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Singapore Double Tax Treaties Guide

In this article a very important matter has been discussed which brings a lot of benefits for those who are already conducting or wish to conduct their business in Singapore. That important matter is known to be the double tax treaty, this treaty is been considered when a business is being carried out overseas and the income generated from that business is remitted to the home country from where the business actually originated. The double taxation treaty is beneficial for the business in a way to help in exempting or legally avoiding tax being paid twice. The main concept of double taxation treaty arose when the businesses being carried out overseas were liable to pay tax on the income generated from the business in the overseas jurisdiction as well as the home country.

All of a sudden the world faced a global change in the economic activities of the business and trade, it happened when many businesses started to trade internationally and many businesses were being set up in the overseas country. Although the businesses established very well in the foreign countries but the profits generated from those businesses were taxable in both the countries, the overseas as well as the home country. In order to protect the companies from paying the tax two times and to avoid discrimination on the global level double taxation treaty came into existence. Even if there is an absence of the contract of tax treaty between an overseas country and the Singapore, many other form of tax credit is present which can help in maintaining the international competiveness.

Define Double Tax:

Double taxation can very simply be defined as the amount of taxation being paid twice. A more detailed view of the double tax can be understood as, when a business is being conducted in a country other than the home country i.e. the foreign country and the income generated from that business is taxable once in the overseas country as per the overseas tax policy and once in the home country as per the domestic tax policy.

DTA- Double Taxation Agreement:

DTA is a mutual agreement that exists between the two different countries which helps the companies to relive in paying the tax on similar income twice.

Beneficiaries of DTA:

The following people can take an advantage of the DTA:

  • In case of an individual, any person who has been working in an entity in Singapore for at least 183 days can take an advantage of DTA.
  • In case of a company, a business which is being conducted in Singapore

However, if your income is generated from the treaty country in order to claim relief the residency in Singapore has to be proved by way of certificate of Residence. Whereas, when the individual or the company is the treaty country resident a certificate of your residence has to be submitted to the Inland Revenue Authority of Singapore.

Income for Relief:

The DTA only relives few kinds of income, these kinds are listed below:

  • Income which is generated from the property which is not movable, like land, buildings etc.
  • Profits being earned in carrying out business activities.
  • Income generated from transportation activities.
  • Income received from associated.
  • Income in the form of dividends, royalties and interest.
  • The capital gains obtained.
  • Income generated while providing independent or dependent services.
  • Income earned by the directors of a company.
  • Income earned by celebrities.
  • All kinds of governmental or non-governmental pension payments.
  • Stipend earned by students during their training.
  • Any such income which is a government originated.
  • Earnings of the teachers and of those providing research work.

Ways to Manage Double Tax in Singapore:

The tax being liable to payment in the overseas country and also in the Singapore is known to be the double tax. There are different ways in which the double tax can be

  • managed to make the taxpayer stand in a better position. Few of the methods are discussed below:

    A very common method of managing the double taxation is the tax credit. In case of tax credit the income on which the tax is paid in the foreign jurisdiction is subject to relief. Such a relief is called as the Double Tax Relief. In case of the tax credit, the tax amount is dependent upon either the tax being paid in foreign country or the tax being paid in resident country, whichever is lower.

  • The procedure to claim a relief in the Singapore for the double taxation is to file the claim when the annual tax return is filled in the tax return form. Moreover, a proof will be required to be shown while providing for the claim. That proof shall be in the document form which proves that the tax is already being paid on the overseas income in the foreign jurisdiction.

Another way in which the tax is exempted on the foreign earning in Singapore is explained below in the two categories:

Tax exemption for a company based in Singapore:

A company that exists in Singapore and earns foreign profits from branches, or foreign dividends may claim a tax exemption for that income. The exemption to be successful requires the following conditions to be met:

  • The tax rate imposed n the foreign income is not below 15%.
  • The income earned from a foreign source is already being subjected to payment of tax in that foreign country. However the rate charged can differ from the rate that appears as a headline rate.
  • The income tax exemption is granted to the entities resided in Singapore and to the partners whose partnerships set up is being conducted in the Singapore on the income which they have earned from the foreign source either in the form of the branch profits or in the form of the dividends.

However the tax rules for the exemptions are not as stringent as in the tax credits. There is no requirement of the provision of the documents as required while claiming tax credits. All a taxpayers needs to do is to mention the section number of the returns of tax which are being paid in the overseas country.

Tax exemptions – Individuals:

In case of the tax exemptions being claimed by the individuals on their foreign income is liable to exempt from the payment of tax in Singapore, once the taxation authorities of Singapore are satisfied that that income earned and the tax exemption provided will benefit the individuals earning the foreign income.

Lower Rate Of Tax:

There is a lower tax rate provided for the income earned from a foreign source either in the form of interest, royalties, and dividends or any other service provision. This policy also applies to the income earned from a transportation service being provided.

Deduction of Foreign Tax:

In case of the tax that has already been paid on the foreign earnings in the foreign jurisdiction, when is remitted to Singapore the tax is applicable on the overseas income which is netted off with the tax being paid in foreign. The amount that is actually remitted to Singapore after the deduction of tax payment is subject to be taxable in Singapore.

Tax Credit- Sparing:

The concept of tax sparing credit means, the value of tax that was required to be liable to payment in the jurisdiction in which the earning was earned but was not paid in that country due to the relief provided by the rules of that country to support foreign investments. This amount of tax which was to be payable is also subject to tax credit in Singapore under DTA.

This concept is usually seen to be active in those countries where the economic development is in the introduction or growth phase and the authorities take this step to support the growing companies.

Tax Rates in Singapore:

As per the Singapore’s taxation policy the following tax rates implies on the income earned:

  • Interest income- 18 percent to 20 percent
  • Royalty income- 18 percent to 20 percent
  • Management fees- 18 percent to 20 percent
  • Director’s remuneration- 20 percent
  • Public entertainer- 15 percent
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