Introduction to Double Tax Treaties in Singapore

The rate of globalization has been unstoppable in recent years, and along with it is the rapid increase in global trade and industry. However, this rapid growth is not only limited to goods and commodities. It has also brought about an extreme surge in the number of people crossing borders and heading abroad to try their luck and look for greener pastures. In such instances, questions arise about paying taxes in the country they currently reside in, as well as the country they are originally from. Is there really such a thing as double taxation?
 

Double Taxation

Countries all over the world have measures in place to avoid being taxed twice on the same chargeable income. Double taxation is not something to be trifled with. It poses a huge threat to existing concepts of globalization and international undertakings. Fortunately, certain changes have been enforced to the tax systems of their respective countries, and their governments have entered into double tax treaties, also called double tax agreements, with other countries.

Singapore, a global leader when it comes to business and finance, offers its citizens and residents the protection from the negative effects of double taxation. It has in place double tax treaties with over 70 countries. Here are a few of the things you need to know about Double Tax Treaties in Singapore.

What is Double Tax Treaty / Double Tax Agreement?

When businesses or individuals earn income within a foreign jurisdiction, this income may be liable to tax, both in the home country and the country they derived the income from. Double taxation results when an income is taxed twice in the source state and in the residence state.

The Double Tax Treaty is a bilateral agreement that prevents double taxation of income earned in one jurisdiction by a resident of another. It also serves to set clear limitations on the taxing rights of Singapore and said treaty partners on the different types of income that may come into being. Furthermore, the Double Tax Treaty grants tax reductions or tax exemptions on specific types of income. 

With the Double Tax Treaty, taxpayers conducting cross-border business transactions can enjoy the assurance of either country’s taxing rights, as well as be able to have a platform to settle any tax-related disputes. It also helps prevent cases of international tax evasion.
 

 Who can benefit from the Double Tax Treaty?

Only residents can benefit from the Double Tax Treaty. Under the Singapore Income Tax Act Section 2, a resident is described as follows:

  1. 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

2.   A company or body of persons: Means a company or body of persons the control and management of whose business is exercised in Singapore.
 

Types of Income Typically Covered Under the Double Tax Treaty

  • 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 sportspersons
  • Remuneration and pensions in respect of government service;
  • Non-governmental pensions and annuities
  • Students and trainees
  • Teachers and researchers
  • Income of government
  • Other income

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How Double Tax Treaties Are Negotiated

Compromises are made by each country to negotiate for terms that are most beneficial and best serve their nation’s interests. Meetings will be held between the parties involved to resolve all issues and reach an agreement. Upon reaching the conclusion of negotiations, it will be followed by the signing of both countries. It will then be ratified and enforced.
 

How to Avoid Double Taxation

There are two ways to avoid the trouble of double taxation. They are through

1) Tax Exemption, applicable if the resident nation agrees to exempt the foreign income from domestic tax, either entirely or partly.

2) Tax Credit, applicable if the resident nation agrees to offer credit on the tax paid on foreign soil. Documentary proof must be presented when claiming for tax credit, or Double Tax Relief

In general, there are three major categories that fall under the international tax agreements. These are the Avoidance of Double Taxation Agreements, Limited Treaties, and Agreements which are Signed but not Ratified.

To know more about Double Tax Treaties and the full scope of these treaties with other countries, you can read all about them here.

Piloto Asia’s team of experts on Singapore taxation matters can provide you with solutions that your business needs. With their wide range of services, from tax and accounting, corporate services, start-up assistance, digital solutions, to immigration advisory, Piloto Asia is truly the one-stop solutions provider trusted by many.  

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