Foreign Dividend Exemption: Common Missteps That Could Cost You

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Friendly Foreign-Sourced Income Exemption (FSIE) regime

Singapore has a friendly “Foreign-Sourced Income Exemption” (FSIE) regime.  Under the FSIE, specified foreign income may be tax-exempt under Section 13(8)1  or Section 13(12)2  of the Singapore Income Tax Act when received or deemed received in Singapore, subject to meeting certain conditions.  Even if the specified foreign income does not fall within any of the six specified scenarios for Section 13(12) purposes, taxpayers may still submit an application for ministerial exemption.  

While all sounds good, what must a taxpayer do to secure the exemption? 

Presumably, your company received a foreign dividend from Thailand.  However, do not assume it will automatically be tax exempt under Section 13(8) simply because Thailand’s corporate tax rate of 20% exceeds the minimum 15% requirement.  It is still necessary to confirm that the “subject to tax” condition is satisfied, as the dividend could have been distributed out of foreign dividend income received by the Thai paying company, which itself may have been exempt from Thai tax.  That said, there is still cause for optimism—if the conditions under Section 13(8) are not met, exemption may nonetheless be available under Section 13(12), provided the dividend falls within one of the six specified scenarios.  


The Devil lies in the details.

To secure the tax exemption, the taxpayer should ensure that they have filed their tax exemption declaration correctly in their tax return.  The key difference lies in how the exemption is declared under Section 13(8) and Section 13(12): 

Declaration for Section 13(8) exemption

Declaration for Section 13(12) exemption

Taxpayer is required to declare that the foreign dividend income qualifies for the tax exemption in its Form C (income tax return) and provide the relevant particulars (nature and amount of the income, country from which the income is received, headline tax rate of that country, amount of foreign tax paid/payable in that country).

Taxpayer is required to submit a section 13(12) “declaration form to the IRAS on or before the tax return filing due date for the YA relating to the basis period in which the foreign dividend income is received in Singapore and tax exemption is claimed for the first time.  

 

What can go wrong? 

In the above example, if the taxpayer has erroneously claimed tax exemption under  section 13(8), they would have missed the deadline for the section 13(12) declaration.  The taxpayer may end up paying tax on a foreign dividend income that would have been exempted if an application had been made correctly. 


Any remedy? 

For Year of Assessment (YA) 2023 and before, the Inland Revenue Authority of Singapore (IRAS) will not accept section 13(12) declaration forms submitted after the relevant tax return filing due date.  With effect from YA 2024, in the event that a taxpayer misses the deadline for the submission of the declaration form, IRAS is prepared to review the declaration form submitted, subject to the following mitigating factors: 

  • The taxpayer has good compliance records for Corporate Income Tax (including withholding tax) for the last three years. 
  • The taxpayer has adhered to the deadline for the submission of section 13(12) declaration forms, where applicable, for the last three YAs; and 
  • The scenario falls within one of the specified scenarios.


Engage your tax advisor as early as you discover any discrepancies.  You may also talk to us if you require any assistance on the above or any tax matters related to your foreign income. 
 

1The main tax exemption conditions to be satisfied:

  1. Subject to tax condition: Tax must have been paid on the foreign dividend income received in Singapore 
  2. Foreign headline tax rate of at least 15% condition: At the time the specified foreign income is received in Singapore, the headline tax rate of the foreign jurisdiction from which the income is received is at least 15%. 
     

2Tax exemption applies if: 

  1. the specified foreign income is to be received in Singapore under one of the scenarios specified; and
  2. the Comptroller of Income Tax (“CIT”) is satisfied that the qualifying conditions in paragraph 4.4 of the IRAS’ e-Tax guide on “tax exemption under Section 13(12) for specified scenarios, Real Estate Investment Trusts and Qualifying Offshore Infrastructure Project/Asset” are met.