The Inland Revenue Authority of Singapore has published Advance Ruling Summary No. 12/2021, concerning whether the use of unremitted dividend income for a proposed share capital reduction exercise will be treated as a remittance or deemed remittance into Singapore.

---

Advance Ruling Summary No. 12/2021

Subject:

Whether:

• the assignment of an amount receivable from a related company which was made up of unremitted foreign-sourced dividend income, for the purpose of a share capital reduction exercise; and
• the payment of a service fee using the unremitted foreign-sourced dividend income,

constitute a remittance or deemed remittance into Singapore under Section 10(25) of the Income Tax Act ("lTA")

Relevant background and facts:

• Company X is incorporated and tax resident in Singapore.
• Pursuant to the sale of certain assets to Company A, Company X received ordinary shares in Company A (the "Shares") in partial settlement of the sales consideration. Company A and Company X are unrelated parties. Company A is incorporated and tax resident in Country A.
• Company X entered into a nominee arrangement with Company B. Under the nominee arrangement, Company B holds the Shares in trust for Company X and receives the dividend from the Shares (the "Dividend") on Company X's behalf. Company B and Company X are related parties. Company B is incorporated and tax resident in Country B.
• The funds from the Dividend are transmitted directly by Company A into Company B's bank account outside Singapore and kept offshore on Company X's behalf at all times. The funds from the Dividend held on its behalf by Company B are recorded as an amount receivable from Company B in the Company X's books.
• Company X intends to:
  • assign an amount receivable from Company B to Company X's shareholder in consideration of the redemption and cancellation of its redeemable preference shares. The redeemable preference shares are treated as an equity instrument for Singapore income tax purposes; and
  • utilise the remaining balance of the amount receivable from Company B as payment for service fees to Company B for holding the Shares in trust and receiving the Dividend on behalf of Company X.
• There will not be any physical remittance or transmission of funds or bringing of the funds into Singapore by Company X for the proposed share capital reduction exercise and payment of service fees.

Relevant legislative provision(s):

• Income Tax Act, Chapter 134 (Revised Edition 2014) - Section 10(25)

The ruling:

• The use of the unremitted Dividend in the manner described above for the proposed share capital reduction exercise and payment of the service fees to Company B do not constitute a remittance or deemed remittance into Singapore under Section 10(25) of the ITA.
• The ruling is subject to the following conditions:
  • The Dividend indeed constitutes foreign-sourced income of Company X for Singapore income tax purposes;
  • The amount receivable from Company B that will be assigned to Company X's shareholders and paid to Company B as service fees are indeed payments directly to the recipients' accounts for the specified purposes without involving any physical remittance or transmission of funds or bringing of the funds into Singapore; and
  • The amount receivable from Company B are not in fact amounts constituting the foreign-sourced income of Company X which had already been remitted to, transmitted or brought into Singapore from the time the foreign-sourced income were accrued to Company X to the time it was assigned to Company X's shareholders and paid to Company B for the share capital reduction and as service fees respectively.

Reason for the decision:

The use of unremitted foreign-sourced income for a capital reduction exercise and a payment of a non-trade expense where there will not be any physical remittance or transmission of funds or bringing of the funds into Singapore by Company X for these purposes do not come within the provisions of Section 10(25) of the ITA.