Section 10L: Singapore tax on foreign disposal gains

Section 10L of the Income Tax Act 1947, which took effect on 1 January 2024, introduced a new taxing provision for foreign-sourced disposal gains. Where an entity of a relevant group receives gains from disposing of foreign assets, those gains are subject to corporate income tax at 17% if the entity lacks adequate economic substance in Singapore, unless a specific exemption applies.

For groups with cross-border structures, understanding the scope and implications of Section 10L is now a core part of tax planning and compliance. Our tax advisory services team regularly advises entities on their obligations under this legislation,  determining whether they qualify as a relevant group and identifying applicable substance exemptions.

What is a relevant group under Section 10L?

Section 10L applies only to entities that belong to a relevant group. A corporate group falls under this definition if it has a cross-border structure, meaning:

• Not all entities in the group are incorporated, registered or established in Singapore
• At least one entity within the group operates a place of business (such as a branch or permanent establishment) outside of Singapore

When are foreign-sourced disposal gains treated as “received in Singapore”?

Foreign-sourced disposal gains are treated as received in Singapore if they are:

• remitted to, transmitted or brought directly into Singapore;
• applied to satisfy a debt incurred in respect of a trade or business carried on locally; or
• applied to purchase movable property brought into Singapore

While an entity’s compliance with economic substance requirements is evaluated based on the basis period when the disposal occurs, the actual tax liability is only triggered and charged in the basis period when the gains are received.

Economic substance requirements

The economic substance requirements are assessed at the entity level and differ depending on whether the entity is classified as a Pure Equity Holding Entity (PEHE) or a Non-Pure Equity Holding Entity (Non-PEHE).

A Non-PEHE, being an entity that carries on activities beyond merely holding equity investments, is subject to a more extensive substance assessment. To qualify for tax-exempt foreign disposal gains, it must generally demonstrate that its key business activities are managed and performed in Singapore, that strategic decisions are made in Singapore, and that it has an appropriate level of Singapore-based employees and operating expenditure relative to the nature and scale of its activities.

By contrast, a PEHE is subject to a more streamlined substance test that reflects its limited role as a holding vehicle. Broadly, a PEHE must comply with its statutory filing obligations and demonstrate that its holding activities are managed from Singapore. It must also maintain adequate resources in Singapore, although the level of substance required is generally lower than that expected of a Non-PEHE.

Importantly, the economic substance assessment is not based on a prescribed minimum number of employees, directors or expenditure. Instead, the Inland Revenue Authority of Singapore will consider whether the resources maintained in Singapore are commensurate with the entity's activities and functions.

Economic substance is to be assessed on the entity level based on the qualification of the entity, being a Non-Pure Equity Holding or Pure Equity Holding entity.

Section 10L exemptions: who is exempt from foreign disposal gains tax?

Under Singapore’s Section 10L, gains from selling foreign assets (like shares, property or crypto) are taxable unless your company qualifies as an “excluded entity.”

If your entity fits into one of the categories below during the basis period of the sale, your foreign disposal gains may remain tax-free.

• Prescribed financial institutions - commercial banks, merchant banks and finance companies are exempt. The asset disposal must be part of or incidental to their core financial business.
• Incentivised entities - companies utilising specific Singapore tax incentives such as the Development and Expansion Incentive (DEI), the Finance and Treasury Centre (FTC) incentive and the Financial Sector Incentive (FSI) are exempt if the disposal happens during the incentivised period.
• Entities with adequate economic substance - any company that fulfills Singapore’s economic substance requirements is exempt. 

Does Section 10L override the Section 13W tax exemption?

Section 10L strictly overrides the Section 13W equity disposal safe harbour. If an entity sells foreign ordinary shares and remits the profits into Singapore, the entity can no longer rely on Section 13W alone to guarantee tax-free gains; the divesting entity must now independently fulfill Singapore’s strict economic substance requirements. This interaction creates major retroactive corporate tax exposure for historical share sales, making an early tax due diligence review essential during M&A transactions to identify hidden liabilities.

How are gains from Foreign Intellectual Property (IPR) disposals taxed?

Under Section 10L, IPRs are not qualified for standard economic substance exemptions, making disposal gains taxable when received in Singapore unless specific conditions are met. For qualifying IPRs such as patents, patent applications and copyrights, a modified nexus approach determines what portion of the gains is not taxable. For non-qualifying foreign IPRs, such as trademarks and brands, enjoy no concessions; their full disposal gains are 100% taxable at the standard corporate rate when remitted, regardless of the company’s substance.

How can Forvis Mazars help?

We would encourage companies to review their operations and investments to assess the impact of the rules on them.

At Forvis Mazars, we can assist you in conducting a comprehensive assessment of your operations against the new rules for impact analysis and advise on how to structure your operations from a tax perspective to manage potential exposure under these rules. Where appropriate, we can also support an advanced ruling application to IRAS to obtain certainty on the adequacy of economic substance ahead of a planned disposal.

Do you have any questions for us?