The Singapore parliament passed the Income Tax (Amendment) Act
2023 on 3 October to introduce a new Section 10L in the Income Tax
Act 1947 (ITA), which aligns Singapore's foreign source income
exemption (FSIE) regime with international standards by taxing
gains received in Singapore from the sale of foreign assets by
businesses without economic substance in Singapore.
The Act, which applies as of 1 January 2024, is a significant
departure from the current tax regime, where only revenue-based
foreign-sourced income – such as dividends, royalties and
interest – are taxed in Singapore, and not capital gains.
In 2019, the European Union's Code of Conduct Group (COCG)
announced a review of FSIE regimes worldwide, including Singapore
and Hong Kong, on the grounds that tax systems that excluded
passive income without any conditions, such as economic substance
requirements, could be regarded as 'ringfencing' and
therefore harmful.
