Singapore tax treatment of gains from sale of foreign assets

With effect from 1 January 2024 Singapore will, under certain circumstances, treat gains from the sale or disposal of foreign assets as income chargeable to tax under Section 10L of the Income Tax Act.

Prior to 1 January 2024, Singapore did not tax gains from the sale or disposal of assets that are capital in nature, whether they were foreign-sourced or Singapore-sourced.

However, foreign-sourced disposal gains are now chargeable to tax under the following specific circumstances:

  • the gains are received in Singapore from outside Singapore by a covered entity, and
  • the gains are derived by an entity without adequate economic substance in Singapore.

Entities that have reasonable economic substance and whose operations are managed and performed in Singapore are excluded. In this regard a distinction is made between PEHE and non-PEHE entities.

Pure equity-holding entities (PEHEs) are subject to less strict economic substance requirements. These are entities whose primary function is to hold shares in other entities, and that have no other income than dividends from or gains on the disposal of the shares.

Covered entities relate to “relevant groups” whereby:

  • the entities of the group are not all incorporated, registered or established in Singapore; or
  • any entity of the group has a place of business outside Singapore.

Note that the above represents a limited summary of the new Section 10L rules. Section 10L is complex and official guidance is still awaited. Professional advice is strongly recommended.

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