Singapore News Update September 2023

Under the Proposed Section 10L, with effect from 1 January 2024, despite anything in the Singapore Income Tax Act (SITA), except for certain Prescribed Entities, gains arising from the sale or disposal of a Foreign Asset “Received in Singapore” from outside of Singapore by a Relevant Entity will be treated as income chargeable to tax under Section 10(1)(g) of the SITA.

How does section 10l operate?

Disposal of Foreign Asset occurs after 1 January 2024 by a Relevant Entity (that is not a Prescribed Entity)
The gains are received in Singapore from outside Singapore
Disposal gains will be taxable at the Singapore Corporate Tax Rate

WHAT IS A RELEVANT ENTITY?

A Relevant Entity is:

An Entity is a member of a group of entities if its financial figures i.e. assets, liabilities, income, expense etc., are included in the consolidated financial statements prepared by the parent entity of the group; and

That Entity is a member of a group of entities where at least one member of the group has a place of business outside Singapore.

WHAT IS A PRESCRIBED ENTITY?

A Prescribed Entity is:

A financial Institution, as defined in the Financial Services and Markets Act 2022

An entity whose income is exempt from tax or is taxed at a concessionary rate of tax under the prescribed provisions of the law due to specific substantive business activities in Singapore (e.g., Global Trader Programme). Please note that this does not apply to all entities that qualify for Singapore tax incentives (e.g. Singapore fund and family office incentives)

An entity that qualifies as an “Excluded Entity”

WHAT IS AN EXCLUDED ENTITY?

Depending on whether the “Excluded Entity” is a Pure equity-holding entity (PEHE-ES) or a Non-pure equity-holding entity (non-PEHE-ES), there are prescribed “Economic Substance” requirements which need to be met.

PEHE-ES

This is an entity whose main function is to hold shares or equity interests and derives only (1) dividends, (2) disposal gains and (3) incidental income. The entity will need to have complied with every obligation to submit returns etc. under law and have its operations managed and performed in Singapore, whether by its employees or other persons through outsourcing arrangements.

Non-PEHE-ES

This is an entity that is not a PEHE. The entity will need to have its operations managed and performed in Singapore and have reasonable economic substance in Singapore in terms of employees or other persons (i.e. outsourcing arrangements) who perform services in Singapore.

When are GAINS CONSIDERED AS “RECEIVED in SINGAPORE”?

Section 10L only applies in case of gains arising from the sale of foreign assets that are “received in Singapore” from outside Singapore.

The following gains from the sale or disposal of any foreign asset are treated as “received in Singapore” from outside Singapore:

any amount from such gains that is remitted to, or transmitted or brought into Singapore;

any amount from such gains that is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore; and

any amount from such gains that is applied to the purchase of any movable property which is brought into Singapore.

CONCLUSIONS

In summary, the Proposed Section 10L will bring to tax the disposal of (1) foreign assets by (2) non-Prescribed Entities who are considered (3) a Relevant Entity where the disposal proceeds are (4) Received in Singapore.

Tax advisory