IRAS has ruled that Company A qualifies as an "excluded entity" under Section 10L of the Income Tax Act 1947. This means capital gains from the sale of foreign assets will not be taxed when repatriated to Singapore, following the company’s demonstration of sufficient economic substance in the country.
The Inland Revenue Authority of Singapore (IRAS) has issued Advance Ruling Summary No. 5/2026 on 1 April 2026, clarifying the criteria for a company to qualify as an “excluded entity” under Section 10L of the Income Tax Act 1947. This status is important because capital gains from the sale of foreign assets are not taxed when remitted to Singapore for qualifying entities.
Published on 1 April 2026, the ruling considers whether Company A, a Singapore-incorporated tax-resident company, meets the requirements to benefit from tax exemptions on foreign-sourced gains.
Company background
Company A holds strategic investments across the Asia-Pacific region. Under Section 10L of the ITA, it is classified as a non-pure equity-holding entity (non-PEHE) because it earns interest from loans to related parties, showing that its operations go beyond simply holding shares or equity.
The transaction
During the financial year “Year X,” Company A sold shares in Company B, a foreign-incorporated company, and repatriated the resulting gains to Singapore.
Economic substance requirements
To qualify as an excluded entity and avoid tax on these remitted gains, Company A needed to demonstrate sufficient economic substance in Singapore. The ruling noted that the company met these requirements through:
- Local Management: Operations are run and managed in Singapore.
- Human Resources: Adequate staff with the right qualifications and experience are employed locally.
- Local Spending: The company expects to incur local business expenses above a specified threshold (S$Z) in the relevant financial year.
- Decision Making: Key business decisions are taken by personnel based in Singapore.
Ruling and tax impact
The Comptroller of Income Tax concluded that Company A satisfies the economic substance test for a non-PEHE under Section 10L(16) of the ITA. As a result:
- Company A is officially recognised as an excluded entity.
- The foreign-sourced gains from the sale of foreign assets will not be taxable under Section 10(1)(g) of the ITA when brought into Singapore.
- This ruling applies to disposal gains during the basis periods for the Year of Assessment Y through Y+4.
Guidance for other taxpayers
For more details on the economic substance requirements for non-PEHEs, taxpayers can refer to paragraphs 8.7 to 8.9 of the IRAS e-Tax Guide, Income Tax: Tax Treatment of Gains or Losses from the Sale of Foreign Assets (Third Edition).
