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FSIE Review by EU COCG
The EU COCG has conducted review on the FSIE regimes and identified several jurisdictions where their FSIE regimes failed to implement tax reforms committed in the EU’s blacklist, and some jurisdictions which have not yet complied with international tax standards but made sufficient commitments to reform their tax policies in EU’s grey list. Such periodic review is part of EU’s initiative to combat harmful tax competition which also aims to address international tax avoidance risks. The Singapore’s FSIE regime was found to be not harmful which cooperate with the EU with no pending commitments. Section 10L was introduced in line with the guidance issued by the EU COCG which requires FSIE regime to include capital gains as a category of income which should be subject to the economic substance requirements.
Scope of Section 10L
Singapore tax system is on territorial basis based on revenue versus capital concept. Under the territorial basis, Singapore-sourced income and foreign-sourced income remitted into Singapore which does not qualify for exemption will be subject to tax in Singapore. Only income which is revenue in nature is taxable whilst income that is considered as capital in nature is not taxable.
With the introduction of Section 10L, gains from the sale or disposal by a relevant entity of any foreign assets (i.e. any movable or immovable property situated outside Singapore at the time of such sale or disposal) that are received in Singapore from outside Singapore on or after 1 January 2024, are treated as income chargeable to tax.
A relevant entity is a member of a group of entities where at least one member of the group has a place of business outside Singapore. An entity is a member of a group of entities if its assets, liabilities, income, expenses and cash flows are included in consolidated financial statements prepared by the parent entity of the group. As such, domestic groups, unaffiliated or stand-alone companies in Singapore are not relevant.
If the gain from sale or disposal of a foreign asset is treated as income of an individual, the income is exempt from tax. Section 10L does not apply to financial institutions, entities whose income is exempt from tax or is taxed at a concessionary rate of tax and entities that are excluded entity in the basis period in which the sale or disposal occurred.
The following amounts of gains from sale or disposal of foreign assets are treated as received in Singapore from outside Singapore:
(a) Any amount that is remitted to, or transmitted or brought into Singapore,
(b) Any amount that is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore, and
(c) Any amount that is applied to the purchase of any movable property which is brought into Singapore.
Where the sale or disposal of a foreign asset is at a price less than the open-market price, the Comptroller of Income Tax may treat the open market price as the amount of gains received. The entity will be able to deduct any expenditure incurred to acquire, create or improve the foreign asset or to sell or dispose the foreign asset when ascertaining the amount of gains.
In terms of documentation, an entity that sells or disposes of a foreign asset must keep and retain in safe custody for a period of 5 years after the year of assessment relating to the basis period of the gain.
Reference/ Citation
Income Tax (Amendment) Bill
European Union Councial Website
https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/#countries
