Entity Setup
Singapore’s Economic Substance under Section 10L: Key Advance Rulings You Should Know
IRAS has clarified how companies meet economic substance under Section 10L—crucial for entities classified as "excluded entities"—in recent advance rulings.
By NomadicTax Research Team • 6 min read • September 2, 2026
## What is Section 10L of the Income Tax Act in Singapore?
Section 10L governs the classification of certain entities as **excluded entities**—that is, entities satisfying the economic substance requirements and hence exempt from certain tax obligations applicable to shell or qualifying persons under Singapore’s tax law. Advance rulings help clarify the criteria. ([iras.gov.sg](https://www.iras.gov.sg/taxes/corporate-income-tax/specific-topics/advance-ruling-system-for-income-tax?utm_source=openai))
## Recent Rulings and Interpretations
- **1 July 2026**: A ruling was published on whether a company meets economic substance under Section 10L and qualifies as an excluded entity. ([iras.gov.sg](https://www.iras.gov.sg/taxes/corporate-income-tax/specific-topics/advance-ruling-system-for-income-tax?utm_source=openai))
- **3 August 2026**: Two additional rulings clarified: the treatment of **tax-deferred distributions from foreign trusts**, and gains from **property sales**. These shed light on real estate investments and international trust distributions. ([iras.gov.sg](https://www.iras.gov.sg/taxes/corporate-income-tax/specific-topics/advance-ruling-system-for-income-tax?utm_source=openai))
## Key Substance Requirements
To qualify as an excluded entity under Section 10L, the entity must typically show that it:
- Has **adequate employees**, premises, and operating expenditure proportionate to its core income-generating activities.
- Carries out **significant economic activity** in Singapore, with decision-making, management, and control located in Singapore.
- Maintains proper records and follow through with operational commitments, not just for compliance but for substance.
## Implications for Entity Setup and Digital Nomads
- Useful for **corporate or trust entities** operating across borders or engaging in holding foreign income to ensure they are not penalized or denied exemptions.
- Digital nomads or individuals forming legal entities in Singapore who receive foreign income from trusts should note how those funds are treated depending on whether they are “used” in Singapore or remitted. Advance rulings help define this. ([iras.gov.sg](https://www.iras.gov.sg/taxes/corporate-income-tax/specific-topics/advance-ruling-system-for-income-tax?utm_source=openai))
## Actionable Advice
- If you are setting up an entity likely impacted by Section 10L, consider seeking an **advance ruling** early to reduce risk.
- Ensure physical presence: staff, premises, decision-making in Singapore, not just mailbox operations.
- Maintain full documentation of substance: board meeting minutes, contracts, expenses tied to core activities.
## Example
Imagine a fund or holding entity receiving dividends from foreign subsidiaries. To be excluded under Section 10L, the entity must show those dividends come into Singapore but are used, invested, or managed here—depending on how Section 10L is phrased and the specific advance ruling.