Singapore Double Tax Agreements & Treaties

Double taxation, a significant concern for businesses and individuals, is a particularly pertinent issue in Singapore’s context. As a global business hub, Singapore attracts numerous multinational companies and foreign investors. However, navigating the complexities of taxation, especially in an international setting, requires a comprehensive understanding of Singapore’s tax laws and regulations.

In this article, we delve into the specifics of double taxation in Singapore, exploring its implications, relief measures, and alternative strategies to mitigate its impact.

Double Taxation in the Global Context

According to Investopedia: “Double taxation is a tax principle referring to income taxes paid twice on the same source of income. It can occur when income is taxed at both the corporate level and personal level. Double taxation also occurs in international trade or investment when the same income is taxed in two different countries.”

There are two main types of double taxation:

1. Corporate Double Taxation

It is a situation in which corporate earnings are taxed twice at two different levels but include the same income. A corporate organization’s net income is taxed as corporate tax, and when the same income is distributed to shareholders as a dividend, it is again taxed by way of a dividend tax. Corporate double taxation is common not only in the United States but in several countries around the world.

2. International Double Taxation

International double taxation mainly concerns multinational entities that operate in jurisdictions other than their home country, but it can also affect foreign income earned by individuals in foreign countries. There are instances where foreign income is taxed in the country where the income is derived, as well as the country where an investor resides.

Many countries such as the USA, China and Australia still adopt a worldwide Taxation system. Oftentimes referred to as Double Liability, we will now look at Singapore’s context and how Singapore copes with this issue of Double Taxation.

Double Taxation in the Singapore context

There is NO DOUBLE TAX in Singapore.

Unlike other countries globally, Singapore adopts a very different corporate tax system. Singapore’s tax system is based on double taxation and obstructs international trade and business by penalising corporations engaging in inter-border trade.

To achieve this, Singapore has taken extensive measures to enter into Double Tax Agreements (DTAs) with a substantial number of countries. There are also unilateral tax credits that apply to all foreign-based income that does not have a DTA with Singapore. We will also look into claiming benefits under the Avoidance of Double Tax Agreements using a Certificate of Residence.

Double Tax Agreements (DTAs)

DTAs should eliminate the resulting double taxation by either having the income: Taxed in only one of the two relevant countries, e.g. business profits, or Subjected to a lower (preferential) tax rate in one of the two relevant countries as compared to the domestic tax rate.

Benefits of DTAs:

Businesses based in Singapore are protected from double taxation, unlike other jurisdictions as mentioned above.

• This enables businesses based in Singapore to compete with foreign businesses and expand globally as compared to other countries.
• It also gives foreign business owners the freedom to base their business in Singapore, receiving profits from the comfort of their own country without being double taxed.

Conditions to Claim for Tax Relief under Singapore DTAs:

• the claimant must be a tax resident in Singapore
• the income must be such that it is subject to tax in Singapore
• the income must be received or deemed to be received in Singapore, and
• the tax has been paid or is payable on the income in the foreign country.

Claiming benefits under the Avoidance of Double Tax Agreements (DTAs) using Certificate of Residence

The Inland Revenue Authority of Singapore (IRAS) has set up various tax schemes and incentives to reduce taxpayers’ tax burden. Among these is the Certificate Of Residence (COR).

A COR may be issued to any individual or company which is a Singapore tax resident. One of the benefits granted to any individual or company which has a COR is access to lower tax rates, acquisition of tax credits, or even tax exemption.

Several criteria must be fulfilled before the IRAS can give out a COR to a company. The most important of these is that the company must have its control and management policies maintained by its Singapore office. Thus, the company must prove policies, control, and strategic management of the company are exercised in Singapore.

It should also be mentioned that the location of the company’s incorporation does not necessarily have to be the same as the location of the company’s tax residence. Due to multiple cases of manipulation and fraud, the IRAS keeps a close eye on all companies that apply for a COR. The COR and evidence required to receive one are assessed by the IRAS before it hands out the certificate.

Some people may be unsure if they or their company are capable of obtaining a COR. In such cases, a visit to a consultation firm may be helpful. Such firms will give the potential applicant more information about the COR. Those who are or whose company is eligible may also seek the consultation firm’s help in making a tax assessment.

Tax Relief Without DTA

In any case, where there are no DTAs within a particular country, Singapore residents may avoid double taxation. This is because, in Singapore, multiple types of foreign-sourced incomes are exempted should they fulfil the criteria. The types of exempted foreign-sourced income include:

• Dividends
• Foreign branch profits
• Foreign service income

Here are the 2 criteria to avoid double taxation in Singapore:

• Income received from the foreign country must be a minimum of 15%
• Income received has been taxed in the foreign country
• This is called unilateral tax credit, and one of the methods of reducing your double taxation in Singapore.

Alternative Ways to Reduce Double Taxation

Aside from unilateral tax credits, there are other ways to reduce your double taxation.

• Tax credit (Double Tax Relief)
• Tax exemptions
• Reduced tax rates
• Reliefs by deductions

Our thoughts

For international business, it is not only important to find a jurisdiction with a reasonably low tax rate but also one that has many DTA to prevent suffering double taxation.