How To Claim Tax Relief Under the Avoidance of Singapore Double Taxation Agreement

Singapore Double Taxation Agreement

One of the challenges that businesses often face is the issue of double taxation, where the same income is taxed in more than one country. Singapore has established a robust network of Double Tax Agreements (DTAs) with various countries to alleviate this concern. 

This comprehensive guide will delve into the intricacies of claiming tax relief under the Singapore Double Taxation Agreements, shedding light on the benefits, eligibility criteria, and the process for obtaining tax relief.

What is Double Taxation?

Double taxation is a complex issue when the same income faces taxation in two jurisdictions. This can occur due to juridical or economic factors. Juridical double taxation involves the taxing of income at its source and at the location where it’s received. Economic double taxation emerges when conflicting rules in two jurisdictions lead to different taxation of the same economic transaction.

What is a Singapore Double Taxation Agreement (DTA)?

Singapore Double Taxation Agreement (DTA) aims to harmonize and rationalize tax outcomes in alignment with established international standards for each contracting jurisdiction. These agreements facilitate cooperation between tax authorities through exchanging information and dispute resolution, all following globally accepted norms.

Why Do Countries Enter Singapore Double Taxation Agreements?

Countries establish Double Tax Agreements (DTAs) as a strategic move to bolster global economic growth through increased trade and investment. These agreements are vital in enhancing transparency and predictability in tax matters. DTAs also effectively lower business operational costs by addressing the challenge of double taxation resulting from cross-border activities.

Benefits of Singapore Double Taxation Agreements

The Singapore Double Taxation Agreement (DTA) promotes international trade and investment by fostering cooperation between countries, making Singapore an attractive destination for businesses seeking to expand globally.

Under specific DTA provisions, individuals can also seek exemption from income tax, catering to diverse roles such as personal services providers, educators, researchers, artists, athletes, students, and trainees.

Types of Singapore Double Taxation Agreements

Singapore’s approach to DTAs encompasses two distinct categories: comprehensive DTAs and limited DTAs.

Comprehensive DTAs

These agreements offer broad coverage, encompassing various income types. 

Limited DTAs

Limited DTAs are tailored to address income generated solely from shipping and air transport activities.

Eligibility for Tax Relief via Singapore Double Taxation Agreement

Section 2 of the Singapore Income Tax Act 1947 defines the eligibility criteria for DTA benefits. To qualify:

For Individuals

You must have resided in Singapore the previous year, with allowances for reasonable temporary absences. This also includes individuals who have spent 183 days or more in Singapore during the preceding year, except as directors of companies.

For Companies or Bodies of Persons

Your business should exercise control and management within Singapore while conducting operations.

If you fall within these categories and earn foreign income from a country with an active DTA with Singapore, you are eligible for double taxation relief. Present a Certificate of Residence to the foreign country to validate your Singapore tax residency.

Conversely, if you are a tax resident of a DTA country generating income in Singapore, obtain a certified Certificate of Residence from Non-Residents from your treaty country’s tax authority and submit it to the Inland Revenue Authority of Singapore (IRAS).

How to Claim Singapore Double Taxation Agreement (DTA) Relief?

Claiming Double Taxation Relief (DTR) under a Singapore DTA involves a straightforward process. Here’s a step-by-step guide for non-resident companies to navigate this procedure:

Step 1: Check Eligibility

To determine if the non-resident company is entitled for DTR and the corresponding tax rate under the DTA, use the S45 Withholding Tax Rate & Late Payment Penalty Calculator. When filing, tick the “Double Taxation Relief” box if it applies and provide the applicable tax rate.

Step 2: Obtain Supporting Document

Acquire a Certificate of Residence (COR) from the non-resident company for each year the DTR is claimed. The COR must be:

  • Certified by the foreign tax authority
  • In English or translated into English
  • Clearly stating the company’s residency for DTA purposes and applicable years

Step 3: Submit the Document to IRAS

Submit the scanned COR and its translated copy (if applicable) in PDF format, not exceeding 3MB, to IRAS by the due date. The submission deadlines are as follows:

  • By 31 Mar of the following year for claims covering the current calendar year.
  • Within three months from the date of Withholding Tax (WHT) submission for claims related to preceding calendar years.

Late submission could lead to the withdrawal of DTR eligibility and potential penalties, so adherence to deadlines is crucial. 

Remember, retaining all documents and records for 5 years is essential. The original COR need not be submitted unless requested by IRAS. 

Incomes Covered Under Singapore Double Taxation Agreement

Singapore’s DTAs provide comprehensive coverage for various types of income, ensuring a well-rounded approach to avoiding double taxation. The following income categories fall within the purview of Singapore’s DTAs:

  1. Artists and Sports-Persons
  2. Associated Enterprises
  3. Business Profits
  4. Capital Gains
  5. Dividends
  6. Income from Immovable Property
  7. Income of Government
  8. Interest
  9. Non-Governmental Pensions and Annuities
  10. Royalties and Fees for Technical Services
  11. Salary and Pension from Government Service
  12. Shipping and Air Transport
  13. Students and Trainees
  14. Teachers and Researchers
  15. Other Income

6 Methods of Tax Relief Under the Singapore Double Taxation Agreement

1. Tax Credit

Singapore’s DTAs provide tax credit relief for foreign taxes paid in the other DTA jurisdiction. Tax credits are given to Singapore tax residents, irrespective of income source, as long as foreign taxes align with DTA provisions.

2. Tax Exemption

An alternative to tax exemption is foreign-sourced income exemption, subject to Income Tax Act conditions. Foreign dividend tax exemption requires over 15% corporate fee ratio in the origin country.

3. Tax Sparing Credit

For untaxed income under local laws, tax sparing credit compensates. It’s found in DTAs with developing nations encouraging foreign investment.

4. Reduced Tax Rate

Lower tax rates apply to incomes like interest, earnings, and global shipping or air carrier revenues.

5. Relaxation by Deduction

A foreign tax deduction reduces Singaporean tax, taxing only a portion of foreign income.

6. Unilateral Tax Credit

With conditions, Singaporean tax citizens can get unilateral tax credits under Section 50A for non-DTA foreign income, like royalties or overseas branches’ profits.

How We Can Help

At Premia TNC, we specialize in simplifying the intricate landscape of international taxation, ensuring your business navigates it seamlessly. Our expert consultants are dedicated to providing tailored solutions that align with your unique needs and international business aspirations.

Ready to optimize your international tax strategy? Reach out to us today. Our expert consultants are here to answer your questions, address your concerns, and embark on a journey toward unlocking the benefits of Singapore Double Taxation Agreements for your business.

FAQs – Singapore Double Taxation Agreement

1. How do I determine if my country has a Double Taxation Agreement (DTA) with Singapore?

You can find a comprehensive list of Singapore's DTAs on the official website of the Inland Revenue Authority of Singapore (IRAS). This resource will help you identify the countries with which Singapore has established these agreements.

2. Can I claim tax relief under multiple DTAs for the same income?

Generally, tax relief can only be claimed under one DTA for a specific type of income. Carefully assess the terms of each relevant DTA to choose the one that offers the most advantageous relief.

3. Is there a deadline for claiming relief under a Double Taxation Agreement?

The deadline for claiming relief varies depending on the specific DTA and the type of income you are seeking relief for. It's crucial to consult the provisions of the relevant DTA and adhere to any prescribed deadlines.

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