You will be able to explain when foreign-sourced income is taxed for a resident individual.
Shu Ting studied in Melbourne and still has an Australian savings account from those years, which pays a little interest each year. She holds a US-listed fund that pays dividends. And last year she spent three weeks in Jakarta for work, setting up a warehouse for her Singapore employer. When she opened her return, she wondered which of these, if any, Singapore expected to hear about.
Her brother Darren had a different question. In the school holidays he designed a set of worksheets for a tuition centre in Johor Bahru, working from his flat in Tampines, and the centre paid him in ringgit. Was that foreign income?
This lesson explains when income from abroad is taxed for a resident individual, and why the answers for Shu Ting and Darren came out the way they did.
Singapore taxes income that arises in Singapore, and income from abroad that is received here. Within that, IRAS gives individuals a broad exemption. Foreign-sourced income received in Singapore by a resident individual is generally exempt from tax. The main exception is income received through a partnership in Singapore, which is taxable.
So the interest on Shu Ting's Australian account is foreign-sourced: it arises from a deposit with a bank in Australia. Received by her as an individual, whether she leaves it in Australia or transfers it home, it is exempt in Singapore. The same applies to dividends from her US fund. The tax that does reach those dividends is the US withholding, which Investing in US and global markets from Singapore, lesson 3.2, What the W-8BEN does and does not do, covers.
Exempt in Singapore doesn't mean untaxed everywhere. The other country may tax the income under its own rules, usually by withholding tax before you receive it. Singapore's exemption simply means it won't tax the income a second time.
The word that decides the answer is "sourced". Income is foreign-sourced when it arises outside Singapore. A foreign payer doesn't make income foreign-sourced on its own.
That is why Darren's worksheets are a different case. He did the work in Singapore, at his desk in Tampines. Income from services performed here is generally treated as arising here, even when the client is overseas and pays in another currency. So his design fees are Singapore-sourced, taxable, and belong with the side income from lesson 5.3, Side income and other income you must declare.
The same reasoning catches many people who work remotely for overseas companies from a Singapore home. Where the work is done is usually what counts. If you're in that position, read the IRAS guidance on where income is sourced before deciding it 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 your job, as Shu Ting did in Jakarta, that work is generally still part of your Singapore employment. The trip was incidental to her job here, so her full salary for those three weeks remained taxable in Singapore, and it was already in the income her employer reported.
A longer posting, where your job is carried out wholly overseas for a period, is treated differently. Income from employment exercised overseas is generally not taxed in Singapore, though IRAS lists exceptions, such as for directors of Singapore companies and for 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 a posting or a move.
The line between an incidental trip and an overseas job depends on the facts, and IRAS explains how it draws it. When the period abroad is long, or the sums are large, check the guidance or ask a tax adviser.
The general exemption covers most of what individuals receive from abroad: overseas interest, dividends and similar investment income held in your own name. The cases that trip people up are income received through a partnership, services performed in Singapore for overseas clients, and overseas employment that turns out to be incidental to a Singapore job. Rules also change, so read the current IRAS page on foreign-sourced income for individuals before you rely on any of this.
Shu Ting wrote three lines in her tax workbook: Australian interest, exempt as foreign-sourced income received by an individual; US dividends, exempt, US withholding is the final cost; Jakarta trip, part of Singapore employment, already reported. Darren added his worksheet fees to his side income.
For the activity, list any income you receive from abroad and write how IRAS treats each one, with the page you checked.
List any foreign income you receive and write how IRAS treats each one.
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