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Tax Treaty Considerations for Expats in Singapore

Submitted: February 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Singapore, and intend to bring money earned from them into Singapore during your stay. They also apply if you build up some investments in Singapore during your stay, and intend to leave them there after you have left Singapore. Singapore has a network of tax treaties in force with approx 70 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. The treaty will state whether the specific income is only taxed in Singapore; only taxed in your home country; or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors’ fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

 

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

Singapore does not charge withholding tax on dividends. However if you are a resident of Singapore, receiving dividends from other jurisdictions, withholding tax may be charged by that jurisdiction. To find out if the withholding tax can be reduced by a tax treaty, it is necessary to check the tax treaty with the other jurisdiction

The withholding tax rate in Singapore on interest sent to a country without a tax treaty is 15%; if sent to a country with a tax treaty, they are generally reduced to between 5% and 10%.

The withholding tax rate in Singapore on royalties sent to a country without a tax treaty is 10%; if sent to a country with a tax treaty, they are generally reduced to between 0% and 10%.

Singapore’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Singapore residents to 0% to 15% on dividends; 0% on interest; and 0% to 12% on royalties.

For the complete rules and rates it is necessary to read the treaty itself. These can generally be found via a search on the internet in your home country. Sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in Singapore, you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Singapore country to one with a more favourable tax treaty, or even to Singapore itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Singapore, you may benefit by becoming tax-resident in Singapore as early as possible. At the end of your stay in Singapore, you can rearrange your affairs to ensure that any ongoing income from Singaporean employment or investments is taxed at the lowest rate possible in the future.

 

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