Companies disposing of foreign assets can apply for advanced ESR ruling
Last updated on 31 May 2024
From 1 January 2024, companies that meet that economic substance requirement (ESR) may be exempt from tax for certain foreign-sourced disposal gains. Under the new ESR regime, foreign assets (except intellectual property rights) will not be treated as income chargeable to tax in Singapore if the company can meet the ESR. Similar to tax residency in Singapore, companies must demonstrate, among others, core income-generating activities, management and control, and have sufficient physical or employee presence in Singapore to meet ESR.
Companies can apply for an advanced ruling from IRAS for ESR if they seek certainty before selling or disposing of a foreign asset (i.e. immovable property outside of Singapore). The advanced application can be carried out within one year of the planned disposal, and if granted, the advanced ruling on ESR is valid for up to 5 years, subject to facts of the application and tax laws remaining unchanged.
The ESR regime was put in place to ensure that companies that benefit from tax incentives in Singapore bring economic benefit to the country. It is also meant to align Singapore’s tax regulations with international tax standards such as the Base Erosion and Profit Shifting (BEPS) initiatives.
Due to the technical nature of the ESR, accounting firms in Singapore providing tax and accounting services will be able to advise on a company’s chances of success in applying for ESR.
