Incorporating in Singapore provides a lot of benefits, as Singapore has one of the most favorable tax systems in the world. Having a large network of tax agreements makes Singapore's efficient tax system even more so. One of these agreements was signed between Singapore and Australia in 1969 — the Double Taxation Avoidance Agreement (DTAA), which eliminates the double taxation of income between Singapore and Australia and reduces already low Singapore tax rates for businesses and individuals even further. This article will discuss the key provisions of the Australia-Singapore DTAA.
Explore Services Read Guide
This article covers the following topics:
A DTAA is an agreement between two countries which aims to eliminate the double taxation of the same income in the two countries. Often the tax laws of the countries are such that if any income flows from one country to the other, a taxpayer may be liable to get taxed twice; a DTAA prevents this from happening.
Besides preventing a business or personal income from being taxed twice, the DTAA may also provide lower tax rates for certain types of income in comparison to their prevailing tax rates; these provisions are beneficial to taxpayers and can reduce their overall tax burden.
The Australia-Singapore DTAA provides tax relief to residents of the countries which are parties to the agreement. The tax relief arises in circumstances where income would otherwise be subject to tax in both countries.
Generally, if a taxpayer is a resident of Australia and derives income from Singapore, his income could be taxable in both the countries. But under the provisions of the DTAA, Australia will provide tax relief by crediting the tax paid on the income in Singapore against the tax due to Australia. Similarly, Singapore would do the same for the opposite case.
We Have Helped Thousands Incorporate In Singapore
Contact Our Experts 88 Google reviewsThe Australia-Singapore DTAA is applicable to the residents of the DTAA agreement signing states (Singapore and Australia). Its key aspects are explained below.
Types of Taxes CoveredThe following types of taxes are covered in the Singapore-Australia DTAA:
In Australia
In Singapore
In Which State Will My Income Be Taxed?The Australia-Singapore DTAA specifically states where the different types of income of a resident of either Singapore or Australia will be subject to tax. This is important since the country where the income is taxable will determine the tax rate applicable to the taxpayer’s income.
Tax Rates ApplicableThe DTAA states the kinds of income that may arise and the tax rate applicable. For example, in the case of interest income, the tax rate in the DTAA is 10%. This implies that if a taxpayer resides in Australia and receives interest income from Singapore, the tax rate on the income will be 10%. This is important since the rates in the DTAA agreed by the countries and the prevailing tax rates of the country can differ. See this table for more information.
The tax you owe will depend on the country where you have to pay the tax which further depends on the type of income involved, and the maximum rate specified (if any) in the DTAA for that type of income. The key provisions of the Australia-Singapore DTAA are described in the following sections.
Business ProfitsAs per the DTAA, profits of an enterprise are taxed only in the state where the business operations are carried out unless the other state has a permanent establishment of the business. If a Singapore-based business has a permanent establishment in Australia, the profits generated from that permanent establishment will be taxable in Australia and only there.
In case Singapore and Australia did not have any double taxation avoidance agreement entered into, the profits of the business could be taxed in Singapore as well as Australia. The profits generated by the permanent establishment would bear the tax burden twice in such a case. This outlines the importance of the DTAA to avoid double taxation of business profits.
Interest, Royalties, and DividendsThe DTAA specifies the rates applicable in the case of income from interest, royalties, dividends, etc. Generally, the tax rates in the DTA are lower than the prevailing tax rates in the countries that are parties to the agreement.
Interest
Without the treaty, the withholding tax rate in Singapore for any interest paid to non-residents is 15%, whereas in Australia the withholding tax rate for interest paid to non-residents is 10%. Under the DTAA, a reduced tax rate of 10% for interest payments is applicable in both cases. Thus, the lower interest tax rate of 10% for Australian residents who are non-residents in Singapore reduces their tax burden.
Royalties
Without the treaty, the withholding tax rate in Australia for any royalties paid to non-residents is a flat rate of 30%. In Singapore, the withholding tax rate for royalties paid to non-residents is 10%. Under the DTAA, the reduced tax rate of 10% for royalties is applicable in both cases. Thus, the lower royalty tax rate of 10% for Singapore residents who are non-residents in Australia reduces their tax burden.
Dividends
Without the treaty, the withholding tax rates in Australia for any dividend paid to non-residents is at a flat rate of 30%. According to the DTAA, the reduced tax rate of 15% for dividends is applicable. Singapore has no tax on dividends distributions by a company. Moreover, the recipient shareholder is exempt from taxes on dividend income as well.
For instance, where Singapore resident shareholders receive dividends from Australian company: an Australian tax of 15% on dividend income is applicable. And where Australian resident receives dividends from Singapore company: Singapore exempts dividend tax.
Therefore, in most cases setting up a company in Singapore is the right decision since its dividends will not be taxed either at the company level or at the recipient level.
To compare which one of these two countries is more beneficial for launching a startup, check out our article Launching a Startup in Australia vs Singapore.
Other ProvisionsAccording to the Singapore’s Economic Expansion Incentive (Relief from Income Tax) Act, 1967, Singapore authorities have the exclusive power to reduce a tax payable by a non-resident on interest and royalties to “nil”. However, if the tax applicable is “nil” in Singapore but the same amount is taxable in Australia, it would nullify the incentive to the non-resident taxpayer. In order to ensure that these incentives are not lost for non-residents of Singapore, the DTAA ensures that Australia provides a tax credit for the tax on interest or royalty that Singapore forgoes. For example, an Australian resident derives interest income from Singapore. According to the DTAA, the tax rate is 10%. However, Singapore wholly forgoes this tax. In such a case, even though Singapore does not tax the taxpayer for the interest income, the Australian authority will calculate the tax paid in Singapore as 10% and the taxpayer will be allowed a credit for that amount against his tax in Australia as if the taxpayer had actually paid the tax to Singapore.
