EY Tax Update May 2014

New and revised Agreements for the Avoidance of Double Taxation (DTAs)

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A number of new and revised DTAs signed by Singapore with various countries previously have entered into force over the last 15 months.

These countries include Belarus, Guernsey, Isle of Man, Jersey, Morocco, Poland and Vietnam.

New and revised comprehensive DTAs

The key provisions of the DTAs include:

Country Date
signed
Date of
entry into
force
Effective
date
Threshold period
for a services
permanent
establishment (PE)
Dividends % Interest % Royalties % Others
Belarus 22 Mar 13 27 Dec 13 01 Jan 14 270 days in any
12-month period
5 (a) 5 (a) 5 (b) (c)
Guernsey 06 Feb 13 26 Nov 13 01 Jan 14 365 days in any
15-month period
0 (d) 12 (a) 8 (b) (c) (i)
Isle of Man 21 Sep 12 02 May 13 01 Jan 14 365 days in any
15-month period
0 (d) 12 (a) 8 (b) (c)
Jersey 17 Oct 12 02 May 13 01 Jan 14 365 days in any
15-month period
0 (d) 12 (a) 8 (b) (c)
Morocco 09 Jan 07 15 Jan 14 01 Jan 15 135 days in any
12-month period
10 (e) 10 (a) 10 (b)
Poland (f) 04 Nov 12 06 Feb 14 01 Jan 15 365 days in any
15-month period
10 (a) (g) 5 (a) 5 (h) (b) (c) (i) (j)
Vietnam (k) 12 Sep 12 11 Jan 13 01 Jan 14 183 days in any
12-month period
12.5 (l) 10 (m) 10 (n) (b )(c)

New limited DTA

Singapore signed a DTA with Brazil on 20 December 2013 for the avoidance of double taxation on profits derived from international air and shipping transport. It entered into force on the same day and has effect in respect of tax chargeable for any year of assessment (YA) beginning from YA 2015.

New Protocols to DTAs relating to exchange of information

The Protocols to the DTAs signed by Singapore with the following countries to incorporate the internationally agreed Standard for the exchange of information (EOI Standard) have entered into force:

Country Date signed Date of entry into force or effective date
Belgium 16 July 2009 20 September 2013
Malta 20 November 2009 28 June 2013
Portugal 28 May 2012 26 December 2013
South Korea 24 May 2010 28 June 2013
Turkey 5 March 2012 7 August 2013

Observations

  • DTAs with low tax jurisdictions like Guernsey, Isle of Man and Jersey provide for a higher rate of withholding tax (12% for interest; 8% for royalties) as compared to the lower rates of 5% or 10% under the other DTAs.
  • DTAs that were signed in recent years appear to provide for lower rates of withholding tax for interest and royalties payments.
  • The DTAs with Guernsey and Poland provide for the trustee to be the deemed beneficial owner of the income for the purposes of the Articles on dividends, interest and royalties.
  • The PE article in the above comprehensive DTAs provides for services PE apart from the usual fixed place PE. A services PE typically exists if services, including consultancy services are performed in the other Contracting State through employees or other personnel, which continue for a specified period. Except for Belarus, Morocco and Vietnam, the threshold period for the services PE can be more than 365 days in any 15-month period. In the case of Belarus, Morocco and Vietnam, the threshold period for the services PE ranges from 135 days to 270 days in any 12-month period.
  • With the exception of Morocco, all the DTAs have incorporated the EOI Standard. For Morocco, the DTA was ratified without re-negotiating for the EOI Standard. This could be due to the fact that the DTA with Morocco was signed before Singapore endorsed the EOI Standard in March 2009, and Singapore has also legislated that she would extend the EOI Standard to all existing DTA partners, subject to reciprocity, without the need to amend and update individual DTAs to incorporate the EOI Standard.
  • We are seeing specific anti-abuse provisions being incorporated into certain DTAs that Singapore has concluded with its treaty partners. The recently concluded DTA with Poland is an example, where it is provided that the benefits of the Articles on dividends, interest and royalties will not apply if the main purpose was to take advantage of the Article concerned.
  • The revised DTA with Poland also has a number of improvements over the previous DTA, such as the Remittance Clause in Article 27 which essentially requires that the relief under the treaty may be claimed only if the income remitted or received in Singapore is subject to tax. The revised clause now provides that such a requirement is not applicable to income derived from Poland which is exempted from tax in Singapore. This clause will cover specified income under the foreign specified income exemption regime in Singapore.

(a) Exempt in certain circumstances.

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(b) Capital gains are taxable only in the country of residence except for gains from the disposal of the following:

  1. Immovable property
  2. Movable property forming part of the business property of a PE in the country of source or movable property pertaining to a fixed base available for the purpose of performing independent personal services
  3. In the case of Belarus, Morocco, Poland and Vietnam, unlisted shares, deriving a specified percentage of their value directly or indirectly from immovable property.
×

(c) The DTA incorporates the internationally agreed Standard for the exchange of information.
×

(d) Dividends are taxable only in the Contracting State where the recipient of the income is a resident of.
×

(e) 8% if the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends.
×

(f) Revised DTA.
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(g) 5% if the beneficial owner is a company (other than a partnership) which controls directly at least 10% of the capital of the company paying the dividends on the date the dividends are paid and has done so or will have done so for an uninterrupted 24-month period in which that date falls.
×

(h) 2% if payment is for the use of, or the right to use any industrial, commercial or scientific equipment.
×

(i) The trustee is deemed to be the beneficial owner of the income for purposes of the Articles on dividends, interest and royalties.
×

(j) Includes anti-abuse provisions.
×

(k) Second Protocol to the DTA (see EY International Tax Alert dated 19 November 2012).
×

(l) No change in withholding tax rates (i.e., exempt if paid to the Government of Singapore; 5% or 7% depending on the amount of capital contribution made by the beneficial owner, which must be at least 25% of the capital of the company paying the dividends; 12.5% in all other cases) but dividends derived by the Government of Singapore from the carrying on of commercial activities will no longer be exempt.
×

(m) No change in withholding tax rate (10%) for interest but it will be reduced to a lower rate if Vietnam enters into a DTA with another country which provides for a rate that is lower than 10%.
×

(n) The withholding tax rate is reduced from 15% to 10% for royalties, other than for payments for the use of or right to use, any patent, design or model, plan, secret formula or process, or for the use of or right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, which continues to enjoy the lower withholding tax rate of 5%.
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