Singapore: Taxing gains on sale or disposal of foreign assets

The Ministry of Finance (MOF) on 6 June 2023 released 33 proposed legislative amendments to the Income Tax Act 1947 for public consultation, including introduction of section 10L to tax gains from the sale or disposal of any immovable or movable property situated outside Singapore (collectively “foreign assets”) that are received in Singapore by businesses without economic substance in Singapore. 

The introduction of this new section is meant to align the tax treatment of gains from the sale of foreign assets to the EU Code of Conduct Group guidance, which aims to address international tax avoidance risks.

• Starts with a non-obstante clause (i.e., “Despite anything in the Act”) giving it wide powers to override any other provisions in the Singapore Income Tax Act (SITA)
• Would apply if the gains would not otherwise be treated as income for Singapore tax purposes or if the gains would otherwise be exempt from tax under SITA
• Would override other specific tax exemption provisions, such as section 13W (exemption of gains or profits from disposal of ordinary shares)

The proposed section 10L only applies in case of gains arising from the sale of foreign assets that are “received in Singapore” from outside Singapore. The following gains from the sale or disposal of any foreign asset are treated as “received in Singapore” from outside Singapore:

• Any amount from such gains that is remitted to, or transmitted or brought into Singapore
• Any amount from such gains that is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore
• Any amount from such gains that is applied to the purchase of any movable property which is brought into Singapore

Given the above provisions, gains arising from the sale of foreign assets that fall within the scope of section 10L, but are not considered to be received in Singapore, must not be subject to tax in Singapore until they are received or deemed received in Singapore. 

Multinational enterprises (MNEs) with headquarters outside Singapore and using Singapore as a platform/intermediate jurisdiction to invest overseas will have to revisit their holding structure to provide it has adequate economic substance in Singapore, so that the gains on disposal of foreign assets (on or after 1 January 2024) that are received in Singapore are not subject to tax in Singapore.

Singapore-based fund managers need to closely monitor future developments in the area, as well as further clarifications/guidance to be issued by the Inland Revenue Authority of Singapore (IRAS) on implementation details, given that investment entities availing of the Singapore fund tax incentives are not specifically carved out from section 10L provisions.

The economic substance requirements, however, recognize that there could be outsourcing of operations to other persons. In this regard, the substance of the Singapore-based fund manager of investment holding entities can be taken into account when assessing the reasonableness of the relevant entity’s economic substance in Singapore.

Another point to note is that the maintenance of contemporaneous documentation by in-scope entities to substantiate the fulfilment of the relevant economic substance requirements in the basis period in which the sale or disposal occurred would be of paramount importance, especially if the gains are only received in Singapore in subsequent basis periods.

Read an August 2023 report [PDF 642 KB] prepared by the KPMG member firm in Singapore