On or about 1 Apr 2021, the Inland Revenue Authority of Singapore (IRAS) has published an Income Tax Advance Ruling Summary No. 3/2021 with regards to “Source of franchise income”.
The subject was whether the franchise income derived by a company is sourced outside Singapore and is taxable only upon remittance or deemed remittance to Singapore under the provisions of the Income Tax Act (s 10(1) and s 10(25)).
It was ruled that the franchise income derived by a company is sourced in Singapore, and it is taxable on an accrual basis under the provisions of the ITA if:
- The company intends to establish Singapore tax residency by ensuring that the Board will hold its meetings in Singapore where all material strategic decisions regarding the direction of its activities carried on outside Singapore will be made;
- The active management of the Franchise Agreement, regular monitoring of the Franchise Agreement and updating to its Board will be performed in Singapore by the MD supported by the staff in Singapore;
- The company will be the legal and economic owner of the IP rights; and
- The company A will be the entity that would be signing the Franchise Agreement, although the contract would be signed outside Singapore.
For more information about the ruling, please go to the IRAS website.
Source, IRAS, 6 Apr 2021