What You Need To Know About Singapore Double Tax Treaties
A tax treaty allows businesses to enjoy benefits derived from double taxation. Beneficiaries enjoy tax credits, reduced withholding tax rates, or even tax exemptions. These reliefs differ from one country to another and depend on the items of income. This article will talk about Singapore's Double Tax Treaties.
What is Double Taxation?
Double taxation occurs when two or more countries impose their tax on the same taxpayer, and in this case, it's a business. This means that income coming from the company is taxed twice. The first source comes from the country where the income arises, and the second comes from the country of residency where payment is received. The latter is often the home country, or where they're from.
Countries can provide different tax relief types through domestic tax laws or under tax treaties entered into another country to avoid double taxation.
How Do Singapore Double Tax Treaties Work?
Businesses looking to expand beyond their home countries will always be concerned about taxation, especially the dilemma about paying taxes twice. This apprehension is the reason why the issue of double taxation has always been under the microscope.
Businesses would also need to adjust their business operations and structure to maximize their tax position, reducing costs while increasing global competitiveness. This is where Singapore's double tax treaty comes into play.
What is a Double Tax Agreement?
A double tax agreement or DTA is a bilateral agreement between two countries to prevent double taxation that arises from the application of domestic tax laws.
Benefits of DTA’s
DTA's are meant to provide certainty about how and when tax is imposed in the country where the income is being generated or where payment is being made. In simpler terms, it helps define each country's taxing right - the country where the business is from and the country where it expanded its operation to.
DTA's can also prevent international tax evasion by sanctioning exchange of information between contracting state and the tax authorities. This also allows you to claim tax relief for taxes paid overseas.
Who Can Benefit From Singapore Double Tax Agreements?
Only Singapore residents can enjoy the benefits of a DTA application. According to Section 2 of the Singapore Income Tax Act, a resident is defined as:
An individual: A person who, in the year preceding the year of assessment, resides in Singapore except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Singapore, and includes a person who is physically present or who exercises an employment (other than as a director of a company) in Singapore for 183 days or more during the year preceding the year of assessment; and
A company or body of persons: Means a company or body of persons the control and management of whose business is exercised in Singapore.
When you earn income from a treaty country, you can claim relief under the relevant tax treaty by submitting a Certificate of Residence to the foreign country. This is proof of your Singapore Tax Residency. On the other hand, if you are a tax resident of a treaty country, you'll have to submit to the Inland Revenue Authority of Singapore (IRAS) a complete Certificate of Residence from Non-Residents, duly certified by the tax authority of the treaty country. This certificate allows you to claim relief from Singapore Income Tax Under Avoidance of Double Taxation Agreement.
What Types of Income Are Typically Covered By The DTA?
Income from immovable property
Business profits
Shipping and air transport
Associated enterprises
Dividends
Interest
Royalties and fees for technical services
Capital gains
Independent personal services
Dependent personal services
Directors' fees
Artistes and sports-persons
Remuneration and pensions in respect of government service
Non-governmental pensions and annuities
Students and trainees
Teachers and researchers
Income of government
Other income
How Do You Relieve Double Taxation in Singapore?
There are several ways for you to enjoy tax relief, thanks to the Double Taxation Agreement.
Tax Credit
A tax credit is given to taxpayers' foreign tax against their domestic tax imposed on the same income. The amount of tax credit relief is restricted to the lower payable or paid tax in the foreign or home country. This is commonly known as the Ordinary Credit Method. Another method is called the Full Credit Method, where the tax paid in the source country is allowed as full credit.
Tax credit relief is also referred to as the DTR or Double Tax Relief in Singapore. Claiming DTR is made while filing annual income tax returns (Form C) and shown in the company's tax computations.
Documentary proof such as a letter from the foreign tax authority, withholding tax receipts, and dividend vouchers are required to show that the remitted income was subject to tax in the treaty country.
Tax Exemption
Double tax avoidance can be done when foreign income is exempted from domestic tax. This may be given part or the entire foreign income.
A Singapore tax resident company can enjoy exemptions on foreign-sourced dividends, foreign-sourced service income, and foreign branch profits remitted into Singapore if they meet the following conditions:
Headline tax rate (highest corporate tax rate) of the foreign country from which income was received is at least 15%
If foreign income was subjected to fax in the foreign country from which they were received.
Tax exemption can also be granted to foreign source income earned outside Singapore to resident non-individuals and resident partners of partnerships in Singapore.
Reduced Tax Rate
Under this form of relief, income is taxed at a lower rate and applies to the following income classes: interest, dividends, royalties and profits from international shipping and air transport.
Relief by Deduction
Domestic tax is applied on foreign income once foreign tax suffered has been deducted. Singapore will not allow deduction of foreign income tax, but a deduction is indirectly given based on remittance. This means that Singapore will tax the amount of foreign income received (net of foreign tax) in Singapore.
In this case, domestic tax is applied on the foreign income after deducting foreign tax suffered. Singapore does not allow a deduction of foreign income tax. However a deduction is given indirectly as under the remittance basis, Singapore would tax the amount of foreign income received (i.e. net of foreign tax) in Singapore.
Tax Sparing Credit
Thanks to the DTA, tax credit is made available in the country of residence when the income has been taxed in the country of source. Tax sparing credit is a unique form of credit wherein the country of residence agrees to give credit of the tax which would've been paid out to the country of source but was not "spared" by special laws in that country for "promoting economic development".
Unilateral Tax Credit
Singaporean tax residents may enjoy this tax credit if they are from countries which Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA) for the following foreign income under section 50A of the Singapore Income Tax Act:
Dividends; or
Profits derived by an overseas branch of a Singapore resident company.
Unilateral tax credit under Section 50A would also apply to foreign-sourced royalty from non-treaty countries, provided the royalty is not:
Borne directly or indirectly by a person resident in Singapore or a permanent establishment in Singapore; or
Deductible against any Singapore sourced income.
Withholding Tax
DTAs are most commonly used to determine whether it would be possible to obtain either a reduction or exemption of tax on certain income types.
Closing
The Singapore Double Tax Treaties gave the country a chance to prosper by building international trade and taking care of their partnered countries at the same time. As entrepreneurs head their way to Singapore to expand, knowing about the DTA is just half the battle.
We here at Piloto Asia are ready to help you establish your business operations here in Singapore.
Frequently Asked Questions
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Singapore's double tax treaties offer significant benefits to property holding companies operating within its jurisdiction. These treaties help mitigate the risk of double taxation on income generated from international property investments.
For property holding companies, income typically comes from rents or capital gains on properties located in different countries. Without double tax treaties, this income could be taxed both in the source country and in Singapore. However, these treaties often provide relief through reduced tax rates or exemptions on such income, depending on the specific terms agreed upon with each treaty country.
This arrangement is particularly advantageous for property holding companies in Singapore, as it enhances their financial efficiency by reducing the overall tax burden on their international property income. It makes Singapore an attractive location for setting up and managing property holding companies with a global investment portfolio.
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The basic principles of Singapore tax law are based on several key pillars that make it competitive and attractive for individuals and corporations. Here is an outline of the main principles:
Competitive Tax Rates: The fundamental tenet of Singapore's tax policy is to keep tax rates competitive for corporations and individuals. Generally, corporate profits are taxed in Singapore at a rate of 17%.
Source Principle: Singapore operates on a territorial tax system, which levies tax on all income earned or derived from Singapore. This principle applies regardless of whether the individual or corporation is resident in Singapore.
Tax Exemptions: There are various tax exemptions available to companies in Singapore. For instance, newly incorporated companies can benefit from the start-up tax exemption scheme, providing partial tax exemptions and rebates.
No Double Taxation: Singapore has concluded tax treaties with many countries to avoid double income taxation.
No Capital Gains Tax: Singapore does not impose taxes on capital gains.
Single-Tier Tax System: Singapore operates a single-tier tax system, meaning taxes paid by a company on its chargeable income are final. Dividends paid to shareholders are, therefore, tax-free.
Accounting Principles: Tax assessments in Singapore are based on financial accounts prepared under the Singapore Financial Reporting Standards (SFRS), which align with the International Financial Reporting Standards (IFRS) for global consistency. Adjustments are made as per Singapore's tax law requirements.
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In Singapore, dividends are typically not subject to tax due to the one-tier corporate tax system. This system ensures that the corporate tax paid on a company's chargeable income is final. Consequently, shareholders do not face additional taxation on dividends received from these companies. However, there are exceptions where dividends may be taxable:
Non-Taxable Dividends:
Dividends issued by Singapore resident companies operating under the one-tier corporate tax system, but this does not include dividends from co-operatives.
Foreign dividends received in Singapore by resident individuals, unless these are received through a partnership in Singapore. (See the Tax Exemption for Foreign-Sourced Income for further details.)
Income distributions from Real Estate Investment Trusts (REITs), subject to certain conditions.
Taxable Dividends:
Dividends distributed by co-operatives.
Foreign-sourced dividends received by individuals through a partnership in Singapore, which may be exempt from tax under specific conditions.
Income distributions from REITs that are related to trade, business, or profession, or those received through a partnership in Singapore.
It's important to note that dividends are considered income in the year they are declared payable to shareholders.
Taxable dividends should be declared in the Income Tax Return under the 'Other Income' section, unless the dividend information is directly furnished to the Inland Revenue Authority of Singapore (IRAS) by the company.
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The withholding tax rate on dividends paid by Singapore resident companies is currently 0%. This is due to Singapore's one-tier corporate tax system, where the tax paid by a company on its income is considered final. As a result, dividends distributed to shareholders are not subject to any further taxation.
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No, dividends paid to non-residents by Singapore resident companies are not subject to withholding tax. This aligns with Singapore's one-tier corporate tax system, where the tax paid on a company's income is final. As a result, dividends, whether paid to residents or non-residents, are not subjected to further taxation, eliminating the need for withholding tax on these dividend payments.
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In Singapore, withholding tax applies to several types of payments made to non-residents, including:
Royalties
Fees for technical services performed in Singapore
Interest payments
Commissions
Fees related to loans and debt securities
Remuneration for non-resident professionals
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Yes, foreign companies in Singapore benefit from several withholding tax exceptions, particularly concerning dividends, interest, and royalties:
Dividends: Under Singapore's one-tier corporate tax system, dividends paid to shareholders, including non-resident companies, are not subject to further taxation, as the tax on a company's chargeable income is considered final.
Interest: Specific interest payments, like those on deposits with approved banks or licensed finance companies, are exempt from withholding tax.
Royalties: Payments for the use of scientific, technical, industrial, or commercial knowledge or information are not subject to withholding tax when paid to non-resident companies that do not operate in Singapore.
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The Double Tax Treaty (DTT) between Singapore and Malaysia offers several key benefits:
Elimination of Double Taxation: The DTT ensures that income earned in one country by residents of the other is not taxed twice. This is facilitated through tax credits, exemptions, or reduced tax rates.
Promotion of Cross-Border Trade and Investment: By reducing the risk of double taxation, the DTT encourages more trade and investment activities between Singapore and Malaysia.
Prevention of Fiscal Evasion: The treaty includes specific provisions aimed at preventing tax evasion, ensuring taxpayers in both countries comply with their tax obligations.
Greater Certainty for Taxpayers: The DTT provides clear guidelines on tax rules for cross-border transactions, offering certainty and reducing ambiguity for businesses and individuals.
Reduced Withholding Tax Rates: The treaty may lower withholding tax rates on dividends, interest, and royalties, benefiting residents of both countries engaged in cross-border payments.
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The double tax treaty between Singapore and Thailand aims to avoid double taxation and prevent tax evasion.
It generally stipulates which country has the taxing rights over certain types of income, such as business profits, dividends, interest, and royalties, and provides for tax relief through credits or exemptions in the country of residence for taxes paid in the country of source.
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The double tax treaty between Singapore and the United States covers various forms of income:
Types of Income: The treaty covers business profits, dividends, interest, royalties, and income from employment.
Tax Rates: It specifies the maximum tax rates that each country can impose on different types of income.
Residency and Tax Credits: The treaty establishes rules for determining a taxpayer's country of residence and outlines the tax credit method to prevent double taxation.
Information Exchange: Provisions for the exchange of information are included to combat tax evasion.
Non-Discrimination: The treaty ensures fair tax practices and prevents discrimination against taxpayers from either country.
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The Singapore Accounting Standards guide businesses in accurately recording and reporting their financial transactions. While these standards themselves do not directly dictate tax obligations, the financial statements they inform are crucial for determining taxable income under Singapore's tax laws. Piloto Asia, as a leading corporate service provider, has deep expertise in these standards and assists businesses in understanding their implications for tax purposes. This is particularly relevant in the context of Singapore's double tax treaties, which aim to prevent double taxation of income across different jurisdictions. The accurate application of Singapore Accounting Standards is essential for ensuring that businesses benefit from these treaties, as it affects the computation of taxable income that is declared to tax authorities.
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Absolutely! Piloto Asia specializes in providing accounting services in Singapore that cater to the unique challenges businesses face with double tax treaties. Our expert team has deep knowledge of these treaties and offers comprehensive support, from tax computations and filings to strategic tax planning advice. We ensure your business fully benefits from double tax treaties, equipping you with precise and timely financial insights for informed decision-making. Rely on Piloto Asia to navigate the double tax treaty landscape, enhancing your tax efficiency and compliance.
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Double Tax Treaties (DTTs) play a significant role in determining your Singapore business tax obligations, especially for companies engaged in international business activities. These treaties between Singapore and other countries aim to prevent double taxation of income earned across borders. Depending on the specific DTT provisions, your business may benefit from reduced tax rates or exemptions, potentially lowering your overall tax liability in Singapore.
Given the unique nature of each DTT, it's crucial to understand the treaty applicable to your business situation. We encourage consulting with our tax professionals at Piloto Asia or referring to the specific DTT between Singapore and your country to navigate these obligations accurately.