DTAs or tax treaties are bilateral agreements which provide clarity on tax matters relating to cross-border transactions between countries. The key benefits of a DTA include:(a) Clarity in the taxing right between Singapore and the treaty countries. For instance, if an enterprise carries on business in a treaty country, the DTA specifies the conditions or scenarios under which the enterprise is subject to taxation in the treaty country.
(b) Avoidance of or relief from double taxation. In the case of Singapore, our tax residents can claim a tax credit for the foreign tax paid on income derived from treaty countries against the Singapore tax payable on the same income.
(c) Reduction or exemption of the tax at source on certain types of cross-border income such as interest and royalties. Under the DTAs, the source withholding tax rates on such income are generally taxed at either 0% rate or at rates lower than the domestic tax rates of treaty countries. Tax residents of treaty countries can enjoy the benefits of the reduced tax rates or the exemption of tax on the income. There are also provisions to allow full or partial exemption on airline or shipping profits derived by an enterprise of one country from the other country.
(d) Availability of mechanism to resolve tax disputes. DTAs have provisions governing how tax disputes faced by taxpayers or the treaty countries can be resolved. The Mutual Agreement Procedure (MAP) provisions in the DTAs aim to provide an amicable way by which the tax authorities may resolve any difficulties or doubts arising from the application of the DTA. Taxpayers can invoke the MAP and request the relevant tax authorities to help resolve double taxation issues.
Only Singapore tax residents and tax residents of treaty countries can claim and enjoy the benefits in the DTAs.
After a DTA is signed by the representatives of the two countries, it has to be ratified before it can enter into force (i.e. legally effective). The ratification process is spelt out under the Entry into Force Article of the DTA for the two countries to notify each other when they have completed the ratification procedures as required by their domestic laws. The DTA will enter into force on the later of these notifications.
In the case of Singapore, once we receive an official notification from our DTA partner that they have completed their ratification procedures, we will proceed to publish the DTA text in the Government Gazette. The DTA enters into force on the date of our publication in the gazette.
The Mutual Agreement Procedure (MAP) Article of a DTA sets out the process to resolve issues relating to the application of the DTA.
Taxpayers who wish to take up their issues under the MAP may consult the Inland Revenue Authority or tax agents to seek guidance on the matter.
The Ministry of Finance welcomes members of the public to give their feedback on Singapore’s DTAs. You may wish to send your feedback to firstname.lastname@example.org.