SINGAPORE Law and Practice Contributed by: Yang Shi Yong, Drew & Napier LLC
tal gains and all of those gains had been received in Singapore, they would have been chargeable to tax in Singapore. Certain other exceptions also apply. 2.5 Deduction of Interest Interest expenses are generally deductible if they are incurred wholly and exclusively in the production of income. Interest expenses from non-income produc - ing assets will not be deductible. As an administra - tive concession, the Singapore tax authorities do not require taxpayers to identify the interest expense incurred from income-producing assets. Instead, tax - payers may use the total asset method to attribute common interest expenses to their assets. Under the total asset method, the proportion of common inter - est expenses that is attributable to income produc - ing assets is deductible. In contrast, the proportion of common interest expenses that is attributable to non-income producing assets is not deductible. Singapore does not impose thin capitalisation rules. However, the interest rates of the loans between relat - ed parties must either be at arm’s length or an indica - tive margin published by the Singapore tax authorities. The arm’s length interest rate is the interest rate which would be imposed if the parties were not related par - ties and were dealing independently with each other under similar circumstances at the time the indebted - ness arose. 2.6 Consolidated Tax Grouping There is no consolidated tax grouping in Singapore. However, subject to meeting certain qualifying condi - tions, a Singapore-incorporated company may make an irrevocable election to transfer its unutilised cur - rent year capital allowances/losses/approved dona - tions under the group relief system to be deducted against the assessable income of another Singapore- incorporated company from the same group. The transferor and transferee companies are members of the same group if one holds 75% of the other, or a third Singapore company holds 75% in each of the companies. Further, the holder must be entitled to at least 75% of:
• any residual profits of the other company available for distribution to that company’s equity holders; and • any residual assets of the other company available for distribution to that company’s equity holders on a winding up. 2.7 Capital Gains Capital gains from the sale or disposal of foreign assets that occur on or after 1 January 2024 are tax - able in Singapore where such proceeds are received in Singapore. Such gains are only taxable if the selling/ disposing entity does not have adequate economic substance in Singapore or the gains were derived from the disposal of foreign intellectual property rights. This applies to sellers that are members of corpo - rate groups that are not all incorporated, registered or established in a single jurisdiction, or if any entity in that group has a place of business in more than one jurisdiction. Capital gains from the sale of assets situ - ated in Singapore would not be taxable. Other exemp - tions may apply. In ascertaining whether gains from a transaction are revenue or capital in nature, the Comptroller may examine the characteristics of the transaction accord - ing to certain factors known as the “badges of trade”. These include:
• the taxpayer’s motive; • the financing method; • the frequency of similar transactions; • the duration of ownership; and • the reasons for the realisation
Whether a transaction is revenue or capital in nature is a question of fact – the badges of trade should be considered holistically, and no single factor is deter - minative. 2.8 Other Taxes on Transactions An incorporated business may be liable to pay other taxes on a transaction. These include: • GST of 9% on: (a) any supply (except an exempt supply) of goods or services made in Singapore by GST-regis -
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