e-Tax Guide: Income Tax – Foreign Tax Credit Pooling

22 June 2011

A new e-Tax Guide has been released by IRAS.

This e-Tax Guide explains when and how you, as a resident taxpayer, may claim foreign tax credit (FTC) in respect of foreign income you receive in Singapore under the new FTC pooling system introduced in Budget 2011.

In Budget 2011, the Minister for Finance enhanced the FTC system for resident
taxpayers by allowing the pooling of FTC on foreign income received (“FTC pooling system”) if certain conditions are met. This is to further facilitate the remittance of foreign income to Singapore by resident taxpayers. The FTC pooling system provides greater flexibility to resident taxpayers in FTC claims, thereby reducing their Singapore tax payable on the remitted foreign income.

Under the new FTC pooling system which takes effect from the YA 2012, you may elect
to pool the foreign taxes paid (including any underlying tax, where applicable) on any items of your foreign income, if the foreign income meets the conditions stated in para 4.2. The amount of FTC to be granted is based on the lower of the total Singapore tax payable on those foreign income and the pooled foreign taxes paid on those income (para 4.1).

To qualify for the FTC pooling system, your foreign income must meet all the
following conditions:

(a) income tax must have been paid on the income in the foreign jurisdiction from
which the income is derived;

(b) the headline tax rate of the foreign jurisdiction from which the income is derived is at least 15% at the time your foreign income is received in Singapore;

(c) there must be Singapore tax payable on your foreign income; and

(d) you are entitled to claim for FTC under sections 50, 50A or 50B of the ITA on your foreign income (para 4.2).

All other existing conditions applicable to FTC claims under sections 50, 50A or 50B of the ITA remain unchanged. The current method of computing the amount of Singapore tax payable on your foreign income continues to apply under the FTC pooling system (para 4.3).

For full details, please see http://www.iras.gov.sg/irasHome/page.aspx?id=902
(Ref 2011/IT/1)

Source: IRAS