Key considerations of remittance in Singapore's income tax framework

Understand the complexities of remittance in Singapore's income tax system, with a focus on key provisions and their implications for corporate transactions.

Singapore’s income tax system is semi-territorial in nature. Foreign-sourced income is taxable when it is received in Singapore from outside Singapore. In many instances remittance is a straightforward matter that requires little, if any, analysis. For example, it is self-evident whether an amount of cash has been brought into Singapore.   

However, there are circumstances where the concept of remittance can present some complexity. This includes the issues that may arise in the context of Section 10L of the Income Tax Act 1947 (ITA) as part of mergers and acquisitions (M&A) transactions and corporate restructuring. Examples of these circumstances are explored in this article.  

Deemed remittance

Any discussion of remittance in a Singapore tax context requires an analysis of Section 10(25) of the ITA. This provision is often described as establishing the circumstances under which income is deemed remitted into Singapore.  

There are three operative paragraphs set out within Section 10(25) of the ITA. Paragraph (b) applies where income derived from outside Singapore is applied in or towards the satisfaction of any debt incurred in the course of a trade or business carried on in Singapore. The Inland Revenue Authority of Singapore (IRAS) has confirmed that an investment holding company is not regarded as carrying on a trade or business for these purposes¹. It follows that this paragraph cannot apply where an investment holding company uses otherwise unremitted foreign-sourced income to discharge a local debt without bringing the funds into Singapore. Correctly identifying the basis of taxation of a taxpayer is key in adopting this position.  

The potential operation of Section 10(25)(b) to taxpayers carrying on a trade or business is not always obvious. This is particularly true where a taxpayer applies unremitted foreign-sourced income to purchase trading stock or revenue assets, creating a debt under the terms of that arrangement. An example may be a Singapore investment trading company that enters into an over the counter (OTC) trade to purchase an asset such as a derivative using unremitted foreign-sourced income. Depending on the terms of the contract, a debt may be created immediately upon entry into the contract, which is discharged by way of settlement. Also, depending on the particular circumstances, the income derived by an investment trading company may be Singapore sourced and this would render any discussion about the remittance of income irrelevant.

In this example, it does not matter that the debt arises as part of an executory contract, nor does it matter that an asset, which may not itself be brought into Singapore, is acquired. The concept of a debt for these purposes is not limited to traditional credit facilities or lending arrangements. Remittance may also arise where foreign-sourced income is used to pay the principal of a debt incurred in the course of a trade or business in Singapore. There is no actual or implied nexus needed with interest or some other deductible expense relating to the debt in question. 

Remittance of moveable property

Section10(25)(c) of the ITA applies where foreign-sourced income is used to purchase moveable property that is brought into Singapore. The term “movable property” is defined in the Interpretation Act 1965². It is clear from the way this definition is shaped that it includes both choses in possession and choses in action. Choses in action are a category of property that generally require the intervention of the Court to enforce. Shares, debt instruments and bilateral loans are all choses in action.

The orthodox position is that a chose in action is located where it may be enforced³. The place of enforcement depends upon the nature of the chose in action. The rights of a shareholder can be enforced in the jurisdiction in which a company’s principal share register is maintained, which is often the jurisdiction of incorporation⁴. The rights of a creditor as the holder of a debt instrument, or as a counterparty to a bilateral loan agreement, may be enforced where the debtor resides. This is a more complex question than simply looking at the governing law of the instrument or contract, or even the domicile of the debtor.

While the remittance of choses of action may seem esoteric, it can be critically important in a corporate restructuring and M&A context. This is particularly so given the relatively recent introduction of Section 10L of the ITA. This provision applies to treat as income certain foreign-sourced capital gains that are remitted into Singapore by taxpayers forming part of an accounting consolidated group. A fulsome description of this provision is beyond the scope of this article. What is relevant in the present context is Section 10L(9), which is modelled on Section 10(25) of the ITA. In accordance with Section 10L(9)(c), the proceeds from the sale of a foreign asset are taken to be remitted into Singapore if they are used to acquire movable property that is brought into Singapore.

Last year in the second edition of the e-tax guide on Section 10L, the IRAS indicated that a promissory note is considered to be remitted into Singapore if the document itself is brought into Singapore. A risk of remittance could arguably arise where an electronic version of a promissory note was to be received in Singapore, applying this guidance⁵. In an M&A or group restructuring context, it is common for promissory notes to circulate amongst parties to avoid the movement of cash consideration. These are often typically set off or returned to the issuer and cancelled upon acquisition.  

Correctly, in the view of the author, the IRAS has removed this specific guidance in the recently revised version of the Section 10L e-tax guide⁶. This permits a more nuanced analysis of the situs of a promissory note. It remains to be seen whether the guidance provided by the IRAS is reshaped in subsequent versions of this e-tax guide or whether it remains a point of technical analysis for tax advisors to opine on. 

An indication of the likely approach to be taken by the IRAS can be seen in the recently released Advanced Ruling Summary No. 15/2025. This ruling considers whether otherwise unremitted foreign-source interest income is taken to be received in Singapore by virtue of the endorsement of a series of promissory notes. These promissory notes are issued by two Singapore companies. They are to be successively endorsed as part of a cashless equity subscription and loan repayment transaction involving a foreign subsidiary. As part of the transaction, the promissory notes are to be endorsed by the foreign subsidiary in favour of the Singapore companies. This step is in satisfaction of pre-existing loan balances and unpaid interest owing to those two companies. 

The background facts of this ruling summary expressly state that all of the dealings in relation to the promissory notes occur outside of Singapore. This includes preparation, execution, endorsement and cancellation. In concluding that the endorsement of the promissory notes would not cause remittance of interest on the outstanding loan balances under Section 10(25), it is rationalised by the IRAS that the promissory notes are kept entirely outside Singapore. This reasoning provides a clue that the IRAS continue to see the location of a promissory note document as determinative. This is in lieu of treating the place of enforcement of the debt that is evidenced by a promissory note as the applicable situs. 

Shares

Scrip consideration is almost as common as promissory notes in M&A and restructuring transactions. It is another way of avoiding a physical movement of cash. In many instances, a transferee company may not have the available liquidity for entirely cash consideration.  

Suppose that in a corporate transaction, foreign assets are transferred by a Singapore transferor to a Singapore transferee for scrip consideration. In considering the application of Section 10L, it is important to determine whether the scrip consideration is remitted into Singapore. There is an argument that this is not possible. It is a fundamental component of both Section 10(25) and 10L(9) that an amount of income is remitted into Singapore from outside of Singapore. It is difficult to conceptualise circumstances where shares issued by a Singapore company transferee could be considered to have a situs outside of Singapore for even a moment in time and are then brought into Singapore by the transferor.

A similar conclusion applies to shares in a foreign incorporated company. As noted above, the location of shares is generally the place where the rights of shareholders may be enforced. This will generally be where the primary share register is maintained. The location of shares is therefore not something that is under the unilateral control of a shareholder. Shares cannot be “moved around” like an item of tangible property that can be physically brought into Singapore. There is authority confirming that the location of share certificates is not relevant. This stands to reason given that share certificates are mere evidence of title (putting to one side the increasingly rare phenomenon of bearer shares)⁷.     

Cryptocurrency

The remittance of cryptocurrency could easily be the topic of a separate article. The nature of cryptocurrency itself creates a unique set of analytical issues. Fortunately, there is a growing body of case law from both Singapore and overseas that provides an increasing degree of certainty on the required approach.  

It is now generally accepted that cryptocurrency is property. It is a chose in action and is not mere information, as previously suggested⁸. The Singapore Courts have confirmed in an insolvency context that cryptocurrency is located where the person with the possession of the private keys ordinarily resides⁹. By extension, it may be argued that cryptocurrency will be considered remitted for Singapore tax purposes if it is transferred into a wallet that can be operated by a person resident in Singapore. This conclusion is broadly consistent with administrative guidance provided by His Majesty’s Revenue and Customs (HMRC)¹⁰. 

A more considered analysis is required where cryptocurrency passes into a multi-sig wallet where only one of the persons able to authorise transactions is located in Singapore. There is also likely an analytical difference between cryptocurrency that is stored in the native wallet of a token or layer-1 blockchain as compared to an exchange account. The relationship between an account holder and a typical cryptocurrency exchange will be shaped by the terms of use, as may be modified by prevailing regulation. If the relationship is one of debtor and creditor, then it is difficult to see how cryptocurrency transferred to a foreign exchange account could be considered remitted into Singapore.   

Conclusion

Principles of remittance have a long history and some would argue that these seem anachronistic in the increasingly digital world. These principles however remain a fundamental part of the charge to income tax in Singapore and their application needs to be properly understood. This is particularly so considering the ever-increasing complexity and value of corporate transactions, the operation of Section 10L and other legislative developments.