Singapore's Inland Revenue Authority of Singapore (IRAS) has issued Advance Ruling Summary No. 8/2026, confirming that a non-pure equity-holding entity meeting the prescribed economic substance requirements qualifies as an excluded entity under Section 10L, with foreign-sourced disposal gains from a share transfer not chargeable to tax when remitted to Singapore.

RF Report

The Inland Revenue Authority of Singapore has published Advance Ruling Summary No. 8/2026 on 2 Jun 2026, clarifying the application of Section 10L of the Income Tax Act 1947 in determining whether a company qualifies as an excluded incentive entity or an excluded entity that meets the prescribed economic substance requirements.

The ruling determines whether gains derived by Company A (a Singapore-incorporated entity) from transferring shares in Company B (a foreign-incorporated entity) are subject to tax under Section 10L.

Relevant background and facts

  • The parties: Company A is a Singapore company involved in sales, marketing, and packaging. Company B is a foreign-incorporated related company.
  • The transaction: Company A transferred its shares in Company B to a new Singapore company (“New Company”) in exchange for shares in that New Company.
  • Tax incentives: Company A was enjoying a tax incentive under the Economic Expansion Incentives (Relief from Income Tax) Act 1967. However, the qualifying activities for this incentive did not include the holding or disposal of shares in related companies.
  • Economic substance: Company A is not a pure equity-holding entity (non-PEHE). It maintains adequate human resources with necessary qualifications in Singapore, its key business decisions are made in Singapore, and it expects to incur more than a specified amount (SGD) in local business expenditure.

The rulings

  1. Not an excluded incentive entity: Company A did not qualify as an “Excluded Incentive Entity” under section 10L(8)(c) because the sale of shares was not part of or incidental to its specific incentivised qualifying activities.
  2. Status as an excluded entity: Because Company A is a non-PEHE and satisfied the prescribed economic substance requirements, it is regarded as an “excluded entity” under section 10L(8)(d).
  3. Tax impact: The foreign-sourced disposal gains from the sale will not be chargeable to tax under section 10(1)(g) of the ITA when remitted or deemed remitted to Singapore.
  4. Duration: This ruling applies to foreign-sourced disposal gains from any sale of foreign assets by Company A from the Year of Assessment T through T+4.

Reasons for the decision

  • Incentive scope: Section 10L generally does not apply to gains from disposals that are incidental to activities covered by specific tax incentives. Since Company A’s incentive did not cover share disposals, this specific exemption did not apply.
  • Substance test: Company A successfully met the economic substance requirements for a non-PEHE by having sufficient qualified staff and local decision-making processes in Singapore.

General guidance for taxpayers

The ruling notes that taxpayers should refer to the IRAS e-Tax Guide “Income Tax: Tax Treatment of Gains or Losses from the Sale of Foreign Assets (Third Edition)” for further details. Specifically:

  • Paragraph 7.2 provides examples of exclusions for entities with tax incentives.
  • Paragraphs 8.7 to 8.9 explain the economic substance test for non-PEHEs.