Understanding Singapore’s New Tax Regulations Under Section 10L of the Income Tax Act

Singapore has taken the step to enact section 10L in the Singapore Income Tax Act 1947, treating gains received in Singapore from the sale of foreign assets as income chargeable to tax.

Effective from January 1, 2024, this new section aims to ensure that entities operating without significant economic presence in Singapore are subject to income tax on gains derived from the sale of foreign assets.  

Entities must demonstrate a substantial economic presence in Singapore, which is evaluated based on the management and performance of core income-generating activities within the country, along with the presence of adequate human resources and operational management. Understanding and meeting these criteria are vital, and entities can seek an advanced ruling from the Inland Revenue Authority of Singapore (IRAS) for clarity and certainty on these requirements.

However, the legislation is not without its relief measures. For entities that have paid taxes on these gains in foreign jurisdictions, Singapore will offer a foreign tax credit to mitigate the impact of dual taxation.

It is important to note that foreign entities that are not operating in or from Singapore fall outside the purview of Section 10L.

Similarly, gains accrued by individuals and certain business activities, especially those under specific tax incentive schemes in Singapore, are exempt. This provision ensures that the law targets specific economic activities without overreaching into areas where it may not be applicable or intended.

However, Section 10L would impact certain existing tax exemptions. So, if Section 10L applies to the gains from the disposal of foreign assets, then certain exemptions under section 13 of the Act, such as the exemption on gains from the disposal of ordinary shares, will no longer be applicable. This change necessitates a thorough review of current tax positions, especially for entities that have previously relied on these exemptions.

The introduction of Section 10L is a significant step in Singapore’s ongoing efforts to align tax policies with real economic activities and address international tax avoidance risks. As we step into this new era, understanding and adapting to these changes is crucial for entities with cross-border operations.

For more information, contact Alpadis Group.