Taxable and Non-Taxable Income

Understanding Taxable and Non-Taxable Income for Companies in Singapore

Navigating the complexities of corporate tax in Singapore is essential for any business operating within or outside the country. Here's a comprehensive overview of what constitutes taxable and non-taxable income for companies in Singapore.

What Is Taxable?

Your company is required to pay tax in Singapore on income that is either:

1. Accrued or derived from Singapore: For instance, income from a business operating in Singapore.

2. Received in Singapore from outside Singapore: For example, remittances from overseas business operations.

For tax purposes, taxable income includes:

• Gains or profits from any trade or business.

• Income from investments such as dividends, interest, and rental.

• Royalties, premiums, and any other profits from property.

• Other revenue nature gains.

Deductions such as business expenses, capital allowances, and reliefs can be claimed to reduce taxable income, resulting in lower taxes.

Income Received in Singapore from Outside Singapore

Under Section 10(25) of the Income Tax Act 1947, income from outside Singapore is considered received in Singapore when it is:

• Remitted to, transmitted, or brought into Singapore.

• Used to satisfy any debt related to a trade or business in Singapore.

• Used to purchase any movable property brought into Singapore.

This section applies if the income belongs to a resident individual or an entity located in Singapore. Non-resident individuals and foreign businesses not operating from Singapore can remit their foreign income to Singapore without being taxed on it.

Administrative Concession: Foreign income reinvested overseas without being repatriated to Singapore is not considered received in Singapore until the investment is sold and proceeds are brought into Singapore.

Reporting Foreign Income

From the Year of Assessment (YA) 2024, companies must report:

• Unremitted foreign income brought forward from prior YAs.

• Foreign income earned in the current financial year.

• Foreign income received in Singapore during the financial year.

• Foreign income used during the year and not received in Singapore.

• Unremitted foreign income carried forward.

A Standard Template of Foreign Income Tracking Schedule is available to help companies comply with these reporting requirements.

What Is Not Taxable?

Capital Gains

Capital gains are not taxable and include:

• Gains on the sale of fixed assets.

• Gains on foreign exchange on capital transactions.

Income Exempted from Tax

Certain types of income are exempted from tax under specific conditions:

• Certain shipping income under Section 13A and Section 13E.

• Foreign-sourced dividends, branch profits, and service income received by a resident company under Section 13(8).

• Gains on the disposal of equity investments under Section 13W.

Determining the Existence of Trade

The existence of a trade is determined by several factors, including:

1. Nature of Subject Matter: Types of assets involved.

2. Length of Ownership: Holding period of assets.

3. Frequency of Transactions: Frequency of similar transactions.

4. Supplementary Work: Additional work done on assets.

5. Circumstances of the Realization: Conditions under which assets are sold.

6. Motive: Intent to trade at the time of acquisition.

7. Mode of Financing: Financing methods for asset purchases.

8. Other Factors: Feasibility studies, accounting treatment, and documentation.

FAQs

Are Donations Taxable?

• Donations are taxable if they are paid in return for benefits granted by the recipient organization.

Is Income Distribution from REITs Taxable?

• It depends on the nature, tax treatment, and period of the REIT distribution as reflected in the Annual Distribution Statement by CDP.

Is Income from the Sale of Carbon Credits Taxable?

• Income from trading in carbon credits or selling credits acquired for business use is taxable.

Is the Transfer of Trading Stock for Office Use Taxable?

• Yes, the profit or loss from the transfer of trading stock is taxable.

Is Foreign-Sourced Income Used for Dividend Payments Taxable?

• No, if paid directly into shareholders' offshore bank accounts without involving remittance into Singapore.

For detailed examples and templates, refer to the IRAS guidelines and templates provided. By understanding these key points, companies can better manage their taxable and non-taxable income, ensuring compliance with Singapore's tax regulations.