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To give businesses greater flexibility in their claim of FTCs, the FTC pooling system was introduced in the Singapore Budget 2011. It also reduces their Singapore taxes payable on remitted foreign income, as well as simplifies tax compliance. Foreign income earned by a Singapore company may be subject to taxation twice – once in the foreign country, and a second time when the foreign income is remitted into Singapore. Foreign tax credit or (FTC) is granted by allowing the Singapore tax resident company to claim a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.
As per the specifications, from assessment year (YA) 2012, taxpayers may elect to pool foreign taxes paid on any item of foreign income, subject to the following conditions:

• Income tax was paid in the concerned foreign jurisdiction;
• The headline tax rate of the foreign jurisdiction is at least 15%, at the time the foreign income was received in Singapore;
• Singapore tax is payable on the foreign income, etc.

The Foreign Tax Credit pooling was introduced earlier this year to give businesses greater flexibility in using their FTCs and to encourage more resident tax payers to remit their overseas income into Singapore. It also aims to reduce Singapore taxes payable on remitted Foreign income.

Implications of the FTC pooling system

Singapore’s FTC system allows for it to be computed on a pooled basis, rather than on a source-by-source and country-by-country basis for each particular stream of income.

The amount of claimable FTC would be the total Singapore tax payable on pooled foreign income or the pooled foreign taxes paid on the foreign income, whichever is lower. Under the Income Tax Act, the resident tax payer now has the option to choose from the following options:

• Foreign source Income Exemption (FSIE)regime;
• Previous FTC regime (source by source and country-by-country);
• The new FTC pooling system;

However, while considering the options the tax payer has to exercise judgment on which of these plans will result in generating the best tax benefits for a particular Year of Assessment.  To ensure that international expansion operations are devoid of any obvious hurdles and risks are minimal organizations need the guidance of experts who have the knowledge of the international laws and regulations. Professional experts have first hand experience of the prevailing environments, and impart extensive assistance on various areas of your business like tax equalization expat, international accounts payable, to name a few.