Singapore is part of many tax treaties with various countries. One of these countries is Germany. Singapore's tax treaty with Germany, concluded in 2004, was unique because of the circumstances surrounding its latest version. Tax evasion was a major issue addressed in this treaty.

Germany's Tax Treaty with Singapore ’s Tax

Singapore is part of many double taxation agreements (DTAs), tax treaties, and exchange of information (EOI) agreements with many different foreign countries. DTAs clarify taxing rights between Singapore and another country regarding the different types of income arising from cross-border business activities. DTAs and tax treaties prevent Singapore taxpayers from having the same income taxed by two different tax jurisdictions. EOI agreements allow the tax authorities of the jurisdictions involved to exchange important information for tax purposes. According to the latest information on the Inland Revenue Authority of Singapore’s (IRAS) website, Singapore is a tax treaty partner of 95 countries and non-sovereign territories spanning all of the world’s continents.

Although Singapore is not a member of the Organization of Economic Co-operation and Development (OECD), its guidelines on tax transparency are very similar to those of the OECD. This fact has made economic co-operation between Singapore and OECD member countries much easier. Singapore has thus far been able to adhere to its guidelines and fulfill its part of the agreements concluded with OECD members. Singapore’s current tax transparency guidelines also burnish its financial reputation in the eyes of most other countries, particularly OECD member countries. Hence, Singapore’s current tax agreements with OECD members are seldom beset by external issues. One of the OECD members which is one of Singapore’s treaty countries is Germany.

Details of the Tax Treaty

A tax treaty between Germany and Singapore was first concluded in June 2004. However, it only entered into force in December 2006 and became effective in January 2007. This treaty was an updated version of a prior tax treaty that was signed by the tax authorities of Singapore and what was then West Germany in February 1972. One of the key points of the treaty to be addressed was the issue of tax evasion. Around the time that the treaty was concluded, tax authorities in the two countries had been growing increasingly alarmed by German citizens and businesses who are tax residents in Singapore and had been evading taxation. Although the DTA between the countries protects the two countries’ taxpayers from double taxation of income earned, many of the offenders went beyond this by stashing considerable amounts of money in bank accounts based in Singapore. This money is not declared in Germany. Hence, the full amount subject to tax is not paid in such a scenario. At the time that this tax treaty was concluded, Singaporean tax authorities had been looking to Switzerland as an example of how to deal with such issues. Switzerland had been tightening restrictions imposed on those who kept their money in financial institutions based there. Switzerland’s tax treaty with Germany, which would subsequently be updated in 2011, required Swiss bankers to remain in contact with German tax authorities and ensure that they were informed about Swiss accounts held by Germans. However, confidentiality regarding the identity of the account holders would nevertheless have to be maintained. Singapore would go on to follow in Switzerland’s footsteps by tightening its own tax laws regarding such issues.

Singapore must continue to maintain the strength of its tax laws to ensure that the country retains its status as one of the world’s leading investment locations. These tax laws will ensure justice and the upholding of principles with regard to taxation. By doing so, it will attract businesses from all over the world, especially those planning to expand to or within the Asia-Pacific region. Many who have invested in Singapore are hoping that its government goes ahead with its current plans regarding tax laws. This is because they are anticipating the country to continue its economic expansion and growth. Firm but fair tax laws will allow such a positive circumstance to occur.

Paul Hype Page & Co can help you understand more about conducting business in Singapore and receiving reductions or exemptions of tax for which you or your company are eligible. During consultation, we will guide you towards making an informed decision about potential business opportunities in Singapore and how the country’s economic growth will affect the corporate environment. We also provide services regarding company registration and international tax planning, as well as company secretarial services. All our services are provided at reasonable prices.