seminar on taxation of investment holding companies

© 2017 Inland Revenue Authority of Singapore. All Rights Reserved. 1

Presentation by Inland Revenue Authority of Singapore

For tax seminar held on 27 Oct 2017

Twitter.com/IRAS_SG Facebook.com/irassgiras.gov.sg

Seminar on Taxation of

Investment Holding Companies


Agenda

Company’s Business Records and Tax Filing Obligations

Investment Holding Company

What is an investment holding company

Types of income earned by an investment holding company

Deductible expenses

Basis of assessment

Things to note

Common mistakes

Investment Dealing Company

What is an investment dealing company

Company in the Business of Making Investments

What is a company in the business of making investments

S10E Restriction


Agenda

Tax Exemption for Foreign-Sourced Income

Foreign tax credit

Double taxation issue

Current tax treatment

What is a double taxation agreement

Examples of double taxation agreement

Calculating the foreign tax credit

Foreign Tax Credit Pooling System

Case Studies

Question & Answer


After this seminar, you will:

Understand basic taxation of investment holding company

Understand a company’s annual tax filing obligations

Be able to prepare a tax computation and e-File your Form C-S/ C for an investment holding company


Company’s Business Records and Tax Filing Obligations


To Start Right: Proper Business Records and Accounts

Companies are required to keep proper records and accounts of business

transactions

Regardless on whether assessment is finalized, records have to be kept

and retained for:

• At least 5 years e.g. Records for period 1 July 2015 to 30 June 2016 (YA

2017) should be kept up to 31 Dec 2021.

Using an accounting software helps business improve record-keeping and

comply with tax obligationsRecommended

IRAS’ Accounting Software Register lists the accounting software that is able to

meet IRAS’ technical requirements

The accounting software is also considered as qualifying equipment under the

PIC scheme

Refer to IRAS’ website at iras.gov.sg

(1) Businesses> Companies> Learning the basics of Corporate Income Tax>

Business Records That Companies Must Keep

(2) Businesses> Companies> Getting it right> IRAS Accounting Software Register

https://www.iras.gov.sg/irashome/Businesses/Companies/Learning-the-basics-of-Corporate-Income-Tax/Business-Records-That-Companies-Must-Keep/

https://www.iras.gov.sg/irashome/Businesses/Companies/Getting-it-right/IRAS-Accounting-Software-Register/


Estimated Chargeable Income (ECI)

Income Tax Return (Form C-S/ C)

When to file e-File# within 3 months after end of financial

year

Waiver of ECI filing: You do not need to file

ECI for a particular financial year if:

a) annual revenue is not more than $5

million*; and

b) ECI is nil

*For company with financial year ending in or

before June 2017, the annual revenue

threshold is $1 million

If you are filing Form C

Submit a complete tax return comprising of the

following:

- Form C and appendix (Form IRIN 301)

- audited/unaudited financial statements and

detailed P/L

- tax computation and supporting schedules

- relevant forms

e-File# Form C by 15 Dec each year

If you are filing Form C-S

e-File# Form C-S by 15 Dec each year

Notification of

filing

requirement

Company will receive a reminder letter to file

the ECI in the last month of the financial year

An e-Filing notification letter will be sent to the

company’s registered address by May of each

year

Company’s Filing Obligations


Estimated Chargeable Income

(ECI)

Income Tax Return

(Form C-S/ C)

Failure to file Estimated assessment may be raised^ Estimated assessment may be raised^

Letter of Composition and/or Summons may

be issued

If you are in a

tax loss

position

A NIL ECI (ECI = 0) is required unless the

company has met the qualifying conditions

for waiver of ECI filing

You are still required to submit an Income Tax

Return (Form C-S/ C)

# Please authorise yourself/third party as an “Approver” for Corporate Tax Matters via the e-Services Authorisation

System (EASY)

^ If you disagree with the estimated tax assessment, please lodge an objection within two months from the date of

the Notice of Assessment with your reasons for not filing on time and grounds of objection

Company’s Filing Obligations

9© 2017 Inland Revenue Authority of Singapore. All Rights Reserved.

Types of Income Tax Return

File Form C

and Appendix on Additional

Information

on Income & Deductions

(Form IRIN 301)

File Form C-S

(Simplified Tax Filing

for Small Companies)

For companies that meet

qualifying conditions

OR


Qualifying Conditions for Filing Form C-S

Company:Does not claim any of

the following:

• Is incorporated in Singapore

• Has an annual revenue* of

$5 million or below

• Derives only income taxable

at 17%

• Carry-back of Current Year

Capital Allowances/Losses

• Group Relief

• Investment Allowance

• Foreign Tax Credit and

Tax Deducted at Source

* For an investment holding company, revenue refers to its investment income (e.g. 1-tier dividend income and interest income). Effective YA 2017, the annual revenue threshold for filing Form C-S is increased from $1 million to $5 million.

Note: Companies that do not meet the conditions have to submit to IRAS a full set of tax return

comprising the Form C, financial statements, detailed profit and loss statement, tax computation and

supporting schedules.


How to Access IRAS’ e-Services?

Company Administrator

e-Services Authorisation System (EASY)

Company Staff/ Tax Agent

Login to mytax.iras.gov.sg

Access

code* and

SingPass/

IRAS Pin

Perform the SingPass 2-Step Verification (2FA)

START!

Use e-Services

2FA ready?

SingPass/

IRAS Pin

Authorise

*Access Code is a unique password issued and sent to company’s registered address shortly after its

incorporation. Please request a new Access Code if you have misplaced your access code or its existing Access

Code is no longer valid. The request form is available at IRAS website: www.iras.gov.sg > e-Services >

Businesses > Companies > EASY

http://www.iras.gov.sg/



Online system that allows organisations to authorise their

employees/ third party to access e-Services on their behalf

All authorisations of staff and directors/ tax agent must be done at

EASY Tax agent firms will also need to authorise their individual staff via EASY

before they can access the e-Services of specific clients.

Log in to EASY using your company’s Access Code

For guidance,

refer to User

Guides on IRAS’

website at

iras.gov.sg

- e-Services >

Others > EASY

>Getting

Started

Access Code application form


Preparer

Approver IRAS

• A preparer prepares the application/ form

for submission to an Approver

• The preparer does not have the rights

to submit directly to IRAS

• An approver approves or edits, and

submits the application/ form to IRAS

• The approver can also prepare the

application/ form and submit it to IRAS

(for companies without the Preparer role)



Basis of Assessment

Income is assessable on a preceding financial year basis

Year of Assessment (YA)

year in which income tax is charged

current YA is YA 2017

Basis Period for a YA

the period of income relevant to the YA

e.g. 1 Jan 2016 to 31 Dec 2016 (YA 2017)

1 Apr 2015 to 31 Mar 2016 (YA 2017)

1 Jul 2016 to 30 Jun 2017 (YA 2018)



Taxable Income

Income tax is payable on:

Income received in Singapore

from outside Singapore

(i.e. foreign income received

in Singapore)

E.g. Rental income from

rented properties in

Singapore

E.g. Interest income from

a foreign bank outside

Singapore that is

remitted to Singapore

Income accruing in or derived

from Singapore

(i.e. income sourced in

Singapore)



Principal activity is the passive holding of investments

Owns investments such as properties and shares for the

long-term

Derives investment income, passive in nature, such as:

• Dividend [S10(1)(d)]

• Interest [S10(1)(d)]

• Rental income [S10(1)(f)]


What is an Investment Holding Company


Dividend Income - S10(1)(d)

Singapore-sourced Dividend Income

Current Tax Treatment

Singapore adopts a one-tier corporate tax system

Tax paid by a Singapore company on its chargeable

income is the final tax

Therefore, all dividends paid by a Singapore company are

exempt from tax in the hands of the shareholders




Foreign-sourced Dividend Income


Foreign-sourced dividend received in Singapore is taxable

at 17% (i.e. current corporate tax rate) unless tax exempt

For Singapore tax residents, double taxation is relieved by:

Double taxation relief under tax treaties or

Unilateral tax relief



Tax Exemption for Foreign-sourced Dividend

Granted to all persons resident in Singapore

Provided the following conditions are met:

• Foreign-sourced dividend income has been subjected to

tax in foreign jurisdiction;

• Headline tax rate of foreign jurisdiction is at least 15%; and

• Beneficial for tax exemption





Concessionary “group” Treatment


All investments in shares and stocks are divided into 4 groups

Group 1 Non-income producing shares (whether local or foreign

shares)

Group 2 Shares which generate tax-exempt dividend income

(e.g. one-tier and foreign-sourced dividend income

remitted to Singapore in the year and exempted from

tax)

Group 3 Income producing shares in overseas companies where

dividend income is remitted to Singapore in the year and

taxable in Singapore.

Group 4 Income producing shares in overseas companies where

dividend income is not remitted to Singapore in the year.




Group 1

Expenses are not deductible as the expenses incurred on the

shares do not produce dividend income taxable in Singapore.

Group 2

Allows the deficit (expenses in excess of dividend income) arising

within a group from any block of shares for a particular year to

offset the net dividend income for the same year from other blocks

of shares within the same group

Net deficit of any group shall be disregarded and cannot be set-off

against net dividend income of another group or other sources of

income




Group 3

Allows the deficit (expenses in excess of dividend income) arising

within a group from any block of shares for a particular year to

offset the net dividend income for the same year from other blocks

of shares within the same group

Net deficit of any group shall be disregarded and cannot be set-off

against net dividend income of another group or other sources of

income

Group 4

Expenses are not deductible as the expenses incurred on the

shares do not produce dividend income taxable in Singapore but

may be carried forward*.


* Refer to e-Tax Guide “Liberalised treatment of expenses incurred in Singapore to

derive foreign income” on IRAS’ website. www.iras.gov.sg



Example of the Concessionary “group” Treatment

Shares in

companyNet dividend

income / (deficit)

Without

concession

With

concession

A $1m $1m $1m

B ($2m) Disregarded ($2m)

Net dividend income: $1m NIL*

A company remits the dividend income it receives from foreign companies A and B (i.e. same group).


* Net deficit is disregarded



Interest Income - S10(1)(d)


Taxable at 17% (i.e. current corporate tax rate) when accrued in or remitted to Singapore

For Singapore tax residents receiving foreign-sourced interest, double taxation is relieved by:





Rental Income - S10(1)(f)


Taxable at 17% (i.e. current corporate tax rate) when accrued in

or remitted to Singapore

For Singapore tax residents receiving foreign-sourced rental

income, double taxation is relieved by:




Block Basis Concession

The income producing properties form a single “block”; where netrental loss from one property is deductible against net rentalincome from other properties

This excludes owner-occupied or vacant properties (non-income producing properties)


Rental Income - S10(1)(f)

Example of the “Block Basis Concession”

Without

concession

With concession

Property A:

Net rental income of $30,000$30,000 $30,000

Property B:

Net rental loss of $40,000Disregarded ($40,000)

Net rental income $30,000 NIL*

A company rented out its properties A and B.

* Net loss will be disregarded



Type of

IncomeTax Treatment

Dividend

All dividends paid by a Singapore resident company are exempt from tax in the hands of the shareholders

Foreign-sourced dividend received in Singapore is taxable at 17% (i.e. current corporate tax rate), with tax exemption or tax relief available subject to qualifying conditions

Dividend income is taxed on a group treatment basis

Interest Interest income is taxed when accrued in or remitted to

Singapore

Rental

Source of rental income is based on where the property is situated

Rental income is taxed on a block basis

Summary of Common Types of Passive Source Income



Deductible expensesDirect expenses Statutory and Regulatory

expenses

Indirect expenses

What is it? • Expenses directly

incurred to earn

investment income

• Expenses incurred in

accordance with statutory

and regulatory provisions

• Expenses not directly

incurred to earn

investment income

Deductibility • Deductible against the

respective source of

investment income

• Before YA 2014, allowed

as an administrative

concession

• From YA 2014, deductible

under S14X of the ITA

• Apportion to the

respective source of

investment income

• Generally not deductible

• As a concession, indirect

expenses not exceeding

5% of the total gross

investment income is

deductible

• Apportion to the respective

source of investment

income

Examples • Custodian fees (for

income producing

shares)

• Property tax, insurance,

repairs & maintenance

(for rental properties)

• Interest expense (on

loan taken to acquire

shares / property)

• Accounting fees

• Annual listing fees

• Audit fees

• Bank charges

• Income tax service fees

• Printing and stationery

• Secretarial fees

• Directors' fees

• Office rental

• Office telephone charges

• Office water and light

• Staff salaries

• Transport expenses

(exclude expenses

incurred on S-plated cars

which are not deductible)



Example 1 (One source of income)

Investment income $

Rental income 3,000

Expenses $

Property tax 300

Repair of property 500

Audit fee 2,000

Secretarial fee 1,000

Bank charges 500

Staff salaries & CPF 1,000

Direct expenses

Statutory /Regulatory

expenses

Indirect expenses

YA 2017



Rental income

Less: Direct expenses

Property tax

Repair of property

Less: Statutory expenses

Audit fee

Secretarial fee

Bank charges

Less: Indirect expenses

Less: Staff salaries & CPF (Lower of actual

expense or 5% of gross rental income)

$

300

500

2,000

1,000

500

$

3,000

800

3,500

150

Net rental income / loss

Chargeable Income before exempt amount

Tax payable @17%

NIL

NIL

NIL

Tax computation (One source of income)

(Net rental loss is disregarded)



Example 2 (Multiple sources of income)

Investment income $

Rental income 2,000

Interest income 8,000

Total 10,000

Expenses $

Property tax 300

Repair of property 1,200

Audit fee 2,000


Bank charges 500

Staff salaries & CPF 1,000

Direct

Expenses

Statutory

/Regulatory

expenses

Indirect expenses

YA 2017



Common expenses $

Audit fee 2,000


Bank charges 500

Staff salaries & CPF (capped at 5% of total

investment income of $10,000)

500

Total 4,000

Source of

income

Share of common

expenses

$

Rental 4,000 x (2,000 / 10,000) 800

Interest 4,000 x (8,000 / 10,000) 3,200

Apportion common expenses to each source of income:

Tax computation (Multiple sources of income)

Statutory/ Regulatory

expenses



Rental income


Property tax

Repair of property

Less: Share of common expenses

Net rental income

$

300

1,200

$

2,000

1,500

800

NIL*


Interest income



Net interest income

8,000

NIL

3,200

4,800

* Net rental loss is disregarded.




What is exempt amount?

$

Chargeable income before exempt amount 4,800

Less: Exempt amount ($4,800 @ 75%) 3,600

Chargeable income after exempt amount 1,200

Tax payable @ 17% 204.00

Less: Corporate income tax rebate (50% x $204) 102.00

Net tax payable 102.00

What is CIT rebate?



Tax Exemption Scheme for New Start-up Companies

The following companies incorporated after 25 Feb 2013 are

not eligible for the tax exemption scheme:

1) Property development companies

Any company that buys or leases land and arranges for a

building to be built on land in order to lease, manage or

sell the building

2) Investment holding companies

A company whose principal activity is that of investment

holding

Derives investment income such as rental, dividend or

interest income

Companies that do not qualify for this scheme will still be

eligible for partial tax exemption



Partial tax exemption on chargeable income taxed at 17% of up to $300,000:

Maximum Exempt Amount is $152,500 for each YA

Partial Tax Exemption

First $10,000 @ 75% $7,500

Next $290,000 @ 50% $145,000

Total $300,000 $152,500



Corporate Income Tax (CIT) Rate & Tax Rebate


* Budget 2017 Enhancement

All companies will receive a corporate income tax (CIT) rebate of the

following:

50% CIT rebate, capped at $20,000 for YA 2016

50% CIT rebate, capped at $25,000 for YA 2017*

20% CIT rebate, capped at $10,000 for YA 2018*

CIT rebate is computed on the tax payable after deducting tax set-offs

(e.g. foreign tax credit)

Administratively, companies need not factor in the CIT rebate when

filing the Estimated Chargeable Income and Form C-S/ C as IRAS will

compute and allow it automatically.

17%


Things to Note

1. Expenses attributable to non-income producing investments are

not deductible

Example:

1. Interest expense incurred to acquire shares that did not yield

dividend

2. Property tax incurred for vacant property not rented out



Things to Note

However, an investment holding company can claim current year

loss items transferred to it by a related company under the group

relief system

2. Deficit/loss (expenses in excess of income) from any source of

investment is to be disregarded, and cannot be:

Set-off against the income of another source

Carried forward to offset future income

Transferred out under the group relief system

Carried back to the immediate preceding YA



Things to Note

3. Not eligible to claim capital allowances on plant and machinery

purchased (e.g. computers).

4. Not eligible to claim for tax benefits under the Productivity &

Innovation Credit (PIC) scheme.

.Reason: An investment holding company is not carrying on a

trade or business



Things to Note

5. Is income distribution from Real Estate Investment Trusts (REITs)

taxable?


The nature, tax treatment and applicable period/Year of assessment of

each REIT distribution are reflected in the Annual Distribution

Statement issued by the Central Depository Pte Ltd (CDP).

A REIT distribution is taxable in the hands of corporate unit holders

unless stated otherwise* in the CDP statement.

The REIT distribution is taxable in the Year of Assessment as reflected

in the CDP Statement.

* E.g. Distribution is tax-exempt, distribution is a return of capital, etc.


Things to Note

6. Declaration in e-Form C-S (No IBA/LIA claims)

Items to Declare in e-Form C-S Investment Holding

“Net Profit/Loss before Tax as per Accounts”

( Field 1 of Part B)

To

“Unutilised Losses brought forward”

(Field 14 of Part B)

Enter "0"

“Separate Source Income”

(Part B, Field 15a to 17)

“Revenue” (Field 21 of Part C) and other Fields,

where applicable



Things to Note

7. Arm’s length fee for IHC providing routine support services to related companies


All companies, including Investment Holding Companies (IHC) need to charge

arm’s length fee on services provided to their related companies.

To ease administrative and compliance burden, IRAS is prepared to accept a

5% mark-up on costs as a reasonable arm’s length charge for certain routine

support services provided by companies to their related companies, subject to

the conditions:

• the services are those listed in Annex C of the e-Tax Guide on Transfer

Pricing Guidelines;

• the same services are not provided to an unrelated party; and

• all costs (direct and indirect) relating to the services performed are taken

into account in computing the 5% mark-up

For a IHC which provides services to its related companies, 5% mark-up on its

cost base will be accepted as a reasonable arm’s length fees provided it can

satisfy the 3 conditions

The cost base should include:

Direct cost relating to the provision of services;

Common overheads apportioned on reasonable basis to service; and

income and investment income

https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/e-Tax_Guides/etaxguide_CIT_Transfer Pricing Guidelines_4th.pdf


Common Mistakes

Claim for non-deductible expenses:

Capital expenditure

e.g. acquisition costs of investments; stamp duties and legal

fees incurred for purchase of investments; advertising and

commission incurred to secure the first tenant for investment

property

Pre-commencement expenses

e.g. Repairs and maintenance incurred prior to

commencement of the tenancy of investment property

Claim for indirect expenses over and above 5% of the total gross investment income

Indirect expenses are allowed as a concession but capped at 5% of

gross investment income



Common MistakesInvestment Holding Company

For a sample of tax computation for investment holding company, you can refer to

IRAS’ website at iras.gov.sg

Businesses > Companies > Working out Corporate Income Taxes > Specific Industries>

Investment Holding Companies

e-Form C

Form C completion


Common MistakesUnutilised losses arising from investments is carried forward to

future years of assessment

Unutilised losses arising from investments cannot be carried forward to future years of

assessment.


e-Form C


Summary

Items Tax Treatment Method of Claiming

Deductible

expenses

1. Direct expensesDeduct against each source

of income

2. Statutory expenses Apportion to each source of

income3. Indirect expenses capped at 5% of

gross investment income

Losses

Losses cannot offset:

N.A. • Other sources of income

• Future income

Capital

Allowances Not allowable, except IBA

Claim IBA against income

source

Loss Not allowable N.A.

Carry-back

Group Relief

loss items

Cannot transfer out loss items (except

unutilised current year IBA) but can

claim loss items transferred to it

Claim loss items transferred

to it to arrive at CI



Section 10(1)(a) of ITA


Principal activity is to carry on a business of investment dealing

Owns investments such as properties and shares as a form oftrading stock

Derive trade income from purchase and sale of investments[S10(1)(a)] e.g. gain on sale of real properties and shares

What is an Investment Dealing Company




S10(1)(a)

Taxability/ deductibility of

gains/ losses of sale of

investment

Taxable/ deductible

Deductibility of expenses Expenses allowed in accordance with

S14 & S15

Losses Can offset other sources of income/

future income

Capital allowances - Allowable

- Unabsorbed CA can offset other

sources/ future income

Summary


Company in the Business of Making

Investments

Section 10(1)(a) subject to

Section 10E of ITA


Principal activity is that of carrying on a business of making investments

Owns investments such as properties and shares for the business of making investments; e.g. a business of letting immovable properties or service apartments

To derive investment income as a trade [S10(1)(a)], subject to S10E restriction

What is a Company in the Business of Making Investments



S10E Restriction

a. Any outgoings or expenses incurred in respect of investments

which do not produce any income are not deductible;

b. Any outgoings or expenses incurred in respect of investments

which produce income are only deductible against the income

derived from such investments. The balance of any outgoings and

expenses which cannot be set off in that year shall be disregarded;

c. Capital allowances are only deductible against the income derived

from investments which produce income. The balance of any

allowances which cannot be set off in that year shall be

disregarded

What is a Company in the Business of Making Investments


Refer to e-Tax Guide on IRAS’ website at iras.gov.sg

Quick links > e-Tax Guides > Search > Ascertainment of Income from

Business of making Investment


Summary

Business of making investments

S10(1)(a) subject to S10E

Taxability/ deductibility of

gains/ losses of sale of

investment

Not taxable/ not deductible provided that

the facts of the case shows that the gains

are indeed capital in nature

Deductibility of expenses Only expenses incurred on income-

producing investments allowed

Losses Cannot offset other sources of income/

future income

Capital allowances - Allowable

- Unutilised CA cannot offset other

sources/ future income



Tax Exemption For

Foreign-Sourced Income


Granted to all persons resident in Singapore on the following

sources of foreign income received in Singapore on or after 1 Jun

2003:

Tax Exemption for Specified Foreign-source income

Foreign-sourced income has been subject to tax in foreign jurisdiction;

Headline tax rate of foreign jurisdiction is at least 15%; and

Beneficial for tax exemption

Qualifying conditions


Foreign-sourced dividends

Foreign branch profits

Foreign-sourced service income

(Rendered in the course of person’s trade through a fixed place

of operation in foreign jurisdiction)


To complete:

e-Form C

Field 14 of Assessment 1 (Exempt Income / Loss for

Current Year of Assessment )

Additional Information - Part D (Exemption on Foreign

Dividends, Branch Profits and Service Income

Received in Singapore.

e-Form C-S

Field 3 of Part B of (Non-Taxable Income)

No need to submit supporting documents unless called

upon to do so

How to Claim

Refer to e-Tax Guide on IRAS’ website iras.gov.sg

Home > Quick links > e-Tax Guides > Search > Tax Exemption for Foreign-

Sourced Income



Foreign Tax Credit (FTC)


When companies derive income from a foreign jurisdiction, their

income may be subjected to tax both in the foreign jurisdiction and

Singapore (i.e. taxed once in the foreign jurisdiction and then in

Singapore)

Example:

Singapore

(2nd Tax)Malaysia

(1st Tax)

Rental income remitted

into Singapore

Country of Source i.e.

where the rental

income arises

Country of Residence

i.e. where the income is received

Double taxation issue

Company A’s property

Company A

Foreign Tax Credit


For Singapore tax residents, double taxation is relieved by:

Double taxation relief (DTR)

Available to foreign-sourced income remitted from jurisdictions

which Singapore has concluded an Avoidance of Double

Taxation Agreement (DTA) with

Unilateral tax relief (UTR)

Available to foreign-sourced income remitted from jurisdictions

which Singapore has not concluded an DTA with

The reliefs are claimed on a source-by-source and country-by-

country basis

Foreign Tax Credit (FTC) System

or

Foreign Tax Credit


A DTA is entered into between two jurisdictions seeking to avoid double taxation

It clarifies & assigns the taxing rights to each jurisdiction

To claim DTR, the following conditions have to be satisfied:

The company must be tax resident in Singapore;

Tax has been paid / payable on the income in the foreign jurisdiction in accordance with the provisions in the DTA, and

The income is subject to tax in Singapore

What is an Avoidance of Double Taxation Agreement (DTA)

Foreign Tax Credit

1. Refer to IRAS’ website at iras.gov.sg> e-Tax Guide “Avoidance of Double Taxation

Agreements (DTAs)

2. For the full list of the DTAs Singapore concluded with other jurisdictions:

IRAS’ website at iras.gov.sg> Home > Quick links > International Tax


FTC is the lower of:

1) The actual amount of foreign tax paid; or

2) The amount of Singapore tax attributable to the foreign-sourced

income (net of expenses)

Foreign-sourced income after expenses and partial exemption

attributable to that income

x

Singapore tax rate

Calculating the Singapore tax payable*:

* FTC is not available in the case of a net foreign loss

Calculating the Foreign Tax Credit (FTC)

Foreign Tax Credit


Home > Businesses > Companies > Working out Corporate Income Taxes >

Claiming Reliefs > Claiming Reliefs> Foreign Tax Credit


Foreign Tax Credit (FTC) Pooling System


Objective

To simplify and reduce taxation of foreign income (FI) particularly

for companies that are globalising and earning a larger share of

their income overseas

Tax Treatment prior to YA 2012

Amount of FTC:

Source-by-source and country-by-country basis

Limited to lower of foreign tax paid and Singapore tax payable

on that FI




With effect from YA 2012

Introduction of new FTC pooling system

- all foreign taxes paid on qualifying FI pooled together to

compute FTC

- amount of FTC is lower of:

(i) pooled foreign taxes paid on qualifying FI; and

(ii) total Singapore tax payable on qualifying FI




Qualifying conditions

Foreign income tax is paid on FI in foreign jurisdiction from which FI

is derived;

Headline tax rate of foreign jurisdiction from which FI is derived is at

least 15% at time FI is received in Singapore; and

Entitled to claim FTC and there is Singapore tax payable on that FI



Home > Businesses > Companies > Working out Corporate Income Taxes > Claiming

Reliefs > FTC Pooling System


Where the above conditions are not met, or where companies choose

not to elect for FTC pooling system, the current FTC rules will apply.


Foreign Country

A

(S$)

Foreign Country

B

(S$)

Total

(S$)

Foreign income remitted

Foreign income taxes paid

Example of benefits of FTC pooling system

10,000

500

20,000

5,000

30,000

5,500




Under current method of FTC computation (assuming no expenses and

partial tax exemption does not apply)

Foreign

Country A

(S$)

Foreign

Country B

(S$)

Total (S$)

Foreign income tax paid 500 5,000 5,500

1,700 3,400 5,100

Singapore tax payable on the FI

(based on prevailing CIT rate of 17% )

FTC available

(capped at the lower of foreign tax paid

and Singapore tax payable on each FI)500 3,400 3,900

1,200

Net Singapore tax payable on the FI after

offsetting FTC ($5,100 – $3,900)




Total

(S$)

Decrease in net Singapore tax payable on FI ($5,100 – $3,900) 1,200

Under new FTC pooling system

Total foreign income taxes paid in Countries A and B 5,500

Total Singapore tax payable on FI from Countries A and B 5,100

Net Singapore tax payable on the FI after offsetting FTC

($5,100 – $5,100)0

5,100FTC available

(lower of total foreign taxes paid and total Singapore tax payable on FI

from Countries A and B)




Case Study 1

+ Exemption of Foreign-sourced income

+ Foreign Tax Credit



Case Study 1

YA 2017 (Basis period: 01/04/2015 to 31/03/2016)

Investment income $

Singapore dividend income (1-tier exempt) 35,000

Dividend income received from a Malaysia company 100,000

Rental income 35,000

Interest income received from Indonesia 24,000

Other income 10,000

Total income 204,000

Investment Holding CompanyCase Studies


Case Study 1 (cont’d)

Expenses $

Custodian fee

(for Singapore tax-exempt dividends)

2,400

Interest on term loan

(acquiring property for rental)

45,000

Property tax (property rented out) 1,600

Repair and maintenance (property rented out) 7,000

Auditor’s remuneration 3,000

Bank charges 500

Secretarial and tax services 2,000

Director’s fee 60,000

Depreciation 5,000

Direct

expenses

Statutory/

Regulatory

expenses

Indirect

expense

Non-deductible expense




Common expenses $

Auditor’s remuneration 3,000

Bank charges 500

Secretarial and tax services 2,000

Director’s fee (capped at 5% of total income) 10,200

Total common expenses 15,700

5% Restriction on Indirect Expenses $

Director’s fee 60,000

Capped at 5% of $204,000 (total income) 10,200

Indirect expenses allowed 10,200



Tax Computation

$ $ $

Singapore tax-exempt dividend 35,000

Malaysia dividend (foreign-sourced) 100,000

135,000

Less: Direct expenses – custodian fee 2,400

Share of common expenses

(135,000/204,000 x 15,700) 10,389

(12,789)

Net dividend income (subject to tax) NIL

Malaysia dividend income is exempt under Section 13(8).

Qualifying conditions met:

1) Dividend income has been subjected to tax in Malaysia;

2) Headline tax rate in Malaysia is more than 15%; and

3) Beneficial for tax exemption

Case Studies



Tax Computation (cont’d)

$ $ $



Interest on term loan 45,000

Property tax 1,600

Repairs and maintenance 7,000

53,600


(35,000/204,000 x 15,700) 2,694

(56,294)

Net rental income NIL*

*Net rental loss is disregarded.

Case Studies



Tax Computation (cont’d)$ $ $

Indonesia Interest income (foreign-sourced) ^ 24,000

Less: Direct expenses NIL


(24,000/204,000 x 15,700) 1,847

(1,847)

22,153

Other income 10,000

Less: Direct expenses NIL


(10,000/204,000 x 15,700) 770

(770)

9,230

Chargeable income before tax exempt income 31,383

^ The interest income has been subjected to withholding tax of 10% in Indonesia.

Case Studies




$ $

Chargeable income before tax exempt income 31,383

Less: Exempt income

First $10,000 @ 75% (7,500)

Next $21,383 @ 50% (10,692) (18,192)

Chargeable income after tax exempt income 13,191

Tax payable @ 17% 2,242.47

Less: DTR* 1,582.94

Tax payable after DTR 659.53

* DTR is the lower of:

a. $ 2,400 (The actual amount foreign tax paid to Indonesia); or

b. $1,582.94 (The amount of Singapore tax attributable to the foreign-sourced

income (net of expenses) $2,242.47 x [$22,153 / $31,383]


Case Studies



$

Tax payable after DTR 659.53


Less: Corporate income tax rebate ($659.53 x 50%) 329.77

Net Tax payable 329.76

Case Studies


Case Study 2

Trading + Investment Holding Company



Sales 750,000

Less: Cost of goods sold 345,000

Gross Profit 405,000

Other Income

Dividend (1-tier) 35,000



504,000

Less: Expenses

Custodian fees (for S'pore tax-exempt dividends) 2,400

Property tax (for property rented out) 1,600

Repair and maintenance (for property rented out) 7,000

Audit fee 3,000

Director fees 12,000

Depreciation 1,000

Salaries/bonus/allowances and CPF 80,000

Secretarial fees 2,000

109,000

Net Profit Before Taxation 395,000

YA 2017 (Basis period: 01/04/2015 to 31/03/2016)

Case Study 2

Case Studies


Additional Information from the Balance Sheet

Fixed assets addition

Computer $1,000

Description

of assetCost

S$

100%

Base CA

S$

300%

Enhanced

CA S$

Total

CA

S$

Tax

written

down

value

S$

Computer* 1,000 1,000 3,000 4,000 Nil

Capital allowances (CA)

* Prescribed in PIC IT and Automation Equipment list.



Case Studies



Tax Computation S$

Net Profit before tax per accounts 395,000

Less: Separate sources of income

Singapore dividends 35,000


Rental income 40,000 99,000

296,000

Add: Disallowable expenses

Depreciation 1,000

Property tax 1,600

Repair and maintenance 7,000

Custodian fees 2,400 12,000

Adjusted profit 308,000

Less: Capital allowances for YA 2017 4,000

Adjusted profit after capital allowances 304,000

Case Studies




Add: Separate sources of income

Singapore tax exempt (1-tier) dividend 35,000

Less: Custodian fees 2,400 tax exempt

Interest 24,000

Rental 40,000

Less: Property tax 1,600

Repair and maintenance 7,000 31,400

Chargeable income before exempt amount 359,400

Less: Exempt amount

First $10,000 @ 75% 7,500

Next $290,000@ 50% 145,000 152,500

Chargeable income after exempt amount 206,900

Tax payable @ 17% 35,173.00

Less: Corporate income tax rebate [50% x 35,173] (17,586.50)

Net tax payable 17,586.50

Case Study Studies

100


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Changes

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This information aims to provide a better general understanding of IRAS’ practices and is not intended tocomprehensively address all possible tax issues that may arise. This information is correct as at 25 Oct 2017.While every effort has been made to ensure that this information is consistent with existing law and practice,should there be any changes, IRAS reserves the right to vary our position accordingly.

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