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27 September 20236 minute read

Singapore proposed new Section 10L to tax gains from sale or disposal of foreign assets

Singapore’s Ministry of Finance (MOF) recently proposed amendments to the Income Tax Act (ITA). This included changes to the Foreign-Sourced Income Exemption (FSIE) scheme in the form of a new Section 10L. Under the proposed Section 10L, in certain situations, capital gains from the sale or disposal of foreign assets are subject to tax, if such gains are received in Singapore.

The draft amendment bill was open for public consultation from 6 June to 30 June 2023. Following the responses to the consultation, MOF provided further guidance on the specifics and application of Section 10L on 8 September 2023. The (amended) draft legislation is expected to enter into force as from 1 January 2024.



As part of an initiative to combat harmful tax competition, the Code of Conduct Group (COCG) of the European Union reviewed several FSIE regimes. The reason was that the COCG observed that tax systems that exclude passive income without any conditions (such as substance requirements) may be harmful as this can cause ringfencing.

In its review, the COGS identified 14 countries that have FSIE regimes with alleged harmful elements, including Hong Kong and Singapore. In 2021, Hong Kong was added to the European Union’s “grey list” of non-cooperative jurisdictions for tax purposes and committed to change its regime. In the same year, Singapore’s FSIE scheme was assessed by the EU and considered not harmful.

Following the scrutiny, Hong Kong amended its FSIE scheme with effect from 1 January 2023 and will make further amendments with effect from 1 January 2024. The first amendment was making specified foreign sourced income in the form of (1) dividends; (2) interest; (3) intellectual property (IP) income, and (4) disposal gains in relation to shares or equity interests received in Hong Kong subject to tax unless certain additional (economic substance) requirements are met. The second amendment will extend the scope of (5) disposal gains to cover more asset classes.1

After an update of the EU COGS guidance in December 2022, Singapore’s MOF proposed to amend their FSIE regime to bring the taxation of foreign assets in line with the guidance issued by the COCG.


Key features of the proposed Section 10L

The foundation of Singapore’s corporate income tax regime is the concept of revenue versus capital. Income that is considered revenue in nature is taxable and income that is considered capital in nature is not taxable. As the non-taxation of capital gains is one of the cornerstones of the regime, the introduction of Section 10L would be a fundamental change.

Under the proposed Section 10L, gains from the sale or disposal of any movable or immovable property situated outside Singapore (“foreign assets”) by a relevant entity that are received in Singapore from outside Singapore, on or after 1 January 2024, will be treated as income chargeable to tax.

Key features are:

  • The proposed Section 10L is in line with the Singaporean income tax concept that income must be received or deemed received in Singapore to be taxable.
  • The scope of the proposed Section 10L is limited to gains derived by a “relevant entity”. A relevant entity is an entity which is part of a group where at least one entity of the group has a place of business outside Singapore. As such, domestic groups and standalone entities are excluded.
  • Entities that have reasonable economic substance and whose operations are managed and performed in Singapore are excluded.
  • Pure equity-holding entities (PEHE) are excluded. These are entities: (1) whose primary function is to hold shares or equity interests in other entities, and; (2) that have no other income than dividends or similar payments from the shares or equity interests, gains on the sale or disposal of the shares or equity interests or income incidental to its equity holding activities.



As the proposed Section 10L is still in draft form, there are aspects that require further guidance and clarification, which were flagged during the public consultation. The main observations and the responses of MOF are set out below.

Economic substance

A key concern is that there is no clearly defined threshold for “reasonable economic substance”. The proposed legislation only provides general economic substance indicators. These include the number of employees in Singapore and their qualifications and experience, the amount of business expenditure relative to the amount of income, and whether the key business decisions of the entity are made by persons in Singapore.

The lack of clear guidance causes uncertainty regarding the application of the proposed Section 10L. It was therefore flagged during the public consultation that it would be of significant benefit to the practice if MOF and/or Inland Revenue Authority of Singapore (IRAS) would release additional guidance on the relevant factors - particularly where industry-specific nuances come into play - and/or if IRAS would issue advance rulings to provide for certainty on a case-by-case basis.

MOF responded that it will not be practical to prescribe in legislation minimum thresholds to establish economic substance as business models and scale of operations of entities may vary even within the same sector. Instead, IRAS will provide further guidance through an e-Tax Guide, including examples for certain sectors.

The draft legislation recognizes that there could be outsourcing of operations to other persons, ie by stating that "the operations of the entity are managed and performed in Singapore (whether by its employees or other persons)". We presume that this would include employees of the entity and of its group companies, as inquired during the public consultation, though this is still awaiting confirmation as MOF did not specifically address this item in its response.

Investment holding entities vs PEHE (pure equity-holding entities)

In the public consultation, it was noted that investment holding entities that hold investments in the form of debts/bonds/notes/convertible instruments/funds do not qualify for the PEHE exclusion. However, as they are passive holding entities, they also may not be able to meet the non-PEHE exclusion requirement of carrying on a trade, business, or profession in Singapore.

MOF agreed and announced to remove this requirement for non-PEHEs altogether. As such, entities are not required to carry on a trade, business or profession in Singapore but are required to maintain reasonable economic substance in Singapore and need to make sure that the operations of the entity are managed and performed in Singapore. This is a helpful clarification for the practice and especially for the fund industry.



The proposed Section 10L is a fundamental change to Singapore’s existing tax regime, and is indicative of the increasing global focus on addressing international tax avoidance. Typically, low or no substance investment holding entities with a blend of investments will be affected.

Should you or your entities be in scope, please reach out to your trusted tax advisor to address this timely and where necessary, to restructure your investment holding(s) before the enacting of the proposal.

1For more information, reference is made to our July 2022 – February 2023 Asia Pacific Tax Newsletter. To assess how this may impact your business in Hong Kong, please contact our colleagues from the Hong Kong office.