Singapore’s Income Tax (Amendment) Bill Brings Changes to Taxation Of Foreign Asset Gains

Significant changes are on the horizon for Singapore’s taxation system with the impending implementation of the Income Tax (Amendment) Bill, which was passed on October 3, 2023.

One of the key provisions of this amendment is the addition of a new section, Section 10L, which governs the treatment of gains from the sale or disposal of foreign assets. This legislative update is set to take effect on January 1, 2024.

To clarify the new tax regime, the Inland Revenue Authority of Singapore (IRAS) has introduced an e-Tax Guide, which provides comprehensive insights into the changes and their implications for taxpayers.

Below are some key points to help you understand the upcoming amendments:

Taxation of foreign-sourced disposal gains

Under the amended legislation, Singapore will treat gains derived from the sale or disposal of foreign assets, which can be any movable or immovable property located outside Singapore, as income chargeable to tax.

These gains, commonly referred to as “foreign-sourced disposal gains,” will be subject to taxation under certain conditions:

Receipt of foreign-sourced disposal gains in Singapore

Gains will be taxed if they are received in Singapore from outside Singapore by a covered entity. The detailed conditions for this can be found in Section 4.4 of the e-Tax Guide.

“Covered entity” refers to a member entity of a relevant group, defined as a group having entities not wholly incorporated or registered in Singapore or having their place of business outside the territory. Further details can be found in Section 5 of the e-Tax Guide.

Entities without adequate Economic Substance in Singapore

Entities that lack adequate economic substance in Singapore will also be subject to taxation on these gains. The criteria for determining economic substance requirements are outlined in Section 8 of the e-Tax Guide, which includes considerations for pure equity-holding entities, non-pure equity-holding entities, and entities involved in the outsourcing of economic activities.

Sale/disposal of foreign IP rights (IPRs)

Gains arising from the sale or disposal of foreign intellectual property rights (IPRs) will also fall under this new tax regime.

Applicability of the changes

The changes introduced by the Income Tax (Amendment) Bill will apply to all sales or disposals of foreign assets that occur on or after January 1, 2024.

For practical examples of how these changes will be applied, please refer to Section 4.3 of the e-Tax Guide.

These changes in Singapore’s income tax laws are aimed at ensuring a fair and transparent tax system while promoting economic substance within the country. Taxpayers and businesses should review the e-Tax Guide and consult with tax professionals to navigate the evolving landscape effectively.