In Singapore, the tax treatment of foreign income depends on whether it is considered taxable or exempt from tax. Singapore follows a territorial tax system, which means that income derived from outside Singapore is generally not subject to tax in Singapore unless it is received through or remitted into Singapore.
Here are the key points to consider:
1. Tax Exemption for Foreign-Sourced Income: Singapore provides tax exemptions for certain categories of foreign-sourced income. If a Singapore company receives foreign income that falls under these exemptions, it will not be taxed in Singapore. These exemptions include foreign-sourced dividends, foreign branch profits, and foreign-sourced service income, subject to specific qualifying conditions.
2. Foreign Income Subject to Tax: If a Singapore company earns foreign income that is not covered by the tax exemptions, it may be subject to tax in Singapore. This typically includes income derived from a trade or business conducted through a permanent establishment (PE) situated outside Singapore. In such cases, the foreign income may be taxable in Singapore.
3. Double Taxation Agreements (DTAs): Singapore has an extensive network of DTAs with many countries to avoid double taxation. These agreements provide relief from double taxation by granting tax credits or exemptions for foreign income. The specific terms of the relevant DTA between Singapore and the foreign country will determine the tax treatment of the foreign income.
4. Foreign Tax Credit: If a Singapore company is taxed on its foreign income in both the foreign country and Singapore, it may be eligible for a foreign tax credit in Singapore. The foreign tax credit is generally limited to the amount of tax payable in Singapore on the foreign income. This ensures that the income is not subject to double taxation.
It’s important to note that tax laws can be complex and subject to change. Therefore, it is advisable to consult with a qualified tax professional or the Inland Revenue Authority of Singapore (IRAS) for the most up-to-date and accurate information regarding the tax treatment of foreign income for Singapore companies.