Corporate Tax Guide - Claiming Foreign Tax Credits (FTC)

If you intend to expand your Singapore-registered company intentionally, you’ll be pleased that the city-state offers quite several commercial perks to stimulate business growth overseas. You might, in particular, want to capitalize on what is known as Foreign Tax Credits (FTC) or Double Tax Relief. 

As such, we invite you to tag along as we explore all the basics about FTC in Singapore. This guide covers the different types of Foreign Tax Credits, the requirements for claiming FTC, FTC computation, as well as the procedure for claiming FTC. 

For the sake of clarity, however, let’s start at the base. What exactly is Foreign Tax Credit in Singapore? And why would it be helpful to a multi-national business? 

What is a Foreign Tax Credit?

The Foreign Tax Credit scheme was introduced to ease tax pressure on multinational companies. 

You see, the problem with taking your business international is, you stand to be charged taxes separately by different tax jurisdictions. 

So much so that every single country you happen to set up shop in could potentially translate into an additional tax obligation. Then, of course, you still have to worry about the IRAS taking their cut when you remit the funds to Singapore. 

Now, to address this issue of double taxation, the government of Singapore introduced the Foreign Tax Credit scheme, among other measures. And, just as the name suggests, the FTC system allows Singapore-registered companies to claim credits for taxes they’ve already paid in foreign countries. 

You just need to include the details in your corporate income tax returns, and the Inland Revenue Authority of Singapore (IRAS) will deduct the amounts paid from your taxable income. 

It is worth noting, though, that the level of tax benefits you’re accorded depends on the type of Foreign Tax Credit you choose to apply for. 

What Are the Different Types of Foreign Tax Credits?

At the moment, Singapore’s Income Tax Act offers provisions for two types of Foreign Tax Credits: 

• Double Tax Relief (DTR)
• Unilateral Tax Credit (UTC)

Double Tax Relief (DTR)

The Double Tax Relief (DTR) program rides entirely on the Avoidance of Double Taxation Agreements (DTAs) that Singapore has signed with various foreign countries. 

You get to claim credits for the tax amount you’ve already paid out to foreign jurisdictions - against the tax that IRAS would charge you for the same income. This, of course, only applies to taxes paid in foreign countries that have a DTA arrangement with Singapore. 

However, the provisions are not the same for all the DTA agreements. So, you might want to check your foreign country’s specific DTA to confirm the terms and conditions that apply to your Double Tax Relief claims. 

Unilateral Tax Credit (UTC)

Singapore doesn’t leave out other tax jurisdictions. While you won’t be able to leverage the Double Tax Relief for foreign taxes paid out to countries that don’t have a DTA with Singapore, you can get the chance to proceed with a Unilateral Tax Credit (UTC). 

 The Unilateral Tax Credit was created to extend the Foreign Tax Credit benefits to multinational businesses running in areas that are yet to sign a DTA with Singapore. And according to the IRAS, it applies to tax amounts paid since the Year of Assessment (YA) 2009. 

Conditions for Claiming FTC — Inland Revenue Authority of Singapore 2021

To claim Foreign Tax Credits in Singapore, your company has to meet the following conditions: 

• The income on which you’re claiming the Foreign Tax Credits must be taxable in Singapore. 
• The company itself should be fully registered as a tax resident in Singapore. 
• The tax that you’re claiming the credits for should have been paid on the same income in the overseas country. 

How to Calculate FTC

There’s no standard formula for calculating Foreign Tax Credits in Singapore. The total amount that you end up claiming depends on the taxes that you paid out to the foreign tax jurisdictions, as well as the terms spelled out in the country’s DTA with Singapore. 

Therefore, to accurately calculate your company’s Foreign Tax Credit, you should start by confirming the terms and conditions of the applicable DTA agreement. Take note that FTC is always less than:

• The amount of tax that would be charged by the IRAS on the foreign income. 
• The actual tax amount paid out to the foreign tax jurisdiction.

How to Claim FTC

Although the IRAS is the body that processes Foreign Tax Credits in Singapore, it doesn’t provide a distinct platform for filing claims. As such, you’re required to make the claims while filing your corporate income tax return. 

The type of filing you should use, in this case, is Form C. Foreign Tax Credits, as it turns out, cannot be accompanied by Form C-S or C-S Lite. 

Another thing the IRAS will require from you is proper documentation that supports your claim. You don’t have to attach it to your company’s Form C submission, but you should compile and then hold on to it, just in case the IRAS calls for submission at a later date. 

The documents ought to provide these details conclusively: 

• The relevant withholding tax receipts and vouchers. 
• The applicable Double Taxation Agreement - is only for Double Tax Relief claims. 
• Your company’s gross income amount, the corresponding withholding tax rate, as well as the total amount of tax withheld. You can prepare this in foreign currency while including the equivalent amount in Singapore dollars. 
• The date of the withholding tax receipt or voucher. 
• The names of the party that paid the foreign taxes. 
• A breakdown of the services rendered in the foreign jurisdictions. 
• The basis for the claim. 
• Clarification on whether the foreign income was generated via a permanent establishment or not. 
• A statement on the nature of the income. 

Where to Start

Now that you’ve understood the concept of Foreign Tax Credits in Singapore, you need a bonafide tax agent to back you up. One that’ll expertly handle the whole process of reconciling the figures, calculating the credits, and making claims through the IRAS. 

Yes, that’s right - who else other than Wealthbridge? So, go ahead and book yourself a free consultation today. We have a lot to catch up on.