Does your Singapore company earn foreign income? If it does, the foreign income may be subject to taxation twice – once in the foreign jurisdiction, and a second time when the foreign income is remitted into Singapore. This is known as double taxation, which is when two or more countries impose taxes on the same taxpayer in respect of the same taxable income.
Fortunately, your company will not be taxed twice if there is an Avoidance of Double Taxation Agreement (DTA) between Singapore and the foreign country. Find out how your Singapore companies can avoid double taxation.
What is DTA?
A DTA is an agreement signed between Singapore and a foreign country to relieve double taxation of income earned in one country by a resident of the other country.
A DTA thus spells out the taxing rights between Singapore and a foreign country – also known as a treaty partner – on the different types of income arising from cross-border economic activities between the two countries.
Are all DTAs the same?
There are two types of DTAs: (1) comprehensive DTAs, which cover all types of income such as business profits; and (2) limited DTAs which cover only income from shipping and/or air transport activities.
Instead of tax exemptions, DTAs may provide for the reduction of tax on certain types of income.
How Will My Business Benefit from DTAs?
When your Singapore company receives foreign income in Singapore, there are two possible scenarios:
- If the relevant DTA offers tax exemption, your Singapore company will only be taxed in one jurisdiction, instead of two.
- If the relevant DTA offers not tax exemption but a reduction of tax rate, the same income will also be taxed in the foreign jurisdiction.
Under the second scenario, the relevant DTA will provide relief for this double taxation by allowing your Singapore company to claim a credit for the amount of tax paid in the foreign jurisdiction against the Singapore tax that is payable on the same income.
This credit is known as Double Tax Relief (DTR).
What if there is No DTA with a Certain Country?
If there were no DTAs, individuals and companies engaging in cross-border trade may be unfairly penalised as they would have to pay tax twice.
This is why Singapore wants to ensure that your company’s income is not subject to double taxation. To achieve this, the city-state provides Unilateral Tax Credits (UTC), so that your company can still avoid double taxation by countries with which Singapore does not have a DTA.
With the UTC scheme in place, your company is unlikely to ever face double taxation.
Who Can Benefit from DTAs?
Only Singapore tax residents and tax residents of the treaty partner can enjoy the benefits of a DTA.
What Taxes are Covered Under DTAs?
DTAs only apply to income tax. Other taxes like GST, customs and excise duties are outside the scope of Singapore’s DTAs.
How Do I Know if my Company is a Singapore Tax Resident?
The place of incorporation is not necessarily indicative of tax residency. Though your business is incorporated in Singapore, it may not be a Singapore tax resident.
A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. For example, a company is a Singapore tax resident for Year of Assessment (YA) 2020 if control and management of its business was exercised in Singapore for the whole of 2019.
Typically, the location of a company’s Board of Directors meetings, during which strategic decisions are made, is a key factor in determining where control and management is exercised.
How Do I Qualify for DTA?
The Certificate of Residence (COR) is a letter certifying that a business is a tax resident in Singapore.
To enjoy tax benefits offered by DTAs, your business must submit a COR to the foreign tax authority to prove that it is a Singapore tax resident.
To get started, download the Application for COR, fill it up, and email it to IRAS for approval.
Which Countries have Singapore Signed DTAs with?
Singapore has entered into DTAs with an extensive network of countries. For a list of DTAs, click here.
What Happens if I am Taxed Twice Despite Being Covered by a DTA?
Where two or more tax authorities take different positions in applying the provisions of a DTA, double taxation may occur.
If you have been taxed twice and believe that the taxation is not in accordance with the relevant DTA, you may either take legal remedies in the foreign jurisdiction, or request for IRAS’ assistance through the Mutual Agreement Procedure (MAP). MAP is a dispute resolution facility through which IRAS and foreign authorities resolve DTA-related disputes.
What Makes Singapore a Choice Investment Destination?
If you are a business with income flows across jurisdictions, you may realise that there are conflicting tax policies between countries. Thankfully, Singapore companies are unlikely to ever suffer from double taxation. This is because Singapore currently has 60 comprehensive DTAs in force to ensure that double taxation does not occur.
In the unlikely situation that your company’s foreign income does not qualify for tax exemption in Singapore, Singapore’s DTAs or UTCs will ensure that you do not end up paying taxes on such foreign income. This removes any unfair penalties for being actively involved in cross-border trade.
At Corporate Services Singapore, we help companies navigate DTAs, DTRs and UTCs to avoid double taxation. Our taxation specialists will implement tax planning strategies that work best for your business. We aim to reduce existing tax liabilities for your business while ensuring that you stay on top of your tax obligations.
Contact Corporate Services Singapore at 6602 8286 or email firstname.lastname@example.org for all-inclusive, personalised business solutions that place strong emphasis on accuracy, thoroughness and timeliness. Leverage the breadth of our tax expertise and experience to ensure the growth and success of your business.