This article is about how to avoid double taxation in Singapore and notes that the information provided is for general guidance only and is not meant to replace expert advice. A DTA between Singapore and another jurisdiction serves to prevent double taxation of income earned in one jurisdiction by a resident of the other jurisdiction. A DTA also makes clear the taxing rights between Singapore and her treaty partner on different types of income arising from cross-border economic activities between the two jurisdictions. The agreements also provide for reduction or exemption of tax on certain types of income.
Occasionally, the foreign income of a Singapore tax resident company may be subject to taxation twice – once overseas, and then a second time when the income is remitted into Singapore. For such cases, the Inland Revenue Authority of Singapore (IRAS) has a foreign tax credit (FTC) scheme, which allows the company to declare a credit for the tax paid in the foreign country against the Singapore tax that is payable on the same income.
Under this, two types of credit or relief can be claimed:
(1) Double tax relief (DTR)
DTR is the credit relief provided under Avoidance of Double Tax Agreements (DTAs) to counter double taxation scenarios.
(2) Unilateral tax credit (UTC)
It’s a scheme for foreign tax paid by Singapore tax inhabitants in countries with which the city-state has no DTA. It is permitted only when repatriated income is generated by earnings from professional, consultancy, and other services; royalty income, which is not borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore, or is not deductible against any income accruing in or derived from Singapore; dividends income; employment income; and branch profits.
The government, in 2011, also introduced an FTC pooling system to give businesses greater flexibility in their FTC claims, decrease the taxes payable on foreign income, and make simpler tax compliance. The eligibility conditions were the same as in FSIE i.e. the headline corporate tax rate in the foreign country from which the income is received is at least 15%, and the income had already been subjected to tax in that particular country.