Malaysia-Singapore DTAA:
Tax Treaty Guide with Examples
This guide provides a practical guide to the Singapore–Malaysia DTAA, which is designed to prevent income from being taxed twice and to promote greater tax certainty for cross-border activities. It aims is to explain the treaty benefits to entrepreneurs and founders who may be planing to register a Singapore company and conduct business with Malaysia.
Whether you're an owner of a Singapore company doing business in Malaysia, a Malaysian investor earning income in Singapore, or an individual receiving salary, dividends, or royalties across the border, this guide will help you understand how your income is taxed under the treaty.
The guide breaks down each major provision of the DTAA and illustrate how it works through real-world examples, including sample tax calculations for common scenarios involving business profits, dividends, interest, royalties, and service income.
This article covers the following topics on the Singapore-Malaysia DTAA:
- Purpose & Scope of the Agreement
- Key Terms
- Tax on Business Profits
- Tax on Dividends
- Tax on Interest Income
- Tax on Royalties
- Tax on Personal Services
- Tax on Director Fee
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Malaysia-Singapore DTAA: Purpose & Scope
The Singapore–Malaysia Double Taxation Avoidance Agreement exists to prevent the same income from being taxed twice — once in Singapore and again in Malaysia. It also provides a framework to allocate taxing rights between the two countries, minimizing tax obstacles for businesses and individuals engaged in cross-border activities. Beyond that, the agreement includes measures to combat tax evasion and ensure cooperation between the tax authorities of both countries.
Who Is Covered
The DTAA applies to "persons who are residents of one or both of the Contracting States". In simpler terms, it covers:
- Individuals who are tax residents of Singapore or Malaysia,
- Companies and other legal entities that are tax residents in either country.
What is Covered
The Singapore-Malaysia DTAA governs a broad spectrum of income types, including but not limited to Business Profits, Dividends, Interest, Royalties, Employment Income, Consulting Services, and Director Fee.
To better understand how the Singapore–Malaysia DTAA interacts with local tax rules, it's useful to have familiarity with the tax system of Singapore, including how income is sourced and taxed. For businesses, it's especially important to consider how foreign income and cross-border transactions are treated under the corporate tax in Singapore framework. The DTAA helps eliminate double taxation and clarifies taxing rights between the two countries—providing greater certainty for companies operating in both markets.
Malaysia-Singapore DTAA: Key Terms Defined
Person
Under the DTAA, a “person” includes:
- An individual,
- A company, and
- Any other body of persons that is treated as a person for tax purposes.
Tax Resident
The DTAA states that a "resident of a Contracting State" is someone who, under the laws of that State, is liable to tax by reason of:
- Domicile,
- Residence, or
- Place of incorporation or management.
Dual Residence – Tie-Breaker Rules
If an individual is a resident of both countries, DTAA applies a hierarchy of tie-breakers:
- Country where the person has a permanent home.
- If homes exist in both countries, the one with closer personal and economic ties (centre of vital interests).
- If this can't be determined, the country of habitual abode.
- If none, the country of nationality.
- If still unresolved, the competent authorities of both countries shall settle it by mutual agreement.
For companies or entities, dual residency is resolved by determining the place of effective management, i.e., where key decisions are made.
Permanent Establishment (PE)
A Permanent Establishment (PE) under the Malaysia-Singapore DTAA refers to a fixed place of business through which a business is wholly or partly carried on in the other country. This determines whether a country has the right to tax business profits.
Examples of a PE include:
- A place of management
- A branch
- An office
- A factory or workshop
- A mine, oil or gas well, quarry
- A building site or construction project lasting more than 6 months
However, certain activities are excluded, such as:
- Storage, display, or delivery of goods
- Purchasing goods or collecting information
- Preparatory or auxiliary activities
Agents who regularly conclude contracts or fulfill orders on behalf of a foreign enterprise can also create a PE, unless they are independent agents acting in the ordinary course of business.
Withholding Tax
While not explicitly defined in the DTAA, withholding tax refers to the tax retained at source by the payer on certain types of cross-border income, such as:
- Dividends
- Interest
- Royalties
- Technical fees
The treaty limits the rate of withholding tax that can be charged by the source country, often to 5%, 8%, or 10%, depending on the income type and relationship between parties. It may also be useful to understand withholding tax policy of Singapore in general.
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Malaysia-Singapore DTAA: Tax on Business Profits
How business profits are taxed under the treaty
DTAA Rule
According to the Singapore–Malaysia DTAA, business profits are taxable only in the country of residence of the enterprise unless the enterprise carries on business through a Permanent Establishment in the other country. If there is a PE, then only the profits attributable to the PE may be taxed in the source country.
This means:
- No PE = No taxation in the other country.
- With PE = Taxation limited to PE-attributable profits.
Now, let’s illustrate this with four practical examples using S$500,000 as the assumed profit amount.
Example 1: Singapore company earning from Malaysia – No PE in Malaysia
- DTAA Rule: Profits are taxable only in Singapore.
- Result: Malaysia cannot tax the S$500,000.
- Tax Payable:
- Singapore: Taxed under normal corporate income tax (17%).
- S$500,000 × 17% = S$85,000
- Malaysia: No tax.
- Notes: No Malaysian withholding or reporting obligation arises.
Example 2: Singapore company earning from Malaysia – With PE in Malaysia
- DTAA Rule: Malaysia may tax profits attributable to the PE.
- Assumption: The entire S$500,000 is attributable to the Malaysian PE.
- Tax Payable:
- Malaysia: Taxed under Malaysian corporate tax (assumed 24%).
- S$500,000 × 24% = S$120,000
- Singapore: Singapore taxes global income but allows foreign tax credit.
- Singapore tax (17%) = S$85,000
- Foreign tax credit for Malaysian tax paid = S$85,000
- Net Singapore tax = S$0
- Malaysia: Taxed under Malaysian corporate tax (assumed 24%).
- Notes:
- Singapore company can claim unilateral or treaty-based tax credit.
- Any Malaysian tax in excess of the Singapore tax will not be refunded.
Example 3: Malaysian company earning from Singapore – No PE in Singapore
- DTAA Rule: Profits are taxable only in Malaysia.
- Result: Singapore cannot tax the S$500,000.
- Tax Payable:
- Malaysia: Taxed under normal corporate tax (24%).
- S$500,000 × 24% = S$120,000
- Singapore: No tax.
- Malaysia: Taxed under normal corporate tax (24%).
- Notes: Singapore does not levy withholding tax on business profits where no PE exists.
Example 4: Malaysian company earning from Singapore – With PE in Singapore
- DTAA Rule: Singapore may tax profits attributable to the PE.
- Assumption: Entire S$500,000 is attributable to the Singapore PE.
- Tax Payable:
- Singapore: Taxed under Singapore corporate tax (17%). S$500,000 × 17% = S$85,000
- Malaysia: Global income is taxable, but Malaysia allows foreign tax credit.
- Malaysian tax (24%) = S$120,000
- Foreign tax credit for Singapore tax paid = S$85,000
- Net Malaysian tax = S$35,000
- Total Tax Across Both Jurisdictions: S$120,000 (capped at home country’s tax rate)
- Notes: The place of effective management may also affect residency if dual-residence issues arise.
Malaysia-Singapore DTAA: Tax on Dividends
How dividends are taxed under the treaty
DTAA Rule
Under the Singapore–Malaysia DTAA:
- Dividends paid by a company resident in one country to a resident of the other country may be taxed in the recipient's country of residence.
- The source country (where the company paying dividends is located) may also tax the dividends, but the tax is capped:
- 5% of the gross dividend if the beneficial owner is a company holding at least 25% of the paying company’s capital.
- 10% in all other cases.
Exception: If a country does not impose any tax on dividends beyond the normal corporate tax on profits, then no withholding tax applies. This is currently the case for Singapore, which has no dividend withholding tax.
Let’s examine this through practical examples using S$500,000 in dividends.
Example 1. Dividends paid by a Singapore company to a Malaysian resident person
- Current Application:
- Singapore does not impose withholding tax on dividends.
- The Malaysian resident declares the S$500,000 dividend income in Malaysia and pays tax under Malaysian rules.
- Tax Payable:
- Singapore: S$0 (no withholding tax).
- Malaysia: Taxed at personal or corporate tax rates (e.g., up to 24% for companies). S$500,000 × 24% = S$120,000 (if recipient is a company).
- Credit Relief: Not needed, since Singapore levies no withholding.
Example 2: Dividends paid by a Malaysian company to a Singapore resident person
- Withholding Tax Cap:
- 5% if the Singapore recipient is a company owning ≥25% of the Malaysian company.
- 10% otherwise.
- Tax Payable (assuming 10% rate applies):
- Malaysia: S$500,000 × 10% = S$50,000 withheld at source.
- Singapore:
- Resident declares S$500,000 dividend.
- Taxed at 0% for individuals (no tax on foreign-sourced dividends remitted by individuals).
- Corporate recipients may be taxed unless qualifying for foreign-sourced income exemption under Singapore’s domestic law.
- Foreign Tax Credit: Corporate taxpayers in Singapore can claim foreign tax credit of S$50,000.
Malaysia-Singapore DTAA: Tax on Interest Income
How interest income is taxed under the treaty
DTAA Rule
Interest income is taxable in the country of residence of the recipient, but the source country may also impose withholding tax, capped at 10%.
There are important exemptions:
- Interest paid on “approved loans” from Singapore to Malaysia is exempt from Malaysian tax.
- Interest paid to the Singapore or Malaysian Government is also exempt.
Let’s examine two examples using S$100,000 in interest income.
Example 1: Interest paid by a Singapore company to a Malaysian resident
- Scenario: A Singapore company pays S$100,000 in interest to a Malaysian corporate lender.
- Singapore:
- Applies 10% withholding tax.
- S$100,000 × 10% = S$10,000 withheld at source.
- Malaysia:
- The Malaysian recipient declares the full S$100,000.
- Can claim a foreign tax credit of up to S$10,000, subject to Malaysian rules.
- Net Impact:
- If the Malaysian company’s tax rate is 24%, it may owe S$14,000 more, bringing total tax to S$24,000.
- If the tax rate is lower, part of the foreign tax credit may be unused.
Example 2: Interest paid by a Malaysian company to a Singapore resident
- Scenario: A Malaysian company pays S$100,000 interest to a Singapore lender.
- Malaysia:
- Standard withholding tax is 10% which is S$10,000.
- Exemption: If the loan is classified as an approved loan, withholding tax is 0%.
- Singapore:
- The Singapore recipient declares S$100,000 as taxable income.
- Corporate recipients may claim foreign tax credit of S$10,000 (if not exempt).
- Special Note: If the recipient is a Singapore Government entity, the interest is fully exempt from Malaysian tax regardless of the loan status.
Malaysia-Singapore DTAA: Tax on Royalties
How royalty income is taxed under the treaty
DTAA Rule
Royalty income is taxable in the recipient’s country of residence, but the source country may also tax it, subject to a maximum withholding tax of 8%.
This applies to payments for:
- Use of copyrights, patents, trademarks, or designs
- Licensing of films, tapes, or software
- Use of industrial, commercial, or scientific equipment
- Access to technical know-how
Let’s look at how this works with S$100,000 in royalty income.
Example 1: Royalty paid by a Singapore company to a Malaysian resident
- Scenario: A Singapore-based tech firm pays S$100,000 in royalty to a Malaysian licensor.
- Singapore:
- Withholding tax of 8% applies.
- S$100,000 × 8% = S$8,000 withheld.
- Malaysia:
- Malaysian company reports full S$100,000 as income.
- Eligible for foreign tax credit of S$8,000.
- Net Impact:
- After credit, Malaysia taxes any excess above 8%, depending on corporate rate.
- Total tax capped by Malaysian tax rate; excess may be absorbed via credit.
Example 2: Royalty paid by a Malaysian company to a Singapore resident
- Scenario: A Malaysian firm licenses a patent from a Singapore company and pays S$100,000 in royalties.
- Malaysia: Withholding tax of 8%, i.e. S$8,000 withheld.
- Singapore:
- Income is taxable unless exempt under domestic provisions.
- Corporate recipients can claim foreign tax credit of S$8,000.
- Individuals may be exempt depending on circumstances (e.g. passive income).
- Additional Notes: If the royalty is effectively connected to a PE or fixed base in Malaysia, normal business profit rules apply instead of withholding.
Malaysia-Singapore DTAA: Tax on Personal Services
How independent services are taxed under the treaty
DTAA Rule
Article 14 of the Singapore–Malaysia DTAA covers income earned by individuals from independent personal services. This applies to professionals who work in a self-employed capacity, such as consultants, doctors, engineers, lawyers, accountants, architects, educators, and others.
The DTAA provides that:
- Income from such services is taxable only in the country where the individual is a resident.
- However, if the individual has a fixed base regularly available in the other country for carrying out those services, then that country may tax the income attributable to the fixed base.
This rule does not apply to employment income, which is covered separately under Article 15.
What Counts as Independent Services
- These are services performed by individuals who are not employees.
- The professional must be operating independently, not under the direction or control of a company or employer.
- The services must be rendered personally by the individual.
What Is a Fixed Base
- A fixed base refers to a permanent or regular facility in the other country through which the professional performs services.
- Examples include a rented office, consulting room, or studio used consistently to serve clients.
- A temporary visit or occasional use of client premises does not usually count as a fixed base.
Example 1: Singapore consultant providing remote services to a Malaysian company
A self-employed Singaporean business consultant earns S$100,000 from a Malaysian company. All services are provided remotely from Singapore.
- The consultant does not have a fixed base in Malaysia.
- Singapore, as the country of residence, has exclusive taxing rights.
- Malaysia does not have the right to tax the income under the DTAA.
Example 2: Malaysian architect with a studio in Singapore
A Malaysian architect earns S$100,000 from design work performed through a studio space rented in Singapore.
- The studio constitutes a fixed base.
- Singapore is entitled to tax the portion of income related to services performed through the fixed base.
Malaysia, as the country of residence, may also tax global income, but the architect may claim a foreign tax credit for Singapore tax paid.
How employment income is taxed under the treaty
DTAA Rule
Salaries, wages, and other employment income earned by a resident of one country are taxable in that country of residence.
However, if the employment is exercised in the other country, then the source country may also tax the income derived from work performed there.
This means both countries may tax the same employment income unless an exemption applies.
An exemption from taxation in the source country applies only if all three of the following conditions are met:
- The employee is present in the source country less than 183 days in the calendar year;
- The remuneration is paid by, or on behalf of, an employer who is not a resident of the source country;
- The remuneration is not borne by a permanent establishment or resident of the source country.
If these three conditions are met, then only the country of residence may tax the income, and the source country is not permitted to do so.
Example 1: A Malaysian resident employed by a Singapore company
Scenario: A Malaysian engineer works in Singapore for 6 months and earns S$100,000.
Singapore:
- The employment is exercised in Singapore.
- The employer is a Singapore company.
- The remuneration is paid and borne in Singapore.
- The 183-day threshold is not met (6 months > 183 days).
- Therefore, Singapore will not tax the income under the treaty.
Malaysia:
- As the resident country, Malaysia will tax the income.
Example 2: A Singapore resident employed by a Malaysian company
Scenario: A Singaporean executive works in Malaysia for 3 months, earning S$100,000. The employer is a Malaysian company.
Malaysia:
- Work is exercised in Malaysia.
- The employer is Malaysian.
- The stay is under 183 days.
- Therefore, Malaysia will not tax the employment income.
Singapore:
- As the country of residence, Singapore taxes global income, therefore the income will be fully taxed in Singapore.
Malaysia-Singapore DTAA: Tax on Director Fee
How director fee is taxed under the treaty
DTAA Rule
Director’s fees are taxed only in the country where the company paying the fee is resident, regardless of where the director resides or performs their duties.
This rule differs from employment income, which may be taxed based on where the work is performed. For directors, the source country always retains taxing rights.
Here are two examples using S$100,000 in director’s fees.
Example 1: Fee paid by a Singapore company to a Malaysian resident
Scenario: A Malaysian tax resident sits on the board of a Singapore company and receives S$100,000 in director’s fees.
Singapore:
- Has the exclusive right to tax the fee.
- Subject to withholding tax (currently 24% for non-resident individuals).
- S$100,000 × 24% = S$24,000 withheld and remitted to IRAS.
Malaysia:
- Does not tax the income (as Singapore has full taxing right under the treaty).
- No foreign tax credit applicable.
Net received by director: S$76,000 after Singapore tax.
Example 2: Fee paid by a Malaysian company to a Singapore resident
Scenario: A Singapore tax resident receives S$100,000 as a board member of a Malaysian company.
Malaysia:
- Has the exclusive right to tax this income.
- Typically subject to withholding tax at 10% for non-resident directors.
- S$100,000 × 10% = S$10,000 withheld.
Singapore:
- May allow a foreign tax credit for the S$10,000, if the income is also taxed in Singapore.
- However, if the income is not remitted to Singapore or qualifies as exempt foreign income, there may be no further tax.
Net received by director: S$90,000, subject to final tax treatment in Singapore.
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