Q1 March Newsletter - bdo singapore

Temporary Liberalization of Income Tax
Exemption for Foreign-Sourced Income Received in
Singapore
Following the budget announcement on 22 January 2009
with regard to the temporary lifting of the conditions
for remittance of foreign-sourced income, the IRAS had
subsequently released an e-guide on 20 February 2009
which specified in details on the nature of the foreignsourced
income and the conditions for the exemption.
Foreign-Sourced Income Exemption (FSIE)
Currently, under the Foreign-Sourced Income Exemption
(FSIE), foreign-sourced dividends, foreign branch profits
and foreign-sourced service income received in Singapore
by any resident non-individual or any individual resident in
Singapore through a partnership in Singapore are exempt
from tax provided the following conditions are met:
a. In the year the income is received in Singapore, the
headline tax rate (i.e. the highest corporate tax rate of the
foreign jurisdiction; it need not be the actual rate of tax
imposed on the foreign income) of the foreign jurisdiction
from which the income is received is at least 15%;
b. The specified foreign income must have been subject
to tax (i.e. tax must have been paid or is to be paid and
does not include deferred tax) in the foreign jurisdiction
from which they were received. The IRAS has clarified
that foreign-sourced income would be considered to
have met the “subject to tax” requirement if the income is
exempted from tax in the foreign jurisdiction as a direct
consequence of that foreign jurisdiction granting a tax
incentive for carrying out substantive business activities
in that jurisdiction; and
c. The IRAS is satisfied that the tax exemption would be
beneficial to the person resident in Singapore.
Deemed remittance
Currently, under Section 10(25) of the Singapore Income
Tax Act (SITC), foreign-sourced income is considered to
have been received in Singapore if :
a) the income is remitted to, transmitted or brought into,
Singapore; or
b) the income is applied in or towards satisfaction of any
debt incurred in respect of a trade or business carried on
in Singapore; or
c) the income is applied to purchase any movable property
which is brought into Singapore.
New tax treatment
To help businesses to tap on their foreign funds during this
current period of tight credit, the conditions (a) to (c) as stated
above under the FSIE are temporarily lifted. Additonally,
the FSIE scope is also temporarily expanded to cover all
foreign-sourced income (including interest, rental, royalty
etc). However, exemption applies to foreign-sourced income
that is earned on or before 21 January 2009 and received or
deemed to be received in Singapore during the period from
22 Jan 2009 to 21 January 2010.
In determining whether the foreign-sourced income has
accrued to a taxpayer in Singapore on or before 21 January
2009, the Comptroller of Income Tax (CIT) will take guidance
from considerations set out in the Financial Reporting
Standard (FRS) 18 on revenue recognition for financial
reporting purposes.
In the case of foreign dividends, CIT considers such dividend
to have accrued to a taxpayer in Singapore on or before 21
January 2009 only if the dividend was actually paid by a nonresident
company on or before 21 January 2009 to the taxpayer
in Singapore. Hence, the above will not cover any proposed
dividend payment provided in the financial accounts on or
before 21 January 2009.
However, as a concession, in the case of dividends paid by
non-resident companies which are substantially (more than
50% of the ordinary shares) and directly owned by specified
resident taxpayers on 21 January 2009, the liberalized FSIE
Scheme will also apply to dividends received during the 1year
exemption period where they are paid out by revenue
reserves accumulated up to 21 January 2009 by their directlyowned
foreign subsidiaries.
Both foreign-sourced income and capital funds
kept outside Singapore
Currently, where a taxpayer has kept both foreign-sourced
income and capital funds outside Singapore, CIT may accept,
as an administrative concession, the taxpayer’s claim that the
funds remitted by him to Singapore comprises solely only
capital funds provided that the taxpayer could track his funds
and demonstrate that
(a) after remittance, funds remaining outside Singapore is
more than the foreign-sourced income which has yet to be
remitted to Singapore; or
(b) funds remitted are less than the capital funds invested
outside Singapore (net of any losses incurred on the capital
account).