Explain when a resident individual's foreign-sourced income is taxed.
Shu Ting (an invented example) lives in Singapore as a resident and works for a Singapore employer. Shu Ting studied in Melbourne and still has an Australian savings account from those years that pays a little interest each year. Shu Ting also holds a US-listed fund that pays dividends, and last year spent three weeks in Jakarta setting up a warehouse for the Singapore employer. When Shu Ting opened the tax return, the question was which of these Singapore expected to hear about.
Singapore taxes income that arises in Singapore. It also taxes income from abroad that is received in Singapore. IRAS then gives individuals a broad exemption: foreign-sourced income received in Singapore by a resident individual is generally exempt from tax. The main exception is foreign income received through a partnership in Singapore, which is taxable.
The exemption applies whether you leave the income abroad or transfer it to Singapore. It covers most of what individuals receive from abroad: overseas interest, dividends and similar investment income held in your own name.
Shu Ting's Australian interest is foreign-sourced because it comes from a deposit in Australia, so it is exempt. The dividends from the US-listed fund are also foreign-sourced and exempt in Singapore. The US generally taxes US-source income paid to a foreign person by withholding tax from it. A lower rate, or an exemption, can apply if a section of the US Internal Revenue Code provides for it or if there is a tax treaty between the US and the person's country of residence. Check the IRS website for the current rate and whether any reduction applies to you. Lesson 3.2 of Investing in US and global markets from Singapore, "What the W-8BEN does and does not do", covers it.
Being exempt in Singapore does not mean the income is untaxed everywhere. The other country may tax it under its own rules, usually by taking withholding tax before you receive it. Singapore's exemption means Singapore will not tax the income a second time.
The deciding word is "sourced". Income is foreign-sourced when it arises outside Singapore. For an investment, that depends on where the asset is held. For services, it depends on where the work is done. A foreign payer does not on its own make income foreign-sourced, and neither does being paid in a foreign currency.
Darren is Shu Ting's brother. During the school holidays, Darren designed a set of worksheets for a tuition centre in Johor Bahru. Darren did the work from a flat in Tampines, the centre paid in ringgit, and Darren asked whether that counted as foreign income. Singapore generally treats income from services performed in Singapore as arising in Singapore, even when the client is overseas and pays in another currency. Darren's design fees are therefore Singapore-sourced and taxable, so Darren added them to side income. Lesson 5.3, "Side income and other income you must declare", is where fees like these belong.
The same reasoning applies to many people who work remotely from a Singapore home for overseas companies, because where the work is done is usually what counts. If that describes you, read the IRAS guidance on where income is sourced before deciding your income is foreign.
Employment income has its own rules about where it arises. If you work for a Singapore employer and travel abroad for part of the job, that travel is generally still part of your Singapore employment. This is an incidental overseas trip, meaning the trip is part of the Singapore job. The salary for it stays taxable in Singapore and is already in the income your employer reports.
Shu Ting's three weeks in Jakarta are an incidental trip. The full salary for those three weeks stays taxable in Singapore and was already in the income the employer reported.
A longer posting, where the job is carried out wholly overseas for a period, is treated differently. Income from employment exercised overseas is generally not taxed in Singapore. IRAS lists exceptions, such as directors of Singapore companies and people employed by the Singapore government. The host country will usually tax that income instead. Lesson 6.2, "Working overseas and moving away", covers what happens around an overseas posting or a move.
Whether something is an incidental trip or an overseas job depends on the facts, and IRAS explains how it draws that line. If you were abroad for a long time or the sums are large, check the IRAS guidance or ask a tax adviser.
For each item of income from abroad, first ask where it arises: where the asset is held or where the work is done. Where the payer is and what currency you are paid in do not decide it. Investment income that is held in your own name and arises abroad is generally exempt in Singapore. Note any foreign withholding tax as the cost. For employment income from overseas work, decide whether the work was incidental to a Singapore job or was employment exercised wholly overseas.
Three cases often catch people out:
income received through a partnership in Singapore, which is taxable services performed in Singapore for overseas clients, which are Singapore-sourced and declared as side income overseas employment that turns out to be incidental to a Singapore job, which stays taxable in Singapore
Rules change, so read the current IRAS page on foreign-sourced income for individuals before relying on any of this. Then record each item and how it is treated in a tax workbook. Shu Ting wrote three lines. The first says the Australian interest is exempt as foreign-sourced income received by an individual. The second says the US dividends are exempt in Singapore, with US tax withheld before payment. The third says the Jakarta salary is taxable in Singapore and was already in the income the employer reported.
For the activity, list any income you receive from abroad and write how IRAS treats each one, with the page you checked.
List the foreign income you receive and, next to each item, write how IRAS treats it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).