You’ll end up paying double tax when you’re liable to pay tax in two countries with respect to the same income. You will be taxed by the country of source (where the income was generated) plus by the country of residence (where the income was received). In order to ease you from the double taxation burden, the Singapore government renders different kinds of tax reliefs based on tax laws and the tax treaties signed by Singapore with other countries.
It is a tax relief that comes under an Avoidance of DTA (Double Taxation Agreement). It will be provided as a tax credit in order to lower double taxation. With this tax relief, as a Singapore tax resident, you can make a credit claim for the tax you’ve paid in the foreign jurisdiction versus the Singapore tax you need to pay on the same income.
You’ll qualify for Double Tax Relief when you paid foreign tax in correspondence to the provisions of DTA & is capped at the lower of the foreign tax you’ve paid & the Singapore tax you would be liable to pay on the same income.
If your firm is being managed and controlled in Singapore, your company will be treated as a “tax resident” of Singapore.
A Double Taxation Agreement is presumed between Singapore & a treaty partner who is from a different jurisdiction. This agreement aims at mitigating the double taxation of income that you’ve earned in a particular jurisdiction but as a resident you come under another jurisdiction.
As a business when you meet certain qualifying criteria, without any approval you can claim double tax deduction automatically on any eligible expense you have incurred between 1 April 2012 and 31 March 2020.
An expenditure cap of S$100,000 and S$150,000 per Year of Assessment will be applicable for eligible expenses you’ve incurred from 1 April 2012 to 2018 YA and from 2019 YA to 31 March 2020, respectively.
Your company can claim for DTD on eligible expenditure your business has incurred via the following 4 eligible activities up to a specific expenditure cap. To make this claim, you need not seek approval from the Singapore Tourism Board (STB) or Enterprise Singapore.
Note: As a business owner, always ensure to retain all your business-related documents with respect to expenditure and the purpose of the expense. Any expense you’ve incurred which exceeds the mentioned expenditure cap will need an approval from STB or Enterprise Singapore.
When your income is earned via a foreign country, you may be liable to pay tax in that foreign country. Nevertheless, you may still claim for the benefits of Double Taxation Agreement which might qualify you for a decreased tax rate or you might not have to pay tax in that foreign country.
You will qualify for these kinds of tax benefits if an Avoidance of DTA has been signed between Singapore and the foreign country (in this case the country is also referred to as a treaty country) via which you earn your income. In order to be eligible for tax benefits, you will need to submit COR (the Certificate of Residency) to the tax authority of the foreign country in order to confirm that you’re a tax resident of Singapore.
Note: The benefits of a Double Taxation Agreement is open only to the tax residents of Singapore and the corresponding treaty country.
You might be saved from paying tax twice on the same income provided your treaty country has signed a tax treaty with Singapore.
The Double Taxation Agreement article with respect to 'Dependent Personal Services' renders the source rules for the income you earn via your employment. The “country of source” corresponds to where the employment is used and services are rendered. The “country of source” sanctions tax exemption with an aim to facilitate short-term employment and also to make the movement of proficient personnel hassle free.Conditions applicable for most of the tax treaties:
In case you qualify for tax treaty exemption, you will need to submit your COR (Certificate of Residence) and Tax Treaty Exemption claim to IRAS.
When your company earns foreign income, it is possible that the foreign income might be subjected to tax twice. Foreign income will be taxed once in the foreign jurisdiction and it will be taxed again when the income is transmitted into Singapore. As a business owner, you can make an FTC claim for the tax payment you’ve made in a foreign jurisdiction versus the Singapore tax you need to pay on the same income. You can avoid paying tax twice in two ways:Unilateral Tax Credit (UTC)
If the foreign jurisdiction from which you derive your income does not have a Double Taxation Agreement with Singapore, a UTC will be granted. This has been in effect since the Year of Assessment 2009.Double Tax Relief (DTR)
Under the Double Taxation Agreement, if your business does not get an exemption of tax and instead gets a reduction on the payable tax amount, your business will still pay tax twice. Hence, DTA provides such businesses with a Double Tax Relief wherein you can claim a credit for the tax you have paid in the foreign jurisdiction for the same income.
Note: You cannot claim FTC if your business is in a loss position.For businesses with Permanent Establishments (PE) overseas:
If your company is permanently established under a foreign jurisdiction and you derive your income from that permanent establishment, then your company’s income will usually be taxed overseas as well. Your company will be granted FTC, only if the same income is subjected to tax in Singapore also.For businesses deriving passive income:
If your business is deriving passive income overseas such as dividend or interest, the tax on such income will usually be applicable in the foreign jurisdiction in the year of receipt. The same income will be taxed in Singapore only when the income is transmitted to Singapore. For such income, FTC will be granted by the IRAS when the income is subjected to tax in Singapore.How to calculate FTC
When you’re claiming for Double Tax Relief as a company, the FTC amount you can claim will depend on a few terms and conditions as mentioned in the Double Taxation Agreement with the respective treaty partner.
As a business when you’re claiming DTR, FTC will be calculated as the lower amount of the following:
The FTC amount that a business will be granted is calculated on a “source-by-source & country-by-country” basis. But, businesses have the option to elect the FTC Pooling System under which foreign income that is derived from various sources can be pooled together and do not have to be calculated based on the parameters mentioned earlier.How to claim FTC
You can claim for FTC when you file the income tax return for your company with the IRAS. Note, that if you are claiming FTC, you will have to file Form C and not Form C-S.
You need not submit supporting documents with respect to your FTC claim when you’re submitting your Form C. Nevertheless, you need to retain and be ready with the following set of information and documents:
Upon meeting certain eligibility criteria, you can claim FTC (Foreign Tax Credit) when you’ve been taxed twice on the same income (income that was taxed both in Singapore as well as the foreign country).
Qualifying conditions include:
As a Singapore tax resident you can also opt for the “FTC pooling system” when you’re making an FTC claim on income for which you’ve paid foreign tax.What qualifies you for FTC Pooling System?
In case you do not comply with the eligibility criteria or you (or your company) decide to not opt for the FTC pooling system, the existing FTC terms and conditions will be applicable.
Note: To find out the DTR rate you qualify for as a company, you can use this link.
When you want to claim for tax exemption under the Avoidance of DTA as a non-resident professional you need to keep a tab on the following points:
To claim tax exemption/relief under the Avoidance of DTA you need to complete the following steps:
Note: In case you fail to submit the COR within the due date, a Demand Note might be sent to you asking you to pay a late payment fee plus the balance of the withholding tax.