TAX NEWS - January 2010

Singapore: Temporary exemption for foreign-source income nearing end

The temporary income tax exemption for foreign-source income received in Singapore will expire on 21 January 2010. To address the economic conditions and help ease the credit crunch by enabling Singapore-resident non-individuals to repatriate funds from their overseas investments and operations to meet business financing needs in Singapore without incurring an additional tax burden, the Minister for Finance announced during the 2009 Budget Statement on 22 January 2009 a one-year expansion of the scope of the foreign-source income exemption scheme under section 13(8) of the Income Tax Act (ITA) to cover all foreign-source income and, at the same time, a one-year suspension of the conditions for an exemption of foreign-source income remitted to Singapore.

According to a circular issued by the Inland Revenue Authority of Singapore (IRAS) in February 2009, the scope of income covered by section 13(8) is temporarily expanded to cover all foreign-source income (including foreign interest, royalty or rental income) accrued on or before 21 January 2009 provided the income is remitted/deemed remitted to Singapore by resident non-individuals and resident individual partners of Singapore partnerships between 22 January 2009 and 21 January 2010. Any foreign-source income received in Singapore on or after 22 January 2010 by such taxpayers will be subject to the current provisions of section 13(8). In addition, the "subject to tax" and "foreign headline tax rate of at least 15%" conditions for the purpose of the tax exemption are also temporarily lifted for foreign-source income accrued on or before 21 January 2009 and remitted/ deemed remitted during the one-year exemption period.

Since the window to take advantage of the income tax exemption for foreign-source income received in Singapore is now coming to a close, taxpayers that have any unremitted foreign-source income accrued up to 21 January 2009 may wish to consider remitting such income to Singapore on or before the deadline of 21 January 2010.

It also should be noted that the IRAS clarified on 7 August 2009 that relevant resident taxpayers that own directly 50% or less of the ordinary shares of nonresident companies as at 21 January 2009 may make an application under section 13(12) of the ITA for a tax exemption on the dividends to be received from such companies. The application must be made before the foreign dividends are received in Singapore using a prescribed application form.