How Is Foreign-Sourced Income Taxed in Singapore?
Singapore operates a territorial tax system, meaning companies are primarily taxed on income sourced within Singapore. Foreign-sourced income is generally not taxed unless it is received in Singapore, and even then, specific exemptions often apply. For companies operating across multiple markets, understanding how Singapore treats foreign-sourced income is essential for accurate tax reporting, effective structuring, and avoiding unnecessary tax exposure.
This guide explains the distinction between Singapore-sourced and foreign-sourced income. It outlines when foreign income becomes taxable in Singapore, when tax exemptions may apply, and the relief mechanisms available to prevent double taxation.
Table of Contents
Key Takeaways
Singapore company income is classified as Singapore-sourced or foreign-sourced based on where the value-creating activities or income-producing factors occur.
Foreign-sourced income becomes taxable only when it is received in Singapore, including indirect forms of receipt such as using foreign income to pay Singapore expenses or settle Singapore obligations.
Foreign income that is earned and retained overseas is generally not subject to Singapore tax.
Under the Tax Exemption on Specified Foreign-Sourced Income (FSIE) scheme, foreign dividends, foreign branch profits, and foreign-sourced service income may be exempt from tax in Singapore if the qualifying conditions are met.
Only Singapore tax-resident companies can access FSIE and most forms of double taxation relief.
CorporateServices Note
Understanding Singapore-Sourced vs Foreign-Sourced Income
What Is Singapore-Sourced Income?
Singapore-sourced income refers to income that originates from Singapore. The source is identified by reference to the nature of the income and the location of the relevant income-producing factors.
Singapore-sourced income is taxable for both tax-resident and non-resident companies. For tax-resident companies, Singapore-sourced income may be eligible for tax incentives and rebates that lower the final tax payable. Non-resident companies are not eligible for such relief.
What Is Foreign-Sourced Income?
Common Income Categories and Source Determination
Taxation of Foreign-Sourced Income in Singapore
Under Singapore’s territorial tax system, foreign-sourced income is taxed only when it is received in Singapore, unless a specific exemption applies. The concept of “receiving” (often referred to as remittance) is interpreted broadly by IRAS and captures any situation in which foreign income is brought into, used in, or applied for the benefit of a person or entity in Singapore.
Foreign income becomes taxable in Singapore when it meets both conditions:
- The income is foreign in origin, and
- The income is received in Singapore, whether directly or indirectly.
What Counts as “Received in Singapore”?
Foreign income is considered received in Singapore when:
- Money is transferred into a Singapore bank account.
- Overseas income is used to pay for expenses incurred in Singapore.
- Overseas income is used to settle a debt owed to a Singapore entity.
- Money is brought into Singapore physically in any form.
- Movable property is purchased overseas using foreign income and later brought into Singapore.
The manner of bringing funds into Singapore does not change the tax outcome. Once the income provides economic benefit within Singapore, the condition of receipt is satisfied.
Tax Exemptions for Foreign-Sourced Income
Although foreign income becomes taxable when received in Singapore, the tax system provides important relief mechanisms that can eliminate or reduce this tax liability. The two main forms of relief are:
- The Tax Exemption on Specified Foreign-Sourced Income (commonly known as FSIE).
- Double Taxation Relief available through unilateral tax credit rules or tax treaties.
Tax Exemption on Specified Foreign-Sourced Income (FSIE)
Singapore provides an exemption for three categories of foreign income when they are received in Singapore by a Singapore tax-resident company. These categories are collectively known as specified foreign-sourced income:
- Foreign-sourced dividends
- Foreign branch profits
- Foreign-sourced service income
To qualify for the exemption, all of the following conditions must be met.
1. The income has been subject to tax in the foreign jurisdiction
The foreign income must have suffered tax in the source country. IRAS does not require proof of actual tax paid. It is sufficient that:
- The income was subject to foreign tax, even if through withholding tax, or
- The foreign jurisdiction had the right to tax the income under its domestic rules.
This approach recognises differences in foreign tax systems while still ensuring non-abusive outcomes.
2. The foreign jurisdiction has a headline corporate tax rate of at least 15 percent
3. The exemption is beneficial to the Singapore company
Application Scope
When the conditions are met, the specified income is completely exempt from tax in Singapore upon receipt. This exemption is widely used for:
- Dividends repatriated from overseas subsidiaries;
- Profits of foreign branches;
- Fees earned for work performed outside Singapore and then remitted to Singapore.
Non-resident companies generally cannot claim FSIE, as the scheme is intended for Singapore tax-resident entities managing international operations.
Double Taxation Relief on Foreign-Sourced Income
When foreign income is received in Singapore but does not qualify for the specified foreign-sourced income exemption, a Singapore tax-resident company may still avoid double taxation through Double Taxation Relief (DTR). This ensures that the same income is not taxed twice: once overseas and again in Singapore.
Singapore provides two forms of double taxation relief:
- Tax Treaty Relief (under network of Singapore's Double Taxation Agreements);
- Unilateral Tax Credit (UTC) relief for foreign income from countries with which Singapore has no treaty.
Both mechanisms operate through a tax credit system, allowing the foreign tax paid to be offset against the Singapore tax payable on the same income.
Tax Treaty Relief
Where a DTA applies, the company may claim relief according to the treaty provisions. Key features include:
- Relief applies only to income types covered by the treaty.
- The foreign tax paid is credited against the Singapore tax payable on that income.
- Treaty rules determine tax-sourcing, withholding tax limits, and eligibility criteria.
- Credit cannot exceed the Singapore tax payable on the same income.
Using treaty relief often results in lower effective taxation because many treaties cap withholding tax rates on dividends, interest, and royalties.
Unilateral Tax Credit Relief
If no tax treaty exists with the foreign jurisdiction, Singapore offers a Unilateral Tax Credit (UTC) to prevent double taxation. UTC applies to:
- Foreign-sourced dividends
- Foreign-sourced service income
- Foreign branch profits
- Other foreign income that is taxed overseas
The tax credit is limited to the Singapore tax payable on that income. Any excess foreign tax cannot be refunded or carried forward.
This mechanism ensures that Singapore-resident companies do not face a disadvantage when operating in non-treaty jurisdictions.
Priority Between FSIE and Tax Credits
Relief mechanisms apply in the following order:
- FSIE exemption, if all conditions are met
- If FSIE does not apply, tax treaty relief (where available)
- If neither applies, UTC relief as a fallback option
Tax Residency and Its Role in Foreign Income Taxation
Tax residency is an important factor in determining whether a Singapore company can claim exemptions or reliefs on foreign-sourced income. While both resident and non-resident companies may earn foreign income, only tax-resident companies are eligible for key tax relief mechanisms.
A company is considered tax-resident in Singapore for a particular Year of Assessment if its control and management are exercised in Singapore during the preceding financial year. In most cases, tax residency is established when the board of directors’ meetings are held in Singapore, provided those meetings reflect genuine decision-making.
For a detailed explanation, see our dedicated guide Tax Residency of a Singapore Company. To learn how to open a Singapore company, see our guide on Singapore Company Registration.
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