The two advance rulings confirms that gains from foreign asset disposals are not taxable where economic substance requirements are met.
The Inland Revenue Authority of Singapore (IRAS) has published two advance ruling summaries (Nos. 13/2025 and 14/2025) addressing whether economic substance requirements were satisfied for the purposes of Section 10L of the Singapore Income Tax Act (ITA). Effective from 1 January 2024, Section 10L provides for the taxation of foreign-sourced capital gains unless entities meet specific economic substance criteria and qualify as “excluded entities”.
Ruling Summary No. 13/2025: Company A
Company A, incorporated in Singapore, derived gains from a share buyback by Company B, a foreign-incorporated entity. The gains were earned during the basis period for Year of Assessment (YA) X. Company A is part of a relevant group and classified as a non-pure equity-holding entity (non-PEHE) under section 10L(16).
IRAS determined that Company A met the economic substance requirements under paragraph (b) of the “excluded entity” definition. The company’s operations were managed in Singapore by qualified directors who were also employees, with all key decisions made locally. Company A also incurred local business expenditure.
As a result, Company A qualifies as an excluded entity under section 10L(8)(d), and the foreign-sourced disposal gains from the share buyback will not be taxed under section 10(1)(g) of the ITA when remitted into Singapore. The ruling will apply for Years of Assessment X to X+4, subject to no changes in relevant facts or tax law interpretations.
Ruling Summary No. 14/2025: SPV 2
The second ruling involved SPV 2, a wholly owned Singapore-incorporated subsidiary of SPV 1, both ultimately controlled by Company P — the corporate headquarters of its group and also tax resident in Singapore.
SPV 2 completed the divestment of shares in a foreign company during the basis period for YA Y. The IRAS found that SPV 2 satisfied the economic substance test based on the fact that its investment activities were managed by employees of Company P in Singapore. The directors and employees made strategic decisions locally, and Company P derived economic benefits from SPV 2’s activities, with income flowing back as dividends.
Accordingly, SPV 2 was also deemed an excluded entity under section 10L(8)(d), and the disposal gains will not be subject to tax under section 10(1)(g) when received in Singapore. This ruling applies for YAs Y to Y+4.
Legislative Framework and Guidance
Both rulings referenced Sections 10(1)(g), 10L(8)(d), and 10L(16) of the Income Tax Act 1947. Taxpayers are advised to consult the IRAS e-Tax Guide “Income Tax: Tax Treatment of Gains or Losses from the Sale of Foreign Assets (Third Edition)” for guidance on the economic substance requirement. Paragraphs 8.7–8.9 address non-PEHE cases, while paragraphs 8.12–8.13 provide guidance specific to SPVs.
