The Inland Revenue Authority of Singapore (IRAS) has recently updated its website, providing guidance on determining the country of source for dividend income if a foreign dividend-paying company is listed on the stock exchange in one jurisdiction but is a tax resident in another.
Exemption of Foreign Sourced Dividends
Foreign sourced dividends may be exempted from tax in Singapore under Section 13(8) of the Income Tax Act. One of the three mandatory qualifying conditions for tax exemption under Section 13(9) is that the highest corporate tax rate, or ‘headline tax rate’, of the foreign jurisdiction from which the income is received, must be at least 15% at the time the foreign income is received in Singapore.
Source of Dividends
Generally, dividend is considered to be sourced in the jurisdiction in which the dividend-paying company is tax resident. Therefore, if the dividend-paying company is a tax resident in Singapore, dividend is considered sourced in Singapore. Conversely, a dividend is foreign sourced if it is paid by a non-Singapore tax resident company.
Foreign sourced dividend maybe paid by a company that is listed on the stock exchange in one jurisdiction but is a tax resident in another. In the above-mentioned scenario, the IRAS has indicated that it cannot be presumed that the jurisdiction of listing of the dividend-paying company is where the dividend is sourced.
Where a dividend-paying company is incorporated outside the jurisdiction where it is listed, the Comptroller may treat the dividends as not sourced in the jurisdiction of listing unless there are facts to show otherwise. In such a circumstance, the “headline tax rate condition” will be considered as not met if the jurisdiction in which the dividend-paying company is incorporated has a headline tax rate of less than 15%.