Expatriates living in Singapore often own property, shares, or other investments in their home country or elsewhere overseas. For those who decide to sell any of these assets, an important question is whether any gains from the sale are subject to tax in Singapore.
Section 10L Of The Income Tax Act 1947
Section 10L of the Income Tax Act 1947 taxes gains from selling foreign assets where:
- The gains are received in Singapore;
- They are sold by a relevant entity; and
- The relevant entity has lacks adequate economic substance in Singapore.
It is important to note that gains from the sale of foreign intellectual property rights may be taxed regardless of whether the entity has adequate economic substance.
Definitions
A gain is considered to be received in Singapore if it is transferred into the country, applied towards settling business debts, or spent on movable property that is brought into Singapore.
Relevant entity refers to companies, partnerships and trusts that are part of a corporate group which contain other entities that are incorporated in different countries. Individuals are not considered relevant entities.
For Pure Equity-Holding Entities, Adequate Economic Substance refers to entities that satisfy the following:
- Compliance with local filing requirements,
- Operations are directed and exercised in Singapore; and
- Maintaining an adequate workforce in Singapore.
A pure equity-holding entity is an entity whose main function is to hold shares or equity interests in other entities, and has no income other than dividends, gains from selling shares, or incidental income.
For other entities, Adequate Economic Substance requires that operations are directed and carried out from Singapore. In assessing this, IRAS will consider factors such as:
- The number and qualifications of employees in Singapore;
- Business expenditure incurred locally; and
- Whether key decisions are made by persons based in Singapore.
Exemption For Individuals
If you are an individual selling your own foreign assets, you are generally exempt from paying taxes on your gains. Section 13(1)(zu) of the Income Tax Act 1947 specifically provides a tax exemption for capital gains. This means that the exemption applies if the gains are from investing/selling assets and not considered business revenue.
Conclusion
Section 10L is primarily designed to ensure that companies and entities with real economic activities here are not used as shell companies to avoid tax on foreign asset sales.
For most expatriates, personal capital gains on foreign assets remain non-taxable in Singapore. However, If you hold foreign assets through business or trust structures, you may want to review whether your structure has genuine operations in Singapore. Contact us today for bespoke assistance on proper tax planning to help minimise any unexpected liabilities and ensure compliance with Singapore’s tax regulations. We can also assist with tax advisory, expat employment matters and compliance assistance.
Disclaimer: This article provides general information and does not constitute legal advice. Please seek professional advice for your specific situation.
Do reach out to us at Legal Expat if you require professional advice. We have a team of qualified lawyers that can assist you. Email us at: info@legalexpat.sg or drop us a WhatsApp at: +65 8093 4393 if you require assistance.
