Understand Taxable Income
For income tax purposes in Singapore, the taxable income may relate to the following:
Profits or gains derived from business or trade;
Income derived from investments such as rental, interest and dividends;
Property related profits or gains such as premiums and royalties; or
Any other type of gains that is an income or earning in nature
The company can have deductions (such as tax reliefs, capital allowances and business expenses) to lower its tax liabilities.
1. Under What Circumstances is Income Taxable?
Singapore companies (includes foreign branches) are required to pay income tax for:
income derived from or accrued in Singapore; or
income received in Singapore from a foreign country.
2. Income Received Outside Singapore
According to the Income Tax Act under Section 10(25), any income from overseas is deemed to be received in Singapore in the following situations:
Brought into or remitted into Singapore;
Money used to clear a debt directly related to a business carried out in Singapore; or
Money used to invest in movable property transferred into Singapore. For instance, raw materials or equipment related to the business.
Section 10(25) is only applicable to the foreign sourced income received in Singapore when these earnings relate to a company which is located in Singapore or is tax resident in Singapore. Therefore, the foreign businesses that are not operating from or in Singapore can remit their income into Singapore without being taxed. This tax benefit encourages foreign businesses to use the Singapore's fund management and banking facilities.
An administrative concession also applies for foreign income that is used for foreign investments without being repatriated to Singapore. This is not seen as Singapore based income under section 10 (25). The tax point is when the profit of these realized investments are remitted into Singapore. This is in line with Government's initiative to promote regionalization of businesses.
3. Understand Non-Taxable Income
In Singapore, non-taxable income includes capital gains and below are some example:
Gains on capital transactions or foreign exchange; or
Gains related to the proceeds of selling property, plant and equipment.
When is Income Exempt from Tax?
Singapore Income Tax Act lists certain incomes as exempt from tax, but subject to meeting specific conditions.
The following incomes are specifically exempted from tax:
the company's profits after disposing of equity investments;
foreign sourced service income, branch profits and foreign dividends income received by a Singapore tax resident company; and
income from shipping related activity from a shipping company.
For more information or to meet up with our company tax team, please complete the Contact Form and our tax service team will contact you.