What is foreign-sourced income?
Foreign sourced income refers to foreign income from outside Singapore.
Generally, such foreign-sourced income is taxable when the company received it in Singapore.
Tax exemption is only applicable to tax resident companies and for foreign-source income that is not related to a business or trade that takes place in Singapore.
For the foreign-source income that relates to business or a trade performed in Singapore, the income is taxable in all situations whether or not the company received it in Singapore.
When is foreign-sourced income considered “received” in Singapore?
A foreign-sourced income is regarded as received in Singapore when the foreign income is:
- remitted to or brought into Singapore; or
- used to cover any debt that is a result of business or trade carried out in Singapore; or
- used to purchase movable property with the intention to bring it into Singapore.
There are three main categories of specific foreign-source income:
1. Foreign dividend income
Foreign-sourced dividends are dividend payments from a company that is not a tax resident in Singapore.
2. Foreign branch income
A foreign branch is the business function of a Singapore company that has a branch registered overseas.
Any profits of a foreign branch are related to activities that earn income from a business or trade that take place by the entity outside Singapore. It will exclude the non-business or non-trade income of the overseas branch.
3. Foreign service income
Service income relates to the type of income sourced from consultancy, technical, professional, or similar services provided by a resident taxpayer as part of their business, profession or trade.
This type of income is seen as foreign-sourced if the place of operation is fixed and located overseas.
However, in the event the services are not performed through a fixed overseas location, these service income will be deemed to be Singapore-sourced even in the following situations:
a) Income earned from services offered outside Singapore and
b) Tax is due in the overseas country in line with Singapore Double Taxation Agreement with the foreign country.
What is a fixed place of operation?
A fixed place of operation relates to office space (or other floor space) or place of management where services are provided by a resident taxpayer and their team of employees.
Any place of operation that is classified as fixed will relate to the following conditions:
a) The resident taxpayer is not using the space for the sole purpose of preparatory or auxiliary activities.
b) The resident taxpayer intends to use the office area to perform their profession, business or trade.
c) The office space has features of permanence.
d) The office space is available to the resident taxpayer on a permanent basis.
However, a resident taxpayer that has their presence at a particular location does not mean the premises are at their full disposal.
For instance, this could relate to a specified taxpayer visiting a customer’s place of business regularly to conduct an audit service.
This limited access does not mean space is available to the taxpayer in their business, profession or trade. Therefore, this situation would suggest that the office space is not a fixed place of operation.
Should you need assistance or would like to find out more about tax services in Singapore, please send an email to Contact@AccountingSolutionsSingapore.com, and our tax advisor will contact you.