

Unilateral tax relief (UTR)

Available to foreign-sourced income remitted from jurisdictions which Singapore has not concluded an DTA with

The reliefs are claimed on a source-by-source and country-by-country basis

Current Foreign Tax Credit (FTC) System

or

Foreign Tax Credit


A DTA is entered into between two jurisdictions seeking to avoid double taxation

It clarifies & assigns the taxing rights to each jurisdiction

To claim DTR, the following conditions have to be satisfied:

The company must be tax resident in Singapore;

Tax has been paid / payable on the income in the foreign jurisdiction in accordance with the provisions in the DTA, and

The income is subject to tax in Singapore

What is an Avoidance of Double Taxation Agreement (DTA)

Foreign Tax Credit

Refer to IRAS’ website at iras.gov.sg for the full list of the DTAs Singaporeconcluded with other jurisdictions:Home > Quick links > International Tax


FTC is the lower of:1) Foreign tax paid;

or2) Singapore tax payable on the foreign-sourced income received

Foreign-sourced income after expenses and partial exemption attributable to that income

xSingapore tax rate

Calculating the Singapore tax payable*:

* FTC is not available in the case of a net foreign loss

Calculating the Foreign Tax Credit (FTC)

Foreign Tax Credit


Foreign Tax Credit (FTC) Pooling System


Objective

To simplify and reduce taxation of foreign income (FI) particularly for companies that are globalising and earning a larger share of their income overseas


Amount of FTC:Source-by-source and country-by-country basisLimited to lower of foreign tax paid and Singapore tax payable on that FI




With effect from YA 2012

Introduction of new FTC pooling system

- all foreign taxes paid on qualifying FI pooled together to compute FTC

- amount of FTC is lower of: (i) pooled foreign taxes paid on qualifying FI; and (ii) total Singapore tax payable on qualifying FI




Qualifying conditions

Foreign income tax is paid on FI in foreign jurisdiction from which FI is derived;

Headline tax rate of foreign jurisdiction from which FI is derived is at least 15% at time FI is received in Singapore; and

Entitled to claim FTC and there is Singapore tax payable on that FI


Refer to IRAS’ website at iras.gov.sgHome > Businesses > Companies > Working out Corporate Income Taxes >Claiming Reliefs >FTC Pooling System



Foreign Country A

(S$)

Foreign Country B

(S$)

Total (S$)

Foreign income remitted

Foreign income taxes paid

Example of benefits of FTC pooling system

10,000

500

20,000

5,000

30,000

5,500

Foreign Tax Credit (FTC) Pooling SystemForeign Tax Credit Pooling System


Under current method of FTC computation (assuming partial tax exemption does not apply)

Foreign Country A

(S$)

Foreign Country B

(S$)

Total (S$)

Foreign income tax paid 500 5,000 5,500

1,700 3,400 5,100Singapore tax payable on the FI (based on prevailing CIT rate of 17% )

FTC available (capped at the lower of foreign tax paid and Singapore tax payable on each FI) 500 3,400 3,900

1,200Net Singapore tax payable on the FI after offsetting FTC ($5,100 – $3,900)




Total(S$)

Decrease in net Singapore tax payable on FI ($5,100 – $3,900) 1,200

Under new FTC pooling system

Total foreign income taxes paid in Countries A and B 5,500

Total Singapore tax payable on FI from Countries A and B 5,100

Net Singapore tax payable on the FI after offsetting FTC ($5,100 – $5,100)

0

5,100FTC available (lower of total foreign taxes suffered and total Singapore tax payable on FI from Countries A and B)




Case Study 1

+ Exemption of Foreign-sourced income+ Foreign Tax Credit



Case Study 1

YA 2016 (Basis period: 01/04/2014 to 31/03/2015)

Investment income $

Singapore dividend income (1-tier exempt) 35,000

Dividend income received from a Malaysia company 100,000

Rental income 35,000

Interest income received from Indonesia 24,000

Other income 10,000

Total income 204,000

Investment Holding CompanyCase Studies


Case Study 1 (cont’d)

Expenses $ Custodian fee (for Singapore tax-exempt dividends)

2,400

Interest on term loan (acquiring property for rental)

45,000

Property tax (property rented out) 1,600Repair and maintenance (property rented out) 7,000Auditor’s remuneration 3,000Bank charges 500Secretarial and tax services 2,000Director’s fee 60,000Depreciation 5,000

Direct expenses

Statutory expenses

Indirect expense

Non-deductible expense



Case Study 1 (cont’d)

Common expenses $ Auditor’s remuneration 3,000Bank charges 500Secretarial and tax services 2,000Director’s fee (capped at 5% of total income) 10,200Total common expenses 15,700

5% Restriction on Indirect Expenses $ Director’s fee 60,000Capped at 5% of $204,000 (total income) 10,200

Indirect expenses allowed 10,200



Tax Computation $ $ $

Singapore tax-exempt dividend 35,000 Malaysia dividend (foreign-sourced) 100,000

135,000Less: Direct expenses – custodian fee 2,400

Share of common expenses(135,000/204,000 x 15,700) 10,389

(12,789)Net dividend income NIL

Malaysia dividend income is exempt under Section 13(8).

Qualifying conditions met:1) Dividend income has been subjected to tax in Malaysia; 2) Headline tax rate in Malaysia is more than 15%; and3) Beneficial for tax exemption

Case Studies



Tax Computation (cont’d)

$ $ $Rental income 35,000 Less: Direct expenses

Interest on term loan 45,000 Property tax 1,600 Repairs and maintenance 7,000

53,600 Less: Share of common expenses

(35,000/204,000 x 15,700) 2,694 (56,294)

Net rental income NIL*

*Net rental loss is disregarded.

Case Studies



Tax Computation (cont’d)$ $ $

Indonesia Interest income (foreign-sourced) ^ 24,000Less: Direct expenses NIL

Share of common expenses(24,000/204,000 x 15,700) 1,847

(1,847)22,153

Other income 10,000Less: Direct expenses NIL

Share of common expenses(10,000/204,000 x 15,700) 770

(770)9,230

Chargeable income before tax exempt income 31,383^ The interest income has been subjected to withholding tax of 10% in Indonesia.

Case Studies



Investment Holding Company$ $

Chargeable income before tax exempt income 31,383

Less: Exempt income

First $10,000 @ 75% (7,500)

Next $21,383 @ 50% (10,692) (18,192)

Chargeable income after tax exempt income 13,191

Tax payable @ 17% 2,242.47

Less: DTR* 1,582.94Tax payable after DTR 659.53

* DTR is the lower of:a. $ 2,400 (Foreign tax suffered in Indonesia); orb. $1,582.94 (Singapore tax payable on foreign interest income received) = {$22,153 – [$22,153/$31,383 x $18,192]} x 17%


Case Studies



$

Tax payable after DTR 659.53


Less: Corporate income tax rebate ($659.53 x 50%*) 329.77

Net Tax payable 329.76

Case Studies


Case Study 2

Trading + Investment Holding Company


Trading + Investment Holding Company

Sales 750,000 Less: Cost of goods sold 345,000 Gross Profit 405,000

Other IncomeDividend (1-tier) 35,000 Interest income 24,000 Rental income 40,000

504,000 Less: Expenses

Custodian fees (for S'pore tax-exempt dividends) 2,400 Property tax (for property rented out) 1,600 Repair and maintenance (for property rented out) 7,000 Audit fee 3,000 Director fees 12,000 Depreciation 1,000 Salaries/bonus/allowances and CPF 80,000 Secretarial fees 2,000

109,000 Net Profit Before Taxation 395,000

YA 2016 (Basis period: 01/04/2014 to 31/03/2015)Case Study 2

Case Studies


Additional Information from the Balance Sheet

Fixed assets additionComputer $1,000

Description of asset

CostS$

100% Base CA

S$

300% Enhanced CA S$

Total CAS$

Tax written down valueS$

Computer* 1,000 1,000 3,000 4,000 Nil

Capital allowances (CA)

* Prescribed in PIC IT and Automation Equipment list.

Trading + Investment Holding CompanyCase Study 2 (cont’d)

Case Studies


Trading + Investment Holding CompanyTax Computation

S$

Net Profit before tax per accounts 395,000

Less: Separate sources of income

Singapore dividends 35,000

Interest income 24,000

Rental income 40,000 99,000

296,000 Add: Disallowable expenses

Depreciation 1,000 Property tax 1,600 Repair and maintenance 7,000 Custodian fees 2,400 12,000

Adjusted profit 308,000

Less: Capital allowances for YA 2016 4,000

Adjusted profit after capital allowances 304,000

Case Studies


Tax Computation (cont’d)Trading + Investment Holding Company

Add: Separate sources of incomeSingapore tax exempt (1-tier) dividend 35,000Less: Custodian fees 2,400 tax exempt

Interest 24,000 Rental 40,000 Less: Property tax 1,600

Repair and maintenance 7,000 31,400 Chargeable income before exempt amount 359,400

Less: Exempt amountFirst $10,000 @ 75% 7,500 Next $290,000@ 50% 145,000 152,500

Chargeable income after exempt amount 206,900

Tax payable @ 17% 35,173.00 Less: Corporate income tax rebate [50% x 35,173] (17,586.50)Net tax payable 17,586.50

Case Study Studies

100


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This information aims to provide a better general understanding of IRAS’ practices and is not intended tocomprehensively address all possible tax issues that may arise. This information is correct as 29 Sep 2016. While everyeffort has been made to ensure that this information is consistent with existing law and practice, should there be anychanges, IRAS reserves the right to vary our position accordingly.

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