Foreign income earned by a Singapore resident company may subject to tax twice. Foreign Tax Credit (FTC) in the forms of a Double Tax Relief (DTR) or an Unilateral Tax Credit (UTR) provide Singapore resident company ways to avoid paying twice the tax on the same income.
In order to qualify for FTC claim, all of the following conditions must be satisfied:
- The company is a tax resident in Singapore for the relevant year of assessment;
- Tax has been paid or payable on the same income in the foreign jurisdiction; and
- The income is subject to tax in Singapore.
FTC claimed under DTR also subject to the specific terms and conditions as specific in the double tax agreement signed between Singapore and the relevant treaty partner, and is subject to the lower of the actual amount of foreign tax paid or the amount of Singapore tax attributable to that foreign net income.
In the recent update of the FAQs section in IRAS website, it clarifies that the dividend distribution tax (DDT) from India does not qualify for foreign tax credit as it is a tax paid by the Indian resident company on its distributed profits in addition to the income tax chargeable on its corporate profits. However, the DDT will qualify for FTC in the form our a UTC under section 50A(3) of the Singapore Income Tax Act to Singapore resident company who owns not less than 25% of the total number of issued share capital of the Indian company paying the dividends.
Source: IRAS, 9 October 2017