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Types of Tax Reliefs by Singapore’s DTAS

Types of Tax Reliefs by Singapore’s DTAS

Overview

All of Singapore’s DTAs contain a variety of relief provisions geared to achieving the maximum tax neutrality between the Contracting States. The DTAs usually provide the following main types of tax relief:

  • Tax Credits
  • Tax Exemptions
  • Reduction in Rate of Tax

Tax Credits A credit may be given against a taxpayer’s Singapore tax liability for foreign tax already pais by the taxpayer on the same income. Relief in the form of a credit against Singapore tax is provided for under s 50 of the Income Tax Act.

Tax Exemptions Under a tax exemption scheme, all or part of a taxpayer’s foreign source income is excluded from tax. Most DTAs provide complete tax emption on certain classes of income.

Reduction in Rate of Tax The presence of tax sparing clauses in some DTAs allows for a reduction of domestic tax on profits or gains derived in developing countries which are from sources which are a subject of special tax incentives.

What is a COR?

Answer:

A COR is a letter certifying that the company is a tax resident in Singapore for the purpose of claiming benefits under the Avoidance of Double Taxation Agreement (DTA).

A company is a tax resident in Singapore if the control and management of its business is exercised in Singapore. A Singapore tax resident company can enjoy the benefits in the DTAs that Singapore has concluded with other treaty countries.

Claiming Double Tax Relief – What is double tax relief (DTR)?

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.

Why do I need a COR?

Answer:

You need a COR to enjoy the benefits under the DTAs that Singapore has concluded with other treaty countries.

When your company derives income from a foreign person or company, you may be subject to taxes in that foreign country. However, if the foreign country has concluded a DTA with Singapore, the DTA may allow Singapore tax residents to enjoy a reduced tax rate or an exemption of tax on the income in that foreign country.

To enjoy this benefit, you have to submit a COR to the foreign tax authority to prove that your company is a Singapore tax resident.

How to calculate DTR?

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.

Need more professional help?

Paul Hype Page & Co. is an ACRA-certified business adviser. Our team of seasoned professional can help you set up a company in Singapore very quickly and easily following all legal entities, and offer you sound advice on how to make it successful too.

What Are The Guidelines For Foreigners to Start a Business in Singapore4

In addition to business registration, we’ll also guide you how to:

  1. Write a business plan – Learn how to write a compelling business plan by accessing our sample business plans, or other helpful market research information
  2. Perform market research – Understand your business market, learn how it can enhance your business growth, and how to properly conduct a market research for your business
  3. Legal issues for small business – If you are thinking about registration of company in Singapore, then you really need a lawyer. In addition, you will learn why legal counseling is very important part of any business.
  4. Manage your finances – We’ll offer you the best resources and information to help you fully understand all financial concepts and teach you how to perform basic accounting tasks like budgeting, bookkeeping, financial analysis, among others.

To further aid you, we have provided here a resource area with industry specific information and other industry resources to help you successfully start and run your business.

  1. Singapore Business Opportunities 
  2. Singapore Business Licences
  3. Singapore Tax Planning
  4. Singapore Company Incorporation
  5. Singapore Company Yearly Statutory Requirements
  6. Singapore Working Visa Guide