Foreign Tax Credit – Can it be claimed in Singapore?
Foreign income earned by a Singapore-based company may face taxation twice—first in the foreign jurisdiction and then upon remittance into Singapore. To mitigate double taxation for Singapore organizations, there are two types of foreign tax credits available.
Double Tax Relief (DTR)
Double Tax Relief (DTR) is a tax credit provided under an Avoidance of Double Taxation Agreement (DTA) to reduce double taxation. Singapore tax residents can use DTR to claim credit for the total tax paid to a foreign authority against the Singapore tax owed on the same income. DTR is limited to the lower of the foreign tax paid and the Singapore tax that would have been payable on the same income, provided DTA provisions are adhered to.
Unilateral Tax Credit (UTC)
Introduced in the year of assessment 2009, UTC applies to all foreign incomes received by Singaporean residents not covered by DTAs.
For a company to qualify for a Foreign Tax Credit:
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The company must be a Singapore Tax Resident for the relevant base year.
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Tax must be payable or paid to foreign jurisdictions on the relevant foreign income.
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Income earned from abroad must be taxable in Singapore.
Claiming DTR is subject to terms and conditions specified in the relevant DTA with the DTA partner. Companies will lose the tax credit benefit if no profit is made in the assessment year.
Foreign passive income (e.g., interest, dividends) is generally taxed overseas in the year of receipt but in Singapore, the same is taxed in the year of remittance. FTC is given when the income is taxed in Singapore.
Any company with a foreign permanent establishment (PE) and income from that foreign PE is usually taxable overseas. The FTC is only applicable when the foreign earnings are also taxed in Singapore.
Foreign Tax Credit (FTC) is calculated as the lower of the actual foreign tax paid or the Singapore tax on the net foreign income.
Net foreign income means income earned from outside Singapore after deducting related expenses.
To claim the FTC, the company must file a Corporate Income Return using Form-C. FTC cannot be claimed if Form C-S or Form C-S (Lite) is used for filing the return. While there is no requirement to submit supporting documents with IRAS for claiming FTC, authorities may request these documents for clarification.
The following documents may be requested:
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Tax authority where foreign tax was paid.
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Description of the foreign income.
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Full details of services provided, whether earnings relate to a permanent establishment in the foreign country, and the basis for the claim.
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Details of the foreign company making the payment.
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A copy of the withholding tax voucher and relevant details.
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Gross income, the amount, and withholding tax rate (in foreign currency and SGD equivalent).
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Relevant DTA for the FTC claim.
Starting from 16 Nov 2021, a written notice is required to be furnished within a year of adjustment by the company if the FTC amount becomes excessive due to a downward adjustment of foreign tax paid in a foreign jurisdiction. The notice can be submitted through the Revise/Object to Assessment digital service at mytax.iras.gov.sg or myTax Mail.
Foreign Tax Credit Pooling System
The Foreign Tax Credit Pooling System offers flexibility in claiming foreign tax credits, reducing related compliances and Singapore taxes payable on remitted foreign income. Singapore tax residents may opt for the foreign tax credit pooling system when claiming foreign tax credit on income for which they have paid foreign tax.
Under the pooling system, the foreign tax credit is the lower of:
The actual amount of pooled foreign tax paid on the foreign income under pooling.
The total amount of Singapore tax attributable to the same pool of foreign income (net of expenses).
In conclusion, understanding and harnessing the benefits of Foreign Tax Credit (FTC) in Singapore can significantly alleviate the burden of double taxation on foreign income for organizations based in the country. With Double Tax Relief (DTR) and Unilateral Tax Credit (UTC) as valuable tools, businesses can navigate the complexities of international taxation more effectively. However, the process of claiming FTC can be intricate and subject to evolving regulations, making it essential for companies to stay well-informed and compliant.
At Growth Partners, we specialise in simplifying the financial intricacies of international business operations. If you’d rather focus entirely on your core business objectives and leave the paperwork and financial decisions to experts, we’re here to help. Schedule your free consultation today, and let us tailor financial plans that perfectly align with the unique needs of your company. With Growth Partners, your financial journey is in trusted hands.
The material / information contained above or other parts of this website is for general information purposes only and should not be relied upon for tax, legal or accounting advice. You should consult an expert in the relevant field before engaging in any transaction since applicability of the above may be different on the facts and circumstances of your situation. While we have made every attempt to ensure that the information contained on this website has been obtained from reliable sources, we are not responsible for any errors, omission or the results obtained by using the above information. We are not responsible for updating the above for changes in law, practices, or interpretation.
