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Singapore is part of double tax treaties (DTAs) with many countries. They affect the international tax planning of many a Singaporean taxpayer. Many who would otherwise have to pay taxes to two different tax authorities do not have to do so because of Singapore’s many DTAs.

How Singapore DTAs benefit International Tax Planning

How Singapore DTAs benefit International Tax Planning?

Firstly, Let us understand the primary objective of international tax planning 1. Reduction of enterprise tax liability 2. Minimization of litigation by ensuring that only appropriate tax treaty structures are implemented 3. Ensuring productive investment 4. Ensuring the enterprise’s economic stability

In order to achieve all the above objective, the very fist step for effective tax planning is the choice of using a low tax, tax treaty country such as Singapore or a non tax , non treaty country such as BVI as domicile of the income- receiving enterprise. With the implementation of an agreed standard of exchange of information (SEI) endorsed by the G20 group of countries and the United Nations and general attitude against international tax evasion. It is advisable against the use of non-treaty countries.

The reasons are as follow:

Non -tax countries are scrutinized more closely by tax authorities resulted in tax authorities to use SEI clause to further scrutinize holding companies established in non -tax jurisdictions. Locating a company in a treaty country such as Singapore provides additional treaty protection.

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E A S I E R • F A S T E R • B E T T E R

Our suggestion 1

While the use of non-tax countries is still viable, in international tax planning, it is recommended one chooses a treaty country rather than a non-treaty, non-tax country for the following reasons:

Non-tax countries are scrutinized more closely by tax authorities. In this respect, there is a strong possibility that tax authorities worldwide will use the international Standard of Exchange of Information clause to further scrutinize holding companies establishes in non-tax jurisdictions. Locating a company in a treaty country provides additional treaty protection, which will generally be based on the OECD Commentary. This is particularly useful in the case of a Singapore outbound investment. In general, OECD member countries are obligated to abide by the OECD Model Convention unless a member country has made a reservation against it.

Our suggestion 2

In cases of multi-layer structures, where one or several of the intermediate holding companies is located in a non-tax country, it may be advisable to loop in at least one or two treaty countries so that in case the tax authorities use general anti-tax avoidance rules, a defence line can still be maintained along these treaty countries.

In the above example, the treaty country is sandwiched between the two non-treaty, non-tax jurisdictions. If the IRAS uses general anti-tax avoidance rules to pierce through the first intermediate holding company, the treaty country will act as another defence line in case of a tax assessment.

Singapore DTAs benefit International Tax Planning FAQs

How to calculate DTR?2020-06-23T15:54:24+08:00

Answer:

The amount of DTR is dependent on the nature of income and subject to the specific terms and conditions as specified in the DTA with the relevant treaty country.

DTR

= Lower of:

  • the actual amount of foreign tax paid; or
  • the amount of Singapore tax attributable to the foreign income (net of expenses)

For trade income

If the company has a permanent establishment (PE) overseas and the income is derived through that PE, the income would generally be taxed overseas. A DTR would be granted only if the income is also taxed in Singapore.

For passive income (e.g. interest, dividend etc)

Passive income derived from outside Singapore will be taxed in Singapore in the year of remittance.

Claiming Double Tax Relief – What is double tax relief (DTR)?2020-06-23T15:55:23+08:00

Answer:

Foreign income earned by a Singapore company may be subjected to taxation twice. Once in the foreign country, and a second time when the foreign income is remitted into Singapore.

A double tax relief (DTR) is the credit relief provided for under an Avoidance of Double Taxation Agreement (DTA) to reduce this double taxation. A DTR is granted by allowing the Singapore tax resident company to claim a credit for the amount of tax paid in the foreign country against the Singapore tax that is payable on the same income.

A company is a tax resident of Singapore if the control and management of its business is exercised in Singapore.

2021-02-05T09:24:00+08:00January 7, 2015|Comments Off on How Singapore DTAs benefit International Tax Planning?
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