Under the new Section 10L, gains received in Singapore from the sale or disposal by an entity of a multinational group of any immovable or movable property situated outside Singapore (hereinafter referred to as a “foreign asset”) would be “treated as income chargeable to tax.” This new Section 10L applies if the gains would not otherwise be treated as income or if the gains would otherwise be exempt from tax under the ITA.
This new Section 10L will however not cover the sale or disposal of a foreign asset by an entity that is part of a group, whereby all the group entities are either incorporated only in one jurisdiction or have places of business only in one jurisdiction.
In addition, Section 10L will not apply to a sale or disposal of foreign assets (not being intellectual property rights) in certain circumstances such as:
a. a sale or disposal by a pure equity-holding entity that meets certain specified conditions;
b. a sale or disposal by an entity (which is not a pure equity-holding entity) that has “adequate economic substance” in Singapore and which operations are managed and performed in Singapore;
c. a sale or disposal by either:
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prescribed financial institutions where the sale or disposal is carried out as part of, or incidental to, their business activities; or
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entities under certain tax incentive schemes where the sale or disposal is carried out as part of, or incidental to, activities that qualify for exemption or concessionary tax rates under those schemes.
Foreign-sourced gains from the sale or disposal of a foreign asset (not being an Intellectual Property Right (“IPR”)) will not be subject to Singapore income tax, if the entity concerned can meet the “adequate economic substance” requirement (“Economic Substance Requirement”) in the basis period in which the sale or disposal occurs.
However, for foreign-sourced gains received in Singapore from the sale or disposal of foreign IPRs, different rules apply. For gains received in Singapore from the sale or disposal of foreign qualifying IPRs, a modified nexus approach is used to determine the extent of such gains which would not be taxable in Singapore. On the other hand, for gains from the sale or disposal of foreign non-qualifying IPRs, the full amount of gains will be subject to tax when received in Singapore. This is regardless of whether the entity has adequate economic substance in Singapore.
Only the net amount of gains (after deducting relevant expenditure), that is received in Singapore or deemed to be received in Singapore, is taxable. Where the sale of the foreign asset is at a price less than the open‑market price of the foreign asset, the Comptroller of Income Tax may treat as the amount of gains received in Singapore, as the amount derived by adding the open‑market price of the foreign asset to the actual amount of gains received in Singapore and deducting from that total amount the actual sale price.
The final point to note is that Section 10L applies only to the gains from the sale or disposal of a foreign asset that occurs on or after January 1, 2024.
Source: Barandbench
