Singapore to Impose Taxes on Foreign Sourced Income from 2024

01 Nov, 2023

Singapore to Impose Taxes on Foreign Sourced Income from 2024

Singapore's Parliament has approved amendments to the Income Tax Act, signaling a significant transformation in its tax system. Starting from January 1, 2024, Singapore will commence the taxation of foreign-sourced capital gains. These changes are in line with global initiatives like Base Erosion and Profit Shifting (BEPS 2.0) and demonstrate Singapore's commitment to fostering a competitive and equitable tax environment in compliance with international standards.

The amendments to the Income Tax Act align Singapore's tax regulations with the Code of Conduct Group Guidance (COGC) of the European Union. These changes underscore Singapore's dedication to adhering to fair tax practices. The newly introduced tax on foreign-sourced capital gains will be applicable in Singapore if the entity lacks "economic substance" within the country. The precise definition of "economic substance" will be established on a case-by-case basis.

It's important to note that this tax will solely affect entities belonging to consolidated multinational entities that operate outside of Singapore. Financial institutions, income tax-exempt entities, and excluded entities will not be subject to this tax.

Furthermore, these changes are in line with the broader Base Erosion and Profit Shifting (BEPS) initiative, which aims to prevent tax avoidance and profit shifting. Singapore's commitment to international tax standards is evident in these adjustments.

An additional update stipulates that, starting from January 1, 2025, multinational companies with consolidated annual revenues of EUR 750 million or more will be subject to a minimum effective tax rate of 15%. This move aligns with the global push for a more consistent tax framework among multinational corporations.

In summary, Singapore's tax reforms, including the taxation of foreign-sourced capital gains and the minimum effective tax rate for large multinational companies, reflect its proactive stance in ensuring fair tax practices and international compliance.