The 60 comprehensive Double Taxation Agreements (DTAs) and 7 limited ones in force answer the question why Singapore is truly a leading place to do business. With a DTA, the two treaty countries see a reduction in tax barriers for areas such as cross-border trade flows, investment and technical expertise. A comprehensive DTA covers all types of income, while a limited DTA covers only the income from shipping and/or air transport.
The Inland Revenue Authority of Singapore provides the full list of double tax treaties between Singapore and other countries.
Below is a guide on DTA and on how you can optimise your tax position in avoidance of double taxation, specifically in the Singapore context.
What is a Double Taxation Agreement (DTA)?
A DTA refers to the bilateral tax treaty between two countries aimed to avoid double taxation arising from the application of the two countries’ domestic tax laws. Double taxation occurs when two countries impose taxes on the taxpayer with regards to the same taxable income or capital. This means that the same income is taxed twice; once in the country when it is earned and once more, in the country where the individual actually resides.
What are the benefits of a DTA?
The key aim of a DTA is to provide assurance on how and when tax will be imposed in the country where the income is being generated or the payment is being made. To this effect, a DTA aims to prevent tax evasion through information exchange between the tax authorities of different countries. Concretely, the benefits of a DTA come in the form of avoidance of double taxation, including tax credits, tax exemptions and reduced withholding tax rates. We will cover this in more details in the other section.
Who can benefit from a DTA?
In Singapore, only a tax resident can benefit from the application of the DTA. The Singapore Income Tax Act defines a tax resident as an individual who in the preceding year of assessment lives in Singapore, and an individual who is physically present or works in Singapore for a minimum of 183 days in the preceding year of assessment. A tax resident can also be a company or a body of persons who have the control and management of a business carried out in Singapore.
What are the incomes covered under a DTA?
The incomes covered under a DTA include the income from immovable property, business profits, airline or shipping profits, associated enterprises, dividends, interest, capital gains and directors’ fees. The income derived from royalties and fees for technical services, independent or dependent personal services are also covered.
An individual, who receives remuneration and pensions for his government service or any other income from the government, is also covered under the DTA. It is to be noted that remuneration given to visiting professors or teachers for teaching at a Singapore-based educational institute by a contracting country is tax exempted in the Lion City.
What are the ways of relieving double taxation in Singapore?
In Singapore, there are a number of ways to avoid double taxation.
One way is by tax credit. A tax resident will receive a tax credit for the foreign tax he suffered against his domestic tax imposed on the same income. The tax credit relief in Singapore is called the Double Tax Relief (DTR). The amount of tax credit relief is usually restricted to the lower of the paid or payable amount in the foreign and home country. To claim for DTR, the individual should show evidence that the income has been subjected to tax in the treaty country, when filing his annual tax returns.
Another way is tax exemption. A tax resident company can benefit from tax exemption on its dividends, profits, service income gained from foreign sources and which are remitted into Singapore, based on certain conditions.
In order to be eligible for tax exemption the highest corporate tax rate of the given foreign country should be at least 15%, and the foreign income must already be subjected to tax. To claim for tax exemption, the tax resident company has to declare in its income tax returns that the specified foreign income is eligible for such exemption. A tax resident can also benefit from a tax exemption on his foreign income if the Comptroller is satisfied that the tax exemption is beneficial to the individual.
Lastly, a reduced tax rate is another form of taxation relief. With this form of relief, income is taxable at a lower rate. The income types include interest, dividends, royalties and profits from international shipping and air transport.
Navigating the terms of the Singapore DTA on your own can be time-consuming. With our tax experts at AM Corporate Services, you can count on us to advise you on the best way to get reliefs from double taxation. Contact us today for an appointment.