Australia-Singapore DTAA: Double Tax Avoidance Agreement

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.

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This article covers the following topics:

Introduction to the DTAA between Australia and Singapore
Agreement Scope
Key Provisions
DTAA at a Glance
FAQs

What Is the DTAA between Australia and Singapore?

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.

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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.

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Scope of Australia-Singapore DTAA

The Australia-Singapore DTAA is applicable to the residents of the DTAA agreement signing states (Singapore and Australia). Its key aspects are explained below.

The 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.

What Taxes Will I Owe Under the Australia-Singapore Double Tax Agreement?

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.

As 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.

The 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.

According 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.

Double Tax Avoidance Agreement at a Glance

The DTAA specifically states where the different types of income of a resident of either Singapore or Australia will be subject to tax. The following table states the type of income or payments made and the state where the income is taxed. This is important since the place of taxation will determine the rate of tax applicable to that type of income under the DTAA.

Type of income or payment

Where it is taxed

Income from immovable property

Taxed in the state where the property is situated

Profits from business

Taxed in the state where the enterprise carries out its business

Profits from shipping and air transport

Taxed in the state where the enterprise carries out its operations

Dividends

Taxed in the state where the dividends arise

Interest

Taxed in the state where the interest arises

Royalty

Taxed in the state where the royalty arises

Personal and professional services (including directors' fees)

Taxed in the state where the individual is a resident unless services are carried out in the other state*

Income or gains from the alienation of property

Taxed in the state where the property is situated

Pension and annuity

Taxed in the state where the individual is a resident

Remuneration paid by the Government

Taxed by the government of the state. If a resident of the other state is not a citizen or national of the first state and carries out employment, the remuneration is taxed in the other state

Payments to students and trainees

Taxed in the state where they reside

* These services are not taxable in the other state even if the services are carried out in that state in the following circumstances:

If the individual resides in the other state for a period less than an aggregate of 183 days for the year of income.
The services of the individual are performed on behalf of a person residing in another state.
The income or profits are not attributable to any permanent establishment in the other state.

These exemptions are not applicable to any personal income that a public entertainer, such as musicians, athletes, stage and movie show artists derives from their personal activities. The public entertainers are taxed in the state where they carry out their services.

To learn more, you can find a full copy of the Australia-Singapore Double Tax Treaty Agreement.

Protect Your Income From Excessive Taxation

To effectively grow your business and maximize profits, it’s essential to understand the tax benefits available to you and your business. If you’re considering incorporating your company in Singapore, CorporateServices.com can help you navigate the process by helping select the correct corporate structure that will minimize your taxes while fully complying with all government laws, regulations, and DTAAs.

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