Double Taxation in the Singapore context
There is NO DOUBLE TAX in Singapore.
Unlike other countries globally, Singapore adopts a very much different corporate tax system. Singapore’s tax system is based on the grounds that double taxation obstructs international trade and business via penalising corporations engaging in inter-border trade.
To achieve this, Singapore has made extensive measures to enter into Double Tax Agreements (DTAs) with a substantial number of countries. There are also unilateral tax credits that is applicable 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 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.
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 his business in Singapore, receiving profits from the comfort of his 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.
Unliteral Tax Credits
Unilateral Tax Credits (UTC) can be used in case of countries with which Singapore does not have a DTA. A UTC is allowed for the foreign tax paid by Singapore tax residents on the different types of income derived from that foreign country, such as Income generated from any professional, consultancy and other services, dividend income, employment income and branch profits.
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.
There are several criteria that 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.
For international business, it is not only important to find a jurisdiction with reasonable low tax rate but also one that have many DTA to prevent suffer double taxation.