Like many tax jurisdictions around the world, Singapore has a number of Double Tax Agreements in place to ensure the amount of effective tax that taxpayers pay on their worldwide income is limited to one jurisdiction only.
Double Tax Agreements are the legal framework outlining which tax jurisdiction has taxation rights over tax residents and income sourced in their jurisdiction. In practice, this typically ensures that the maximum tax a taxpayer pays is the tax payable in the jurisdiction with the higher tax rate.
Why Double Tax Agreements are Necessary
Double Tax Agreements are necessary to ensure that the income of a resident of one jurisdiction, that may be sourced in another jurisdiction, is not taxed twice. Without Double Tax Agreements, it would be possible for gross income to be taxed twice – once in the jurisdiction in which the taxpayer is a resident, and again in the jurisdiction in which the income was sourced.
A Double Tax Agreement provides rules over whether the source country has taxation rights and limits tax rates for certain types of income. This can provide tax relief or limit the total tax payable in a higher taxing jurisdiction. The key benefit of Double Tax Agreements is that any foreign tax paid is treated as a tax credit against any tax assessment that the local country may assess.
Example of Taxation With Foreign Tax Credits
For example, imagine a corporate Singapore resident taxpayer earns $10,000 in Australia.
Let’s assume Australia taxes this at 30%, meaning the resident pays $3,000 in taxes.
Let’s assume Singapore also taxes this income at 17%, meaning the resident pays $1,700 in taxes.
This would leave the corporate taxpayer only $5,300 of their income after taxes.
A Double Tax Agreement helps prioritise who has taxing rights over this $10,000 income. In this example let’s say Australia, as the source country, has taxation rights. This means that the corporate taxpayer is still taxed the $3,000 in Australia. Singapore can still tax the taxpayer, however they allow a credit for the tax already paid in Australia. Since the Australian tax paid exceeds the tax payable in Singapore, they do not pay any additional taxes.
If the scenario was flipped and the company was an Australian resident corporation earning income in Singapore, Singapore would have initial taxation rights. The taxpayer would then pay $1,700 in Singapore taxes. The income could then be taxed in Australia, but the $1,700 already paid would be credited as tax already paid. This means the corporate taxpayer would only have to pay $1,300 in Australian tax so that they have paid a net total of $3,000, meeting Australia’s tax rate.
Tax Treaty with Australia
The Australia-Singapore Double Tax Agreement (DTA) gives tax relief to Australian and Singapore tax residents.
For Australian residents, the DTA covers income tax and petroleum resource rent tax relating to offshore profits.
For Singapore residents, the DTA covers income tax.
Under the DTA the foreign country is only able to tax interest income at 10%. This means that if a Singapore resident earns $1,000 interest income in Australia they will be taxed at the flat rate of 10% and pay $100 in tax. This is much lower than Australia’s usual foreign tax rate. In a similar vein, royalties and dividends have capped, flat rates of tax applied to them.
| Singapore Resident earning income in Australia | Australian Resident earning income in Singapore | |
| Interest Income | 10% | 10% |
| Royalties | 10% | 10% |
| Dividend Income | 15% | Exempt |
The DTA limits profits of a business enterprise so that they can only be taxed in the country where the business operations are carried out, unless there is a permanent establishment in the other country. This ensures that incidental sales made in the other country are only taxed in the resident country.
An additional provision in the DTA recognises that Singapore authorities may reduce tax payable by a non-resident on interest and royalties to NIL. To ensure the non-resident receives the benefit of this provision, Australia still credits the taxpayer as if they had paid the agreed flat tax rate in Singapore.
Example of where certain income types are taxed
| Type of Income | Where it is Taxed |
| Income from Fixed Property | The country where the property is situated |
| Business Profits | The country where the enterprise carries out their business |
| Profits from Shipping and Air Transport | The country where the enterprise carries out their operations |
| Dividends | The country where the dividends arise. Dividends can be taxed in Singapore as well unless there is a foreign-source dividend exemption |
| Interest | The country where the interest arises |
| Royalties | The country where the royalty arises |
| Personal & Professional Services (Including Director’s Fees) | The state where the individual is a resident unless the services are carried out in the other country |
| Income from Alienation of Property | The state where the property is situated |
| Pension and Annuity | The state where the individual is a resident |
| Remuneration paid by the Government | Taxed by the government of the country |
| Payments to Students and Trainees | Taxed in the country of residence |
Tax Treaty with USA
Singapore does not have a Tax Treaty with the USA.
This means that taxpayers who are a resident in one of these countries and earn income in the other could be taxed in both countries.
Both the US and Singapore have unilateral exclusions or foreign tax credit policies in place which help ensure that double taxation is reduced or eliminated.
Tax Treaty with the UK
The Singapore-UK DTA ensures that a foreign resident of either country is allowed tax credits against any tax paid against income derived from the other country.
For UK residents the taxes covered are income tax, corporation tax, and capital gains tax.
For Singapore residents the taxes covered are income taxes.
Example of where certain income types are taxed
| Type of Income | Where it is Taxed |
| Income from Fixed Property | The country where the property is situated |
| Business Profits | The country where the enterprise carries out their business |
| Profits from Shipping and Air Transport | Taxed in the operator’s country of residence |
| Dividends | 15% or 5% where the beneficial owner controls at least 10% of voting power. Singapore tax exemption is given for foreign dividends and dividends paid to non-residents. This is subject to conditions being met. |
| Interest | (1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax charged shall not exceed 10% of the gross amount of the interest in any other case. |
| Royalties | (1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.(2) However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax charged shall not exceed 10% of the gross amount of the royalties in any other case. |
| Personal & Professional Services (Including Director’s Fees) | The country where the individual is a resident, subject to certain situations |
| Employment Income | The country where the employment is exercised, subject to certain conditions |
| Pension and Annuity | The state where the individual is a resident |
| Remuneration paid by the Government | Taxed by the government of the country unless the official is a permanent resident or citizen of the country where the services are performed. |
| Payments to Students and Trainees | Exempt from tax in the visiting country where they are pursuing their education or training. |
| Payments to Visiting Teachers or Researchers | Exempt from tax in the visiting country where they are offering teaching services or conducting research |
The Impact of Singapore’s Double Tax Agreements
Double Tax Agreements can vary country to country. This means it is important to look for the specific provisions of the relevant countries in relation to any income earned from the foreign country.
The primary relief offered by DTAs is the provision for foreign tax paid to be deemed a tax credit against any tax assessment in the country of residence.
Additional relief can be found through limits on taxation rates on the foreign source income, exemptions from taxation in the foreign country, tiebreaker rules on determining residency, and other concessions.
Where no Double Tax Agreement exists, Singapore typically applies a unilateral foreign tax credit towards foreign tax that has been paid on any foreign income that is assessable in Singapore.
Understanding and applying the relevant provisions will help ensure there are limits on the total tax you pay on foreign income.