Investment Holding Companies

Transcription

1 Seminar on Taxation of Investment Holding Companies Presentation by Inland Revenue Authority of Singapore Tax seminar held on 25 Aug Twitter.com/IRAS_SG SG Facebook.com/irassg 1 Agenda 1. Corporate Tax Overview Basis of Assessment Scope of Tax Filing Obligations 2. What is an investment holding company Types of income earned by an investment holding company Deductible expenses Basis of assessment Things to note Common mistakes 3. Investment Dealing Company What is an investment dealing company 2

2 Agenda 4. Company in the Business of Making Investments What is a company in the business of making investments S10E Restriction 5. Foreign tax credit Double taxation issue Current tax treatment What is a double taxation agreement Examples of double taxation agreement Calculating the foreign tax credit 6. Foreign Tax Credit Pooling System 7. Tax Exemption for Foreign-Sourced Income 8. Case Studies 3 After this seminar, you will: Understand your annual tax filing obligations (ECI and Form C/ C-S) including the filing due dates Understand basic taxation of an investment holding company Be able to prepare a tax computation and File your Form C/ C-S for an investment holding company 4

3 Corporate Tax Overview 5 Overview of Corporate Tax Basis of Assessment Income is assessable on a preceding accounting year basis Year of Assessment (YA) year in which income is charged to tax Current YA is YA 2015 Basis period for a YA Period of income relevant to the YA E.g. YA Jan 2014 to 31 Dec Apr 2013 to 31 Mar 2014 YA Apr 2014 to 31 Mar

4 Overview of Corporate Tax Taxable Income Income tax is payable on: Income accruing in or derived Income receiveded in Singapore from Singapore from outside Singapore (i.e. income sourced in (i.e. foreign income received Singapore) in Singapore) E.g. Rental income from rented properties in Singapore E.g. Interest income from a foreign bank outside Singapore that is remitted to Singapore 7 Overview of Corporate Tax Overview of Tax Filing Obligations To File By Estimated Chargeable Income (ECI): 3 months after accounting year end Income Tax Return : 30 November each year Illustration: 1 Jan 2014 Accounting year end: 31 Dec Mar Nov 2015 YA 2015 Basis period: 1 Jan 2014 to 31 Dec 2014 File ECI for YA 2015 (3 months after accounting year ended 31 Dec 2014) File Income Tax Return for YA

5 Estimated Chargeable Income (ECI) Overview of Corporate Tax All companies are required to file an estimate of chargeable income (ECI) within 3 months after end of financial period E.g. Financial year ended 30 Jun 2015 ECI for YA 2015 must be filed by 30 Sep 2015 IRAS will issue ECI reminder letter in last month of financial year Companies do not need to file ECI if: Annual revenue is not more than $1 million; and ECI* is nil Companies that do not qualify for the above concession must file their ECI within 3 months after end of financial period, even if they do not receive the ECI reminder letter * before deducting exempt amount under the partial tax exemption or tax exemption scheme for new start-up companies 9 Overview of Corporate Tax Income Tax Return File Form C-S (Simplified Tax Filing for Small Companies) For companies that meet qualifying conditions OR File Form C and Appendix on Additional Information on Income & Deductions (Form IRIN 301) 10

6 Overview of Corporate Tax Preparation of Accounts & Tax Computation All companies are required to prepare the following: Audited/ Unaudited Accounts Detailed Profit and Loss Statement Tax Computation and Supporting Schedules 11 Overview of Corporate Tax Income Tax Return All companies, including investment holding companies, are required to file the income tax return (Form C-S/ C) by the filing due date on 30 Nov / 15 Dec (if e-file) 3 different filing packages issued to companies Group Filing Package to be issued Companies likely to qualify for Form C-S Companies likely to qualify for Form C 1. Form C-S e-filing package*# 2. Form C e-filing package# or 3. Form C Package If a company received Form C but meets the qualifying conditions for filing Form C-S, it can still proceed to e-file Form C-S (it does not need to return the Form C to IRAS for cancellation) If a company received a Form C package, it can still proceed to e-file Form C if it so wishes * From YA 2014, IRAS will not issue paper copies of Form C-S #If a company cannot e-file Form C-S/ C, it can download d the softcopy of Form C-S/ C from IRAS website 12

7 Overview of Corporate Tax Benefits of e-filing Extended filing deadline of 15 Dec, instead of 30 Nov On-the-spot guidance as you e-file, with the ihelp facility In-built formulae to auto-compute certain fields Save draft until you are ready to submit Auto-computation of estimated tax payable Receive instant acknowledgement when you have successfully e-filed 13 Overview of Corporate Tax How to Access e-services including e-filing Form C-S/C Company Administrator e-services Authorisation ti System (EASY) Company Staff/ Tax Agent Access Code and SingPass/ IRAS Pin Authorise SingPass/ IRAS Pin Login to mytax.iras.gov.sg START! Use e-services 14

8 Overview of Corporate Tax e-services Authorisation System (EASY) Online system that allows organisations to authorise their employees/ third party to access e-services on their behalf All authorisations of staff and directors/ tax agent must be done at EASY Log in to EASY using your company s Access Code* *Access Code is a unique password issued and sent to company s registered address shortly after its incorporation. Please request a new Access Code if you have misplace your access code or its existing Access Code is no longer valid. The request form is available at IRAS website iras.gov.sg e-services > Businesses > Companies > EASY 15 Overview of Corporate Tax e-services Authorisation ti System (EASY) Log in to EASY Access Code application form Log in using your individual SingPass OR IRAS Pin 16

9 Overview of Corporate Tax e-services Authorisation System (EASY) Preparer A preparer prepares the application/ form for submission to an Approver The preparer does not have the rights to submit directly to IRAS Approver IRAS An Approver will approve or edit, and submit the application/ form to IRAS The approver can also prepare the application/ form and submit it to IRAS (for companies without the Preparer role) 17 Corporate Tax e-services at mytax Portal Overview of Corporate Tax Filing of ECI and Form Requesting for copies of C-S/ C correspondences or notices Checking on the status of returns and/ or assessments Applying for Waiver to Submit Income Tax Return by a Dormant Company Contact Points with IRAS Lodging of Objections Applying for Certificate of Residence (COR) 18

10 Overview of Corporate Tax Qualifying Conditions for Filing Form C-S Company: Is incorporated in Singapore Has an annual revenue* of $1 million or below Derives only income taxable at 17% Does not claim any of the following: Carry-back of Current Year Capital Allowances/Losses Group Relief Investment tallowance Research & Development Tax Allowance Foreign Tax Credit and Tax Deducted at Source * For an investment holding company, revenue refers to its investment income (e.g. 1-tier dividend income and interest income). Note: Companies that do not meet the conditions have to submit to IRAS a full set of tax return comprising the Form C, financial accounts, tax computation and supporting schedules. 19 Overview of Corporate Tax e-filing of Form C-S at mytax.iras.gov.sg sg Form C-S is a shortened 3-page Income Tax Return for small companies Not required to submit financial accounts, tax computation and supporting schedules with Form C-S Must still prepare and submit to IRAS upon request How to file e-file Form C-S for YA 2015 via mytax.iras.gov.sg g from 2 Jun 2015 Refer to IRAS website at iras.gov.sg Businesses > Companies > Filing Taxes (Form C-S/ C) > Guidance on Completing Form C-S/ C 20

11 Overview of Corporate Tax Filing of Form C Companies that do not meet the conditions for filing Form C-S have to submit Form C A complete set of Income Tax Return (Form C) consists of: Form C Form IRIN 301 (Additional Information on Income & Deductions) Audited/ Unaudited accounts Not required to be submitted if full set of financial accounts has been filed with ACRA in XBRL format Detailed profit and loss statement Tax computation and supporting schedules Relevant forms (e.g. group relief form, R&D claim form) 21 Overview of Corporate Tax e-filing of Form C at mytax.iras.gov.sg New! Implemented 2 modes of filing: Online Form C (similar to e-form C-S) Submission of Form C by inputting the data and figures online through mytax.iras.gov.sg sg Offline Form C (Upload) Input of data and figures onto a softcopy of Form C (PDF version) on your PC/ laptop. Once ready to submit, the softcopy will be converted to a XML format and uploaded through mytax.iras.gov.sg g 22

12 Filing Obligations (Summary) Estimated Chargeable Income (ECI) Income Tax Return (Form C/Form C-S) When to file Within 3 months after end of accounting gperiod If you are filing Form C (e-filing of ECI via is strongly encouraged) Waiver of ECI filing: You do not need to file ECI for a particular accounting period if: annual revenue is not more than $1 million; and ECI is nil Submit a complete tax return comprising of the following: - Form C and appendix (Form IRIN 301) - audited/unaudited accounts and detailed P/L - tax computation ti e-file Form C by 15 Dec or submit paper Form C by 30 Nov of each year If you are filing Form C-S e-file Form C-S by 15 Dec or submit paper Form C-S by 30 Nov of each year Notification of Company will receive a reminder letter to file the A tax return filing package will be sent to the filing ECI in the last month of the accounting period company s registered address in Apr of each year requirement Failure to file Estimated assessment may be raised* Estimated assessment may be raised* Letter of Composition and/or Summons may be issued If you are in a tax loss position A NIL ECI (ECI = 0) is required unless the company has met the qualifying conditions for waiver of ECI filing Submit an Income Tax Return (Form C-S/Form C) # Please authorise yourself/third party as an Approver for Corporate Tax Matters via the e-services Authorisation System (EASY) * If you disagree with the estimated tax assessment, please lodge an objection within two months from the date of the Notice of Assessment with your reasons for not filing on time and grounds of objection 23 24

13 What is an Principal activity is the passive holding of investments Owns investments such as properties and shares for the long-term Derives investment income, passive in nature, such as: Dividend [S10(1)(d)] Interest t [S10(1)(d)] Rental income [S10(1)(f)] 25 Dividend Income - S10(1)(d) Singapore-sourced Dividend Income Current Tax Treatment Singapore adopts a one-tier corporate tax system Tax paid by a Singapore company on its chargeable income is the final tax Therefore, all dividends paid by a Singapore company are exempt from tax in the hands of the shareholders 26

14 Dividend Income - S10(1)(d) Foreign-sourced Dividend Income Current Tax Treatment Foreign-sourced dividend received in Singapore is taxable at 17% (i.e. current corporate tax rate) unless tax exempt For Singapore tax residents, double taxation is relieved by: Double taxation relief or Unilateral a tax relief e 27 Dividend Income - S10(1)(d) Tax Exemption for Foreign-sourced Dividend Granted to all persons resident in Singapore Provided the following conditions are met: Foreign-sourced dividend income has been subjected to tax in foreign jurisdiction; Headline tax rate of foreign jurisdiction is at least 15%; and Beneficial for tax exemption 28

15 Dividend Income - S10(1)(d) ) Concessionary group Treatment All investments in shares and stocks are divided into 4 groups Group 1 Non-income producing shares (whether local or foreign shares) Group 2 Shares which generate tax-exempt dividend income (e.g. one-tier and foreign-sourced dividend income remitted to Singapore in the year and exempted from tax) Group 3 Income producing shares in overseas companies where dividend income is remitted to Singapore in the year and taxable in Singapore. Group 4 Income producing shares in overseas companies where dividend income is not remitted to Singapore in the year. 29 Dividend Income - S10(1)(d) Concessionary group Treatment Group 1 Expenses are not deductible as the expenses incurred on the shares do not produce dividend income taxable in Singapore. Group 2 Allows the deficit (expenses in excess of dividend income) arising within a group from any block of shares for a particular year to offset the net dividend income for the same year from other blocks of shares within the same group Net deficit of any ygroup shall be disregarded 30

16 Dividend Income - S10(1)(d) ) Concessionary group Treatment Group 3 Allows the deficit (expenses in excess of dividend income) arising within a group from any block of shares for a particular year to offset the net dividend income for the same year from other blocks of shares within the same group Net deficit of any group shall be disregarded Group 4 Expenses are not deductible as the expenses incurred on the shares do not produce dividend income taxable in Singapore but may be carried forward*. * Refer to e-tax Guide Liberalised treatment of expenses incurred in Singapore to derive foreign income on IRAS website iras.gov.sg 31 Dividend Income - S10(1)(d) Example of the Concessionary group Treatment A company remits the dividend income it receives from foreign companies A and B (i.e. same group). Shares in Net dividend id d Withoutt With company income / (deficit) concession concession A $1m $1m $1m B ($2m) Disregarded ($2m) Net dividend income: $1m NIL* * Net deficit is disregarded 32

17 Interest Income - S10(1)(d) Current Tax Treatment Taxable at 17% (i.e. current corporate tax rate) when accrued in or remitted to Singapore For Singapore tax residents receiving foreign-sourced interest income, double taxation is relieved by: Double taxation relief or Unilateral tax relief 33 Rental Income - S10(1)(f) Current Tax Treatment Taxable at 17% (i.e. current corporate tax rate) when accrued in or remitted to Singapore For Singapore tax residents receiving foreign-sourced rental income, double taxation is relieved by: Double taxation relief or Unilateral tax relief 34

18 Rental Income - S10(1)(f) Block Basis Concession The income producing properties form a single block ; where net rental loss from one property is deductible against net rental income from other properties This excludes owner-occupied or vacant properties 35 Rental Income - S10(1)(f) Example of the Block Basis Concession A company rented out its properties p A and B. Property A: Net rental income of $30,000 Property B: Net rental loss of $40,000 Without concession With concession $30,000 $30,000 Disregarded ($40,000) Net rental income $30,000 NIL* * Net loss will be disregarded 36

19 Summary of Common Type of Passive Source Income Type of Income Dividend Interest Rental Tax Treatment All dividends paid by a Singapore company are exempt from tax in the hands of the shareholders h Foreign-sourced dividend received in Singapore is taxable at 17% (i.e. current corporate tax rate), exemption or tax relief available subject to qualifying conditions Dividend income is taxed on a group treatment basis Interest income is taxed when accrued in or remitted to Singapore Source of rental income is based on where the property is situated Rental income is taxed on a block basis 37 Deductible expenses What is it? Direct expenses Statutory and Regulatory Indirect expenses expenses Expenses directly incurred to earn investment income Expenses incurred in accordance with statutory and regulatory provisions Expenses not directly incurred to earn investment income Deductibility Deductible against the Before YA 2014, allowed Generally not deductibled respective source of investment income as an administrative concession From YA 2014, As a concession, indirect expenses not exceeding 5% of the total gross deductible under S14X of the ITA Apportion to the investment income is deductible Apportion to the respective source of investment income respective source of investment income Examples Custodian fees (for Accounting fees Directors' fees, income producing shares) Property tax, Annual listing fees Audit fees Bank charges Office rental, Office telephone charges, Office water and light, insurance, repairs & maintenance (for rental properties) Interest expense (on loan taken to acquire shares / property) Income tax service fees Printing and stationery Secretarial fees Staff salaries, Transport expenses (exclude expenses incurred on S-plated cars which are not deductible) 38

20 Example 1 (One source of income) YA 2015 Investment income $ Rental income 3,000 Expenses $ Property tax 300 Direct Repair of property 500 expenses Audit fee 2,000 Statutory Secretarial fee 1,000 expenses Bank charges 500 Staff salaries & CPF 1,000 Indirect expense 39 Tax computation (One source of income) Rental income $ $ 3,000 Less: Direct expenses Property tax Repair of property Less: Statutory expenses Audit fee Secretarial fee Bank charges ,000 1, ,500 Less: Indirect expenses Less: Staff salaries &CPF(Lower of actual expense or 5% of gross rental income) 150 Net rental income / loss NIL* Chargeable Income before exempt amount NIL Tax NIL * Net rental loss is disregarded. 40

21 Example 2 (Multiple sources of income) YA 2015 Investment income $ Rental income 2,000 Interest income 8,000 Total 10, Expenses $ Property tax 300 Direct Repair of property 1,200 Expenses Audit fee 2,000 Secretarial fee 1,000 Statutory expenses Bank charges 500 Staff salaries & CPF 1,000 Indirect expense 41 Tax computation (Multiple sources of income) Common expenses $ Audit fee 2,000 Statutory Secretarial fee 1,000 expenses Bank charges 500 Staff salaries & CPF (capped at 5% of total t 500 investment income of $10,000) Total 4,000 Apportion common expenses to each source of income: Source of income Share of common expenses Rental 4,000 x (2,000 / 10,000) 800 Interest 4,000 x (8,000 / 10,000) 000) 3,200 $ 42

22 Tax computation (Multiple sources of income) $ $ Rental income 2,000 Less: Direct expenses Property tax 300 Repair of property 1,200 1,500 Less: Share of common expenses Net rental income 800 NIL* Interest income 8,000 Less: Direct expenses Less: Share of common expenses NIL 3,200 Net interest est income 4,800 * Net rental loss is disregarded. 43 Tax computation (Multiple sources of income) $ Chargeable income before exempt amount 4,800 Less: Exempt amount 75%) 3,600 What is exempt amount? Chargeable income after exempt amount 1,200 Tax 17% Less: Corporate income tax rebate (30% x $204) Net tax payable What is CIT rebate? 44

23 Tax Exemption Scheme for New Start-up t Companies The following companies incorporated after 25 Feb 2013 are not eligible for the tax exemption scheme: 1) Property development companies Any company that buys or leases land and arranges for a building to be built on land in order to lease, manage or sell the building 2) Investment holding companies A company whose principal activity is that of investment holding Derives investment income such as rental, dividend or interest income Companies thatt do not qualify for this scheme will still be eligible for partial tax exemption 45 Partial Tax Exemption Partial tax exemption on chargeable income taxed at 17% of up to $300,000: First 75% $7,500 Next $290,000 50% $145,000 Total $300,000 $152,500 Maximum Exempt Amount is $152,500 for each YA 46

24 Partial Tax Exemption Example Chargeable Income (CI) before Exempt Amount Less: Exempt Amount (1) 320,000 (2) 120, (75% x 10,000) 000) 7,500 (50% x 290,000) 145, , (75% x 10,000) 7,500 (50% x 110,000) 55,000 62,500 Net CI after Exempt Amount $167,500 $57, Corporate Income Tax (CIT) Rate & Tax Rebate Corporate Tax Rate 17% Corporate Income Tax Rebate Applicable for YA 2013 to YA 2017* All companies will receive a 30% CIT rebate, capped at: $30, per YA for YA 2013 to YA 2015 $20,000 per YA* for YA 2016 and YA 2017 CIT rebate is computed on the tax payable after deducting tax set-offs (e.g. foreign tax credit) * Budget 2015 Enhancement 48

25 Things to Note 1. Expenses attributable to non-income producing investments are not deductible Example: 1. Interest expense incurred to acquire shares that did not yield dividend 2. Property tax incurred for vacant property not rented out 49 Things to Note 2. Deficit/loss (expenses in excess of income) from any source of investment is to be disregarded, and cannot be: Set-off against the income of another source Carried forward to offset future income Transferred out under the group relief system Carried back to the immediate preceding YA However, an investment holding company can claim current year loss items transferred to it under the group relief system 50

26 Things to Note 3. Not eligible to claim capital allowances on plant and machinery purchased (e.g. computers). 4. Not eligible to claim for tax benefits under the Productivity & Innovation Credit (PIC) scheme.. Reason: An investment holding company is not carrying on a trade or business 51 Things to Note 5. Industrial Building Allowance (IBA)* is only deductible d against the income derived from investments which produce income. Any IBAthat t is not fully utilised in a YAi is not disregarded. d d Unutilised IBA can be carried forward to offset future income, subject to the following conditions: No substantial change in shareholding The company continues to derive rental income from the industrial building * IBA has been phased out. The above note is applicable only to companies who had incurred capital expenditures on the construction or purchase of industrial buildings or structures on and before 22/02/

27 Things to Note 6. Is income distribution from Real Estate Investment Trusts (REITs) taxable? The nature, tax treatment and applicable period/year of assessment of each REIT distribution are reflected in the Annual Distribution Statement issued by the Central Depository Pte Ltd (CDP). A REIT distribution is taxable in the hands of corporate unit holders unless stated otherwise* in the CDP statement. The REIT distribution is taxable in the Year of Assessment as reflected in the CDP Statement. t t *E.g. Distribution is tax-exempt, distribution is a return of capital, etc. 53 Things to Note 7. Declaration in Form C-S S(NoIBA/LIA claims) Items to Declare in e-form C-S Net Profit/Loss before Tax as per Accounts ( Box 1 of Part B) To Unutilised Losses brought forward (Box 14 of Part B) Investment Holding Enter "0" Separate Source Income (Part B, Boxes 15a to 17) Revenue (Box 21 of Part B) and other boxes, where applicable 54

28 Things to Note 8. Declaration in e-form C-S (With IBA / LIA claims) If gross rental income after deductible expenses (before IBA / LIA) is negative, enter 0 in the line item Net Rental Income. Claims for IBA / LIA against rental income should be entered in the line item Current Year Capital Allowances Includes IBA / LIA claims for YA Common Mistakes Claim for non-deductible expenses: Capital expenditure e.g. acquisition costs of investments; stamp duties and legal fees incurred for purchase of investments; advertising and commission incurred to secure the first tenant for investment t property Pre-commencement expenses e.g. Repairs and maintenance incurred prior to commencement of the tenancy of investment property Claim for indirect expenses over and above 5% of the total gross investment income Indirect expenses are allowed as a concession but capped at 5% of gross investment income 56

29 Common Mistakes Tax computation presented in trading company s format e-form C A sample of tax computation for investment holding company, you can refer to IRAS website at iras.gov.sg Businesses > Companies > Working out Corporate Income Taxes > Specific Industries> Investment Holding Companies 57 Common Mistakes Unutilised losses arising from investments is carried forward to future years of assessment e-form C Unutilised losses arising from investments cannot be carried forward to future years of assessment. To complete 0 for: Part 2, Box 18 to 24 of e-form C; or Part B, Box 11 to 14 of e-form C-S 58

30 Summary Items Tax Treatment Method of Claiming Deductible expenses Losses Capital Allowances Loss Carry-back Group Relief loss items 1. Direct expenses 2. Statutory expenses 3. Indirect expenses capped at 5% of gross investment t income Losses cannot offset: Other sources of income Future income g Not allowable, except IBA Not allowable Cannot transfer out loss items (except unutilised current year IBA) but can claim loss items transferred to it Deduct against each source of income Apportion to each source of income NA N.A. Claim IBA against income source N.A. Claim loss items transferred to it to arrive at CI 59 Investment Dealing Company Section 10(1)(a) of ITA 60

31 Investment Dealing Company What is an Investment t Dealing Company Principal activity is to carry on a business of dealing investment Owns investments t such as properties and shares as a form of trading stock To derive trade income from purchase and sale of investments [S10(1)(a)] e.g. gain on sale of real properties and shares 61 Summary Taxability/ deductibility of gains/ losses of sale of investment Deductibility of expenses Losses Capital allowances Investment Dealing Company S10(1)(a) Taxable/ deductible Expenses allowed in accordance with S14 & S15 Can offset other sources of income/ future income - Allowable - Unabsorbed CA can offset other sources/ future income 62

32 Company in the Business of Making Investments Section 10(1)(a) ) subject to Section 10E of ITA 63 Company in the Business of Making Investments What is a Company in the Business of Making Investments Principal activity is that of carrying on a business of making investments Owns investments such as properties and shares for the business of making investments; e.g. a business of letting immovable properties or service apartments t To derive investment income as a trade [S10(1)(a)], subject to S10E restriction ti Refer to e-tax Guide on IRAS website at iras.gov.sg Quick links > e-tax Guides > Search > Ascertainment of Income from Business of making Investment 64

33 Company in the Business of Making Investments What is a Company in the Business of Making Investments S10E Restriction a. Any outgoings or expenses incurred in respect of investments t which do not produce any income are not deductible; b. Any outgoings or expenses incurred in respect of investments which produce income are only deductible against the income derived from such investments. The balance of any outgoings and expenses which cannot be set off in that year shall be disregarded; c. Capital allowances are only deductible against the income derived from investments which produce income. The balance of any allowances which cannot be set off in that year shall be disregarded; 65 What is a Company in the Business of Making Investments S10E Restriction (cont d) Company in the Business of Making Investments d. IBA is only deductible against the income derived from investments which produce income. But any IBA which cannot be fully utilised by the entity in a YA is not disregarded Unutilised IBA can be carried forward to offset future income, subject to the following conditions: No substantial change in shareholding The company continues to derive rental income from the industrial building (whether or not it is in the business of letting of investment property) p * IBA has been phased out. The above note is applicable only to companies who had incurred capital expenditures on the construction or purchase of industrial buildings or structures on and before 22/02/

34 Summary Taxability/ deductibility of gains/ losses of sale of investment Deductibility of expenses Losses Capital allowances Company in the Business of Making Investments Business of making investments S10(1)(a) subject to S10E Not taxable/ not deductible Only expenses incurred on incomeproducing investments allowed Cannot offset other sources of income/ future income - Allowable - Unutilised CA cannot offset other sources/ /future income 67 Foreign Tax Credit (FTC) 68

35 Foreign Tax Credit Double taxation ti issue When companies derive income from a foreign jurisdiction, their income may be subjected to tax both in the foreign jurisdiction and Singapore (i.e. taxed once in the foreign jurisdiction and then in Singapore) Example: Malaysia (1 st Tax) Rental income remitted into Singapore Singapore (2 nd Tax) Company A Country of Source i.e. where the rental income arises Company A s property Country of Residence i.e. where the income is received 69 Foreign Tax Credit Current Foreign Tax Credit (FTC) System For Singapore tax residents, double taxation is relieved by: Double taxation relief (DTR) or Available to foreign-sourced income remitted from jurisdictions which Singapore has concluded an Avoidance of Double Taxation Agreement (DTA) with Unilateral tax relief (UTR) Available to foreign-sourced income remitted from jurisdictions which Singapore has not concluded an DTA with The reliefs are claimed on a source-by-source and country-by- country basis 70

36 Foreign Tax Credit What is an Avoidance of Double Taxation Agreement (DTA) A DTA is entered into between two jurisdictions seeking to avoid double taxation It clarifies & assigns the taxing rights to each jurisdiction To claim DTR, the following conditions have to be satisfied: The company must be tax resident in Singapore; Tax has been paid / payable on the income in the foreign jurisdiction in accordance with the provisions in the DTA, and The income is subject to tax in Singapore Refer to IRAS website at iras.gov.sg for the full list of the DTAs Singapore concluded with other jurisdictions: Home > Quick links > International Tax 71 Foreign Tax Credit Calculating l the Foreign Tax Credit (FTC) FTC is the lower of: 1) Foreign tax paid; or 2) Singapore tax payable on the foreign-sourced income received Calculating the Singapore tax payable*: Foreign-sourced income after expenses and partial exemption attributable to that income x Singapore tax rate * FTC is not available in the case of a net foreign loss 72

37 Foreign Tax Credit (FTC) Pooling System 73 Foreign Tax Credit Pooling System Foreign Tax Credit (FTC) Pooling System Objective To simplify and reduce taxation of foreign income (FI) particularly for companies that t are globalising li i and earning a larger share of their income overseas Current Tax Treatment Amount of FTC: Source-by-source and country-by-country basis Limited to lower of foreign tax paid and Singapore tax payable on that FI 74

38 Foreign Tax Credit Pooling System Foreign Tax Credit (FTC) Pooling System With effect from YA 2012 Introduction of new FTC pooling system - all foreign taxes paid on qualifying FI pooled together to compute FTC - amount of FTC is lower of: (i) )pooled foreign taxes paid on qualifying FI; and (ii) total Singapore tax payable on qualifying FI 75 Foreign Tax Credit Pooling System Foreign Tax Credit (FTC) Pooling System Qualifying conditions Foreign income tax is paid on FI in foreign jurisdiction from which FI is derived; Headline tax rate of foreign jurisdiction from which FI is derived is at least 15% at time FI is received in Singapore; and Entitled to claim FTC and there is Singapore tax payable on that FI Refer to IRAS website at iras.gov.sg Home > Businesses > Companies > Working out Corporate Income Taxes > Claiming Reliefs >FTC Pooling System 76

39 Foreign Tax Credit (FTC) Pooling System Example of benefits of FTC pooling system Foreign Tax Credit Pooling System Foreign Country A (S$) Foreign Country B (S$) Total (S$) Foreign income remitted 10,000 20,000 30,000 Foreign oeg income etaxes paid 500 5,000 5, Foreign Tax Credit Pooling System Foreign Tax Credit (FTC) Pooling System Under current method of FTC computation (assuming partial tax exemption does not apply) Foreign Country A (S$) Foreign Country B (S$) Total (S$) Foreign income tax paid 500 5,000 5, Singapore tax payable on the FI (based on prevailing CIT rate of 17% ) 1,700 3,400 5,100 FTC available (capped at the lower of foreign tax paid and Singapore tax payable on each FI) Net Singapore tax payable on the FI after offsetting FTC ($5,100 $3,900) 500 3,400 3,900 1,200 78

40 Foreign Tax Credit Pooling System Foreign Tax Credit (FTC) Pooling System Under new FTC pooling system Total (S$) Total foreign income taxes paid in Countries A and B 5,500 Total Singapore tax payable on FI from Countries A and B 5,100 FTC available (lower of total foreign taxes suffered and total Singapore tax payable on FI from Countries A and B) 5,100 Net Singapore tax payable on the FI after offsetting FTC 0 ($5,100 $5,100) Decrease in net Singapore tax payable on FI ($5,100 $3,900) 1, Tax Exemption For Foreign-Sourced Income 80

41 Tax Exemption for Foreign-Sourced Income Tax Exemption for Specified Foreign-source income Granted to all persons resident in Singapore on the following sources of foreign income received in Singapore on or after 1 Jun 2003: Foreign-sourced dividends Foreign branch profits Foreign-sourced service income (Rendered in the course of person s trade through a fixed place of operation in foreign jurisdiction) Qualifying conditions Foreign-sourced income has been subject to tax in foreign jurisdiction; Headline tax rate of foreign jurisdiction is at least 15%; and Beneficial for tax exemption 81 Tax Exemption for Foreign-Sourced Income How to Claim To complete: e-form C Box 15 of Part 1(Exempt Income / Loss for Current Year of Assessment ) Additional Information - Box 20 of Part D (Exemption on Foreign Dividends, Branch Profits and Service Income Received in Singapore. e-form C-S Box 2 of Part B of (Non-Taxable Income) No need to submit supporting documents unless called upon to do so Refer to e-tax Guide on IRAS website iras.gov.sg Home > Quick links > e-tax Guides > Search > Tax Exemption for Foreign- Sourced Income 82

42 Case Study 1 + Foreign Tax Credit + Exemption of Foreign-sourced income 83 Case Studies Case Study 1 YA 2015 (Basis period: 01/04/2013 to 31/03/2014) Investment income $ Singapore dividend income (1-tier exempt) 35,000 Dividend income received from a Malaysia company 100,000 Rental income 35,000 Interest income received from Indonesia 24,000 Other income 10,000 Total income 204,000 84

43 Case Study 1 (cont d) Expenses $ Custodian fee 2,400 (for Singapore tax-exempt dividends) Interest on term loan 45,000 (acquiring property p for rental) Property tax (property rented out) 1,600 Repair and maintenance (property rented out) 7,000 Auditor s remuneration 3,000 Bank charges 500 Secretarial and tax services 2,000 Director s fee 60, Depreciation 5,000 Non-deductible expense Case Studies Direct expenses Statutory expenses Indirect expense 85 Case Study 1 (cont d) Case Studies 5% Restriction on Indirect Expenses $ Director s fee 60,000 Capped at 5% of $204, (total income) 10,200 Indirect expenses allowed 10,200 Common expenses $ Auditor s remuneration 3,000 Bank charges 500 Secretarial and tax services 2,000 Director s fee (capped at 5% of total income) 10,200 Total common expenses 15,700 86

44 Tax Computation Case Studies $ $ $ Singapore tax-exempt dividend 35,000 Malaysia dividend (foreign-sourced) 100, ,000 Less: Direct expenses custodian fee 2,400 Share of common expenses (135,000/204,000 x 15,700) 10,389 (12,789) Net dividend income NIL Malaysia dividend income is exempt under Section 13(8). Qualifying conditions met: 1) Dividend income has been subjected to tax in Malaysia; 2) Headline tax rate in Malaysia is more than 15%; and 3) Beneficial for tax exemption 87 Tax Computation (cont d) Case Studies $ $ $ Rental income 35,000 Less: Direct expenses Interest on term loan 45,000 Property tax 1,600 Repairs and maintenance 7,000 53,600 Less: Share of common expenses (35,000/204,000, x 15,700) 2,694 (56,294) Net rental income NIL* *Net rental loss is disregarded. 88

45 Case Studies Tax Computation (cont d) $ $ $ Indonesia Interest income (foreign-sourced) ^ 24,000 Less: Direct expenses NIL Share of common expenses (24,000/204,000 x 15,700) 1,847 (1,847) 22,153 Other income 10,000 Less: Direct expenses NIL Share of common expenses (10,000/204,000 x 15,700) 770 (770) 9,230 Chargeable income before tax exempt income 31, ^ The interest income has been subjected to withholding tax of 10% in Indonesia. 89 Tax Computation (cont d) $ $ Chargeable income before tax exempt income 31,383 Less: Exempt income First $10,000 75% (7,500) Next 50% (10,692) (18,192) Chargeable income after tax exempt income 13, Case Studies Tax 17% 2, Less: DTR * 1, Tax payable after DTR * DTR is the lower of: a. $ 2,400 (Foreign tax suffered in Indonesia); or b. $1, (Singapore tax payable on foreign interest income received) = {$22,153 [$22,153/$31,383 x $18,192]} x 17% 90

46 Case Studies Tax Computation (cont d) Tax payable after DTR Less: Corporate income tax rebate ($ x 30%) Net Tax payable $ 91 Case Study 2 Trading + 92

47 Trading + Case Study 2 YA 2015 (Basis period: 01/04/2013 to 31/03/2014) Case Studies Sales 750, Less: Cost of goods sold 345,000 Gross Profit 405,000 Other Income Dividend (1-tier) 35,000 Interest income 24,000 Rental income 40, ,000 Less: Expenses Custodian fees (for S'pore tax-exempt dividends) 2,400 Property tax (for property rented out) 1,600 Repair and maintenance (for property rented out) 7,000 Audit fee 3,000 Director fees 12,000 Depreciation 1,000 Salaries/bonus/allowances and CPF 80,000 Secretarial fees 2, , Net Profit Before Taxation 395, Trading + Case Study 2 (cont d) Case Studies Additional Information from the Balance Sheet Fixed assets addition Computer $1,000 Capital allowances (CA) Tax Total written Description 100% 300% CA down of asset Cost Base CA Enhanced S$ value S$ S$ CA S$ S$ Computer* 1,000 1,000 3,000 4,000 Nil * Prescribed in PIC IT and Automation Equipment list. 94

48 Trading + Tax Computation Net Profit before tax per accounts 395,000 Less: Separate sources of income Singapore dividends 35,000 Interest income 24,000 Rental income 40,000 99, ,000 Add: Disallowable expenses Depreciation 1,000 Property tax 1,600 Repair and maintenance 7,000 Custodian fees 2,400 12,000 Adjusted profit 308,000 S$ Case Studies Less: Capital allowances for YA ,000 Adjusted profit after capital allowances 304, Trading + Tax Computation (cont d) Case Study Studies Add: Separate sources of income Singapore tax exempt (1-tier) dividend 35,000 Less: Custodian fees 2,400 tax exempt Interest 24,000 Rental 40,000 Less: Property tax 1,600 Repair and maintenance 7,000 31,400 Chargeable income before exempt amount 359,400 Less: Exempt amount First 75% 7,500 Next $290,000@ 50% 145, ,500 Chargeable income after exempt amount 206,900 Tax 17% 35, Less: Corporate income tax rebate [30% x 35,173] (10,551.90) Net tax payable 24,

49 Assistance and Service Channels Website iras.gov.sg Home > Businesses > Companies > Working out Corporate Income Taxes > Specific industries > Home > News & Events > Budget 2015 Overview of Tax Changes for general tax matters for payment matters Helpline For companies: am to 5.00pm from Mondays to Fridays 97 Please complete our Feedback Form after the seminar. Your feedback will assist us in planning and organising our future seminars. This information aims to provide a better general understanding of IRAS practices and is not intended to comprehensively address all possible tax issues that may arise. This information is correct as 20 August While every effort has been made to ensure that this information is consistent with existing law and practice, should there be any changes, IRAS reserves the right to vary our position accordingly. gy 98

50 Annex Enhanced SingPass (launched on 5 Jul 2015) 99 Enhanced SingPass (launched on 5 Jul 2015) Annex Features of Enhanced Singpass: Improved Security Receive SMS/ notification for changes made to profile Two-Step Verification (2FA) Option to register and activate mobile or OneKey token or both Greater Convenience To enjoy the new features, users will need to: Update their SingPass account by providing and verifying their mobile number and address, as well as setting up their security questions and answers. Set up their 2-step verification by registering, activating and linking their OneKey token or mobile phone to their SingPass account. 100

51 Annex When to set up your 2FA Public given 1 year to set up their 2FA, i.e. Jul 2015 to Jun 2016 IRAS e-services, mytax Portal and EASY, are 2FA enabled from 5 Jul FA capability is enabled under SingPass login You can still log in to IRAS e-services using just your password (1FA) until Jun 2016 if you have not signed up for 2FA yet Factor Authentication (2FA) Annex 102

52 New SingPass Login Screen from 5 July 2015 Annex Factor Authentication (2FA) Annex 104

53 Channels of Help & Support Annex OneKey Token Helpdesk Hotline: (OKONEKEY) Care Centre Opening Hours: Monday Friday: 8 am to 6 pm Saturday: 8 am to 2 pm (Closed on Sunday and PHs) OneKeyCustomer Care Centre: International Plaza10 Anson Road #06-19 International Plaza Singapore SingPass Helpdesk Hotline: Helpline Operating Hours: Monday Friday: 8 am to 8 pm Saturday: 8 am to 2 pm (Closed on Sunday and PHs) SingPass support@singpass.gov.sg For more news and information on Enhanced SingPass, visit 105