Section 10L Foreign-Sourced Disposal Gains in Singapore (2026): The Economic Substance Test

For decades, one of Singapore’s most attractive features was simple: it did not tax capital gains. A company could sell a foreign asset at a profit, bring the money home, and pay no Singapore tax on the gain. Since 1 January 2024, that is no longer universally true. Section 10L of the Income Tax Act taxes certain gains from the sale or disposal of foreign assets when those gains are received in Singapore, unless the company has adequate economic substance here. It is one of the most significant changes to Singapore’s tax landscape in years, and it catches holding companies and group structures that were built on the old assumption.

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This guide explains, in plain English, what section 10L does in 2026, which gains and which companies are within its scope, the all-important economic substance test, and how it interacts with Singapore’s existing share-disposal exemption. It is written for directors and finance teams of Singapore holding and group companies, not for tax specialists.

Why section 10L exists

Section 10L was introduced to align Singapore’s tax regime with international anti-tax-avoidance norms, in particular the European Union’s guidance on foreign-source income exemption regimes. The concern internationally was that groups could route gains through jurisdictions where they had little real activity, and exempt those gains from tax, without anchoring genuine economic substance anywhere. Section 10L responds by taxing foreign-sourced disposal gains received in Singapore where the recipient lacks adequate substance here. The policy aim, in the words of the authorities, is to encourage substantive economic activities to be anchored in Singapore.

What gains are caught?

Section 10L applies to gains from the sale or disposal of a foreign asset that occur on or after 1 January 2024, where the gains are received in Singapore by a covered entity. Two features are essential:

• The asset is a foreign asset, broadly, an asset located outside Singapore, or a right or interest treated as foreign under the rules.
• The gain is received in Singapore. The remittance concept mirrors the long-standing rules on foreign income received in Singapore: the gain is caught when it is remitted to, transmitted to, or brought into Singapore, or used to satisfy a Singapore debt or to buy movable property brought into Singapore.

Importantly, section 10L is aimed at gains that would otherwise be capital in nature. Gains that are already taxable as trading income, because the disposal amounts to a trade under the badges of trade, are taxed under the ordinary rules and do not need section 10L to bring them into charge.

Which companies are within scope?

Section 10L targets an entity of a relevant group. A group is a “relevant group” broadly where the entities are not all incorporated or established in a single jurisdiction, or where any entity has a place of business in more than one jurisdiction, in other words, groups with a cross-border footprint. Purely domestic, single-jurisdiction groups are generally outside the provision.

Several categories of entity are excluded. These include, among others, certain entities enjoying specified tax incentives (such as approved fund vehicles and shipping entities), regulated financial institutions carrying on particular activities, individuals, and, critically, foreign entities that are not operating in or from Singapore. IRAS has clarified that a foreign entity that merely brings income into Singapore, without operating in or from Singapore, is not within the charge.

The economic substance test

The heart of section 10L is the economic substance exception. Foreign-sourced disposal gains from an asset (other than intellectual property) are not taxed under section 10L if the entity has adequate economic substance in Singapore in the relevant basis period. Substance is assessed at the entity level, and the factors include:

• whether the operations that generate the gain are managed and performed in Singapore;
• whether the entity has adequate human resources and premises in Singapore; and
• whether the entity incurs adequate operating expenditure in Singapore in connection with those operations.

Activities can be outsourced to another entity in Singapore (including a related party), provided the outsourced activities are carried out in Singapore and the entity monitors them. A pure equity-holding entity, one whose function is only to hold and manage equity participations, faces a reduced substance bar: broadly, it must comply with its statutory record and filing obligations and have adequate human resources and premises in Singapore to carry out that holding activity.

Intellectual property: a special rule

Gains from the disposal of a foreign intellectual property right (IPR) are treated more strictly. The economic substance exception is not available in the same way for IPR gains. Instead, only a portion of the gain may qualify for relief, determined by a modified nexus approach that links the relief to the proportion of qualifying research and development expenditure the entity itself incurred in developing the IPR. Groups that hold or trade foreign IP should model this carefully before any disposal.

How section 10L interacts with the share-disposal exemption

Singapore already has a specific exemption for gains on the disposal of ordinary shares under the provisions covering disposal of equity investments, which broadly exempts qualifying gains where the divesting company held a minimum shareholding for a minimum period. Where that exemption applies, the gain is not taxable, and section 10L does not turn an otherwise-exempt gain into a taxable one. Section 10L bites in the gap: foreign-asset gains that are capital in nature, received in Singapore, and not otherwise exempt, where the entity lacks adequate substance. Understanding which regime applies to a given disposal is the key planning step, and it sits within the broader framework of Singapore corporate tax.

Practical steps for companies

• Map the group. Determine whether you are part of a relevant group with a cross-border footprint, and whether any exclusion applies.
• Test substance before disposing. Document the people, premises and expenditure in Singapore that support your holding or operating activity, before a disposal, not after.
• Watch the remittance. A gain only comes into charge when received in Singapore; the timing and route of bringing proceeds home matters.
• Model IPR disposals separately. The modified nexus rule for foreign IPR needs its own analysis.
• Coordinate with withholding and treaty positions. Cross-border proceeds can also raise withholding tax questions in the source country.

Key takeaways

Section 10L ended the assumption that all foreign-sourced capital gains are tax-free in Singapore. Since 1 January 2024, gains from disposing of foreign assets, when received in Singapore by an entity of a cross-border group that lacks adequate economic substance here, are taxable, with foreign IPR gains treated more strictly under a modified nexus rule. The escape route is real substance: people, premises and expenditure in Singapore. Groups built on holding structures should test their substance position now, before a disposal, and confirm whether the existing share-disposal exemption or an exclusion already takes the gain out of charge. Full guidance is published by IRAS and the statute can be read on Singapore Statutes Online. Because the analysis is fact-specific, take professional tax advice before acting on any significant foreign-asset disposal.

This article is general information, not tax advice.

— The Editorial Team, Raffles Corporate Services