France-Singapore Double Tax Treaty
A s key trading partners, France and Singapore enjoy strong economic ties. At present, Singapore is one of France’s leading trading partners in the Asia region, while France is Singapore’s second-largest trading partner in the EU. France’s trade with Singapore in 2019 amounted to EUR 12.1 billion. Singapore is also the most popular Southeast Asian destination for French investors.
Many French companies use Singapore as their regional headquarters for expanding their business to the Asian market. Among these are ST Microelectronics, Murex, Engie, INSEAD, Safran, Nestle, CMA-CGM, Dassault Systemes, Airbus, Thales, BNP Paribas, Alcatel-Lucent, and several other well-known firms.
These companies value Singapore’s regional connectivity, state-of-the-art infrastructure, favorable taxation rules, stable legal and political framework, and pro-business environment.
Given this deep mutual economic relationship, it was important for both countries to develop a framework to mitigate the tax burden that arises in bilateral business activities. In this article, we will take a closer look at one important element of this framework: the France-Singapore Avoidance of Double Taxation Agreement (DTA). This DTA regulates a major issue for cross-border individuals and businesses — avoiding the taxation of the same income by both countries. If you plan to incorporate a company in Singapore and do business with France, this guide will help you understand the tax treatment of various types of income that may arise as a result of business activities in France.
The article covers the following topics:
Overview of Singapore's Bilateral Agreements With France
Below are the main bilateral agreements concluded between France and Singapore, in effect as of August 2021.
European Union-Singapore Free Trade Agreement (EUSFTA)
The signing of this agreement in November 2019 gave a boost to the Singapore-France trading relationship. Key benefits of the EUSFTA include the elimination of customs duties, and flexible rules on Singapore’s exports.
European Union-Singapore Investment Protection Agreement
The agreement was concluded in 2018 with the EU. It has replaced the Agreement on the Promotion and the Protection of Investments signed between Singapore and France in September 1975. The agreement encompasses investment protection and provides favorable conditions for greater economic cooperation on investment-related matters.
Double Tax Avoidance Agreement
This agreement is the focus of this article. Regulation of tax matters between Singapore and France goes back to 1974, when both countries signed an agreement for avoidance of double taxation and prevention of income tax evasion. A revised DTA came into force in 2016. Its ratification has further simplified the tax treatment, resulting in an increase in mutual economic engagements between the two countries, and giving investors and businesses operating in these markets a powerful advantage.
Scope of the Singapore-France Double Tax Treaty
The France-Singapore DTA extends to individuals, corporate entities, and any other body of persons who are tax residents of one or both of the contracting states (i.e. France and Singapore).
Types of taxes subject to the DTA
In Singapore: income tax. Note that Singapore does not impose a tax on capital gains, dividends, gifts, and inheritance.
In France: income tax, corporate tax, contributions on corporate tax, social security contributions, contributions for the reimbursement of the social debt.
Key Provisions of the DTA
The main goal of the DTA is to establish the principles and rules that determine which country has the primary right to tax an individual or a company; once the determination is made then the other country does not impose any tax in order to eliminate double taxation. Note that the determination of the tax residency also helps prevent tax avoidance.
Under the DTA, resident is defined as any person (individual, legal entity, any other body of persons treated as an entity for tax purposes) who, under the laws of the relevant state, is liable to pay tax by reason of that person’s domicile, residence, or place of management.
Tax residency of individuals
If it’s not possible to determine an individual's place of residence, his or her tax position is determined based on the tie-breaker rule. This rule uses a step-by-step test to analyze which of the two countries is the individual’s place of residence for tax purposes. If the first step isn’t conclusive, then the next step applies, and so on.
An individual is considered a resident of the state where:
- He or she has a permanent home available (i.e. in France OR Singapore)
- His or her personal (i.e. family) and economic (i.e. business or employment) ties are closer
- He or she has a habitual abode
If none of these criteria determines residency, then the question must be settled by mutual agreement between competent authorities of both states.
Tax residency of legal entities
Generally, a legal entity is considered to be a tax resident of that state where the company is domiciled (incorporated) and where the company’s place of management is situated. If that can’t be determined definitively (e.g. if these two locations are different), the company is to be treated as a tax resident of the country where its place of effective management is situated (i.e. the place where the board of directors meets).
The concept of Permanent Establishment is used to determine taxation of business profits as explained in the sections below. Under the DTA, Permanent Establishment (PE) means a fixed place of business overseas, where the entity partially or wholly conducts some of its business activities, and which can be considered to be:
- A place of management;
- A branch;
- An office;
- A factory;
- A workshop;
- A farm or plantation; and
- A mine, an oil well, a quarry, or any other place of extraction of natural resources.
- A building site; a construction; assembly or installation project or supervisory activities related to such site, or construction, that lasts more than 12 months;
- A site for the provision of services (including consultancy services) by the entity itself, that is a resident of a contracting state, or through employees, that continue for a period of more than 365 days, aggregated, within any 15-month period.
Taxation of Income from Immovable Property
Income derived from the direct use or letting of immovable property (including income from agricultural or forestry undertakings) is taxed according to the territorial principle — i.e. in the country where the property is situated.
Taxation of Business Profits
The company’s profits should be taxed in the country of the company’s residence. If that company carries on business activities in the other country through a PE, the company’s profits attributable to that PE will be taxed in the country where the PE is located. Such profits will be exempt from taxation in PE’s country if it is remitted outside that country.
It is important to note that all your company’s expenses (including executive and administrative) that could be reasonably attributable to the PE situated in the other state, should be allowed as deductions while determining the PE's profits. A PE’s mere purchase of goods or merchandise for the enterprise should not render profits attributable to that PE. The PE must conduct the activities described above, only then its profit is subject to taxation by the country where the PE is located.
Profits from Shipping and Air Transport
According to the DTA, a company’s income derived from international shipping or aircraft transport operations is taxed only in the country where the company’s place of effective management is located. This rule also applies to firms involved in operating ships or aircraft in international traffic that participate in pools, joint ventures, or international operation agencies of any sort.
For the purposes of the DTA, two enterprises of different states are considered to be associated if all of the following apply:
- An enterprise of Country A that is involved in carrying out management, or control activities, or activities related to capital management of an enterprise of Country B.
- The same individuals participate directly or indirectly in the management, control, or capital of both enterprises.
- Commercial or financial relations between those companies differ from the relations made between independent enterprises.
Taxation of Dividends
Under the France-Singapore DTA, dividends refers to income received from shares, from participating in company profits, mining shares, founder’s shares, or other securities that do not provide the holder with any shareholder rights, but carry financial rights (i.e. “jouissance” shares).
The DTA does not prescribe an exclusive rule for taxation of dividends. In some situations, dividends may be taxed in the country of the beneficiary’s residence; while in other cases in the country of which the company paying the dividends is a resident. But with proper design of corporate structure, taxation in both countries can be minimized or eliminated as described in scenarios below.
Note that Singapore tax rules do not impose withholding tax on dividend income.
Scenario 1: Dividends paid by a Singapore resident company to a French beneficiary are not subject to tax at source, according to the Singapore tax rules. Furthermore, foreign dividend income received by a resident of France will be exempted from French tax if at least 10% of the capital of the Singapore subsidiary is owned directly by a French parent company.
Scenario 2: Dividends paid by a French resident corporation to a beneficiary that is a Singapore resident are subject to a reduced tax rate in France which can at maximum be 15% (reduced from 26,5%) for individuals and non-parent companies. If a beneficial owner is a Singapore resident company holding at least 10% of the share capital of the subsidiary that is a French resident, the tax in France can not exceed 5%. Such dividends will be exempted from Singapore tax if at least 10% of the capital of the French subsidiary is owned by a Singapore parent company. Again, with proper design of the corporate structure, dividend taxes can be minimized significantly, and in some cases eliminated completely.
Taxation of Interests
For the purposes of the DTA, interest refers to income received from debt-claims, bonds, debentures, government securities, including premiums and prizes attaching to such securities, bonds, or debentures. Provisions of the DTA stipulate that interest may be taxed in the country of the recipient’s residency, but the tax should not exceed a rate of 10%; in some situations the interest may alternatively be taxed in the country in which it arises.
Scenario 1: The interest paid by a Singapore company to a French resident is subject to withholding tax at a rate that can not exceed a 10% of the gross amount of interest. Certain interest paid to non-resident individuals that does not qualify for a domestic concession rate can be taxed at a rate of 22% in Singapore; however, with proper design such a situation can be avoided. Foreign interest income received by a French resident is subject to a flat tax set at 30% in France, which will be reduced by the amount of tax paid in Singapore.
Scenario 2: The interest paid by a French company to a Singapore recipient is not subject to withholding tax. Such interest income will be treated as foreign-sourced income in Singapore, and taxed accordingly.
Scenario 3: The interest will be taxed only in the country of the recipient’s residency (Country A) if the recipient is a beneficial owner of such interest, and if: (i) interest is paid for a debt-claim or a loan guaranteed or insured by the government, or any other person acting on behalf of Country A; or (ii) interest is paid by an enterprise of one country to an enterprise of the other country.
Taxation of Royalties
According to the DTA, payments of any kind received as consideration for the use of any objects of intellectual property rights (i.e. objects of industrial property rights, copyright, and rights related to copyright) are treated as royalties. Royalties usually paid in the state where such an object is used.
Royalties arising in Country A received by a resident of Country B are taxable only in the beneficiary's state i.e. Country B. If double taxation arises, the DTA provides that the tax burden can be reduced by the amount of tax paid in the other country with application of foreign tax credit method.
Scenario 1: Royalties paid by a Singapore company to a French resident are subject to withholding tax at a rate of 10% for corporate entities; and 10% of the gross income, or at 22% on net income (whichever is lower) for individuals. Foreign royalty income received by a French resident (whether company or individual) in certain cases may be subject to French tax, which will be reduced by the amount of tax paid in Singapore.
Scenario 2: Royalties paid by a French company to a Singapore resident (company or individual) are subject to withholding tax at a rate of 26.5%. Foreign-sourced royalty income is taxable in Singapore when it is remitted or considered to be remitted to Singapore. Such income is not further taxed in Singapore, if the foreign tax credit scheme under the DTA is applied.
Taxation of Capital Gains
It should be noted that Singapore does not impose tax on capital gains.
Under the DTA, capital gains are treated as follows:
- Gains from disposition of immovable property are generally taxed in the country in which such property is situated. Capital gains from the disposal of immovable property are taxed in France at a flat tax rate of 19% for individuals, and 26.5% for corporate entities.
- Gains from selling movable property forming part of the business property of a PE of Country A of a parent company of a Country B, are exempt from tax in Country B. However, gains from selling ships or aircraft operated in international traffic, and movable property for the operation of such ships and aircraft, should be taxable only in Country B (i.e., in which the place of effective management of the receiving company is situated). Capital gains from the disposal of movable property generally are taxed in France at a rate of 30% for individuals and 26,5% for enterprises.
- Gains from selling of shares, or other rights in a company, trust, or other institution, the assets or property of which consist of, or derive more than 50% of their value from, immovable property situated in Country A, or from rights connected with such immovable property, should be taxed only in Country A. Capital gains arising from the sales of shares in France are generally subject to corporate tax at the standard rate, unless the participation exemption rule applies, according to which such income is subject to a reduced tax rate.
Taxation of Employment Income
The DTA provides that salaries, wages, and other similar remuneration received by employees is taxed in the country where the employee is resident (Country A), unless employment is exercised in the other country (Country B). Note that, in general, the resident status or location of the payer is not relevant. In case double taxation arises, it will be reduced by the amount of tax paid in the other country.
Income received from employment exercised in Country B by a resident of Country A is exempted from tax in Country B, if the following conditions are met:
- The employee is present in Country B for no longer than 183 days in any 12-month period; and
- The remuneration is paid by a company residing in Country A; and
- The remuneration is not borne by a PE in Country B of a company residing in Country A (no recharge between inter-related companies).
Scenario 1: Employment income received by a French resident for work performed in the territory of Singapore is taxed only in France if: (i) he or she resides in Singapore for less than 183 days; (ii) the employee’s remuneration is paid by, or on behalf of, a French company; (iii) the employee’s remuneration is not borne by a PE located in Singapore. Employment income is taxed in France at a progressive rate, ranging from 0% to 45%, plus special security surcharges. In certain cases, such income may be treated as Singapore-sourced income and taxed at 15% on gross income, or 22% on net income (if the individual opts to be taxed so). If this is the case, an individual's tax liability can be reduced by the amount of tax paid in Singapore with application of foreign tax credit method.
Scenario 2: Employment income received by a Singapore resident for work performed in the territory of France is taxed only in Singapore if: (i) the employee resides in France for less than 183 days; (ii) the employee’s remuneration is paid by or on behalf of a Singapore company; (iii) the employee’s remuneration is not borne by a PE located in France. Otherwise, it should be treated as French-sourced income and may be subject to tax in France. If double taxation arises, it can be eliminated by applying the foreign tax credit method. This means that the amount of tax paid in one country may be credited against the amount of tax liability due in the other country.
Taxation of Director’s Fees
Directors' fees and similar payments received by a resident of Country A as a member of the board of directors of a company that is a resident of Country B may be taxed in Country B.
Director’s fees received by a French resident from a Singapore company are subject to withholding tax at a flat rate of 22% in Singapore. Director’s fees received by a Singapore resident from a French company are subject to tax at a progressive rate from 0% to 30%.
If taxed in one country, such income is exempted from tax in the other one; otherwise the foreign tax credit should apply to eliminate double taxation.
Taxation of Pensions
Pensions and other corresponding remuneration paid to a resident of Country A for an individual's past employment in Country A or Country B is taxed only in the state of the recipient's residency i.e. Country A.
Taxation of Remuneration of Students and Trainees
An individual or trainee who was a resident of Country A before visiting Country B and who resides in Country B for the purposes of study or training should be taxed only in Country A, if he or she received:
- Remittances from Country A;
- Remuneration for personal services provided in Country B (under certain conditions);
- A grant, allowance, or award in Country B.
Elimination of Double Taxation
The DTA provides special instruments to ease the tax burden imposed by the governments of both states on individuals and corporate entities. Applying a foreign tax credit or other tax exemption methods can help individuals and enterprises avoid being taxed twice on the same income, or at least reduce their tax liability. The amount of tax credit is generally limited to the amount of tax paid abroad. However, it should not exceed the tax due in the state where it should be credited (i.e., whichever tax is lower).
A claim for foreign tax credit in Singapore, along with additional documentation, is subject to review by the Inland Revenue Authority of Singapore on a case-by-case basis.
Under the tax exemption method, taxable income is subject to tax only in one country, without submitting any specific application to the tax authority of either country.
DTA — At A Glance
|Types of Income/Payments||Where is the income taxed?|
|Permanent Establishment profits||Taxed in the state where the PE carries on business activities, but only in the amount attributable to that PE.|
|Income from immovable property||Taxed in the state where the property is situated.|
|Business profits||Taxed in the state where a company is a resident.|
|Profits from shipping and air transport||
Taxed in the state where a company is
|Dividends||May be taxed in the state where the recipient resides and in certain cases in the state where dividends arise. If so, DTA ensure elimination of double taxation.|
|Interest||May be taxed in the state where the recipient resides and in certain cases in the state where interest arises. In case of double taxation, DTA provides recourse.|
|Royalties||May be taxed in the state where the recipient resides and in certain cases in the state where royalties arise. In case of double taxation, DTA provides recourse.|
|Capital gains||May be taxed in the state where the place of effective management of the receiving company is situated, or in the state where immovable property is situated.|
|Employment income||May be taxed in the employee’s state of residency and in certain cases in the state where employment is exercised, at reduced rates.|
|Director’s fees||Taxed in the state where the company (paying the director’s fees) resides.|
|Pensions||Taxed in the state where the recipient resides.|
Payment to students and trainees
|Taxed in the state where the recipient resides. May be taxed in the state of education if the payment does not fall under exemptions.|
If you need further clarifications on cross-border tax matters between France and Singapore, feel free to contact our tax consulting team.
Singapore and France are strong economic partners. A significant step forward in their bilateral relations was made when the EU-Singapore FTA was signed. As a result, a growing number of French companies have expanded their business to Singapore. The DTA signed between the two countries helps reduce the tax burden for such companies by eliminating double taxation.
From our day-to-day communication with clients, it is clear that taxes are a major concern for all businesses, big or small. The DTA provisions are very generous but the rules for utilizing these provisions can be complicated. Therefore, it is important to involve qualified experts who can craft a personalized and holistic approach to optimize your taxes. Please contact us if you need assistance in claiming double-tax relief in Singapore.
In this article we’ve provided some basic rules for how to apply the provisions of the DTA. However, the above-mentioned scenarios for taxation of various types of income cannot be considered exhaustive. We suggest you contact your tax consultant to advise on your particular case.
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