Thailand-Singapore DTAA: Double Tax Avoidance Agreement

This article will highlight the important provisions of the Thailand-Singapore DTAA and the last changes introduced in the DTAA. The agreement provides a lot of benefits for businesses in both countries. It aimed to strengthen economic ties and boost bilateral trade and investment flows between the two countries.

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Thailand-Singapore DTAA: Double Tax Avoidance Agreement

This article covers the following topics:

Thailand-Singapore relations
Thailand-Singapore bilateral agreements
Why the Thailand-Singapore Double Tax Agreement?
Scope of the Thailand-Singapore Tax Treaty
Key provisions of the Singapore-Thailand DTA
Changes in Thailand-Singapore DTAA
FAQs

Key Provisions of Singapore-Thailand DTA

Singapore-Thailand Relations

As of 2022, Singapore and Thailand mark nearly 55 years of continuous diplomatic relationship. Thailand was one of the first countries to establish diplomatic ties with Singapore, and since then, this friendship has been steadily nurtured and sustained.

The cooperation between Singapore and Thailand occurs on many fronts and through various projects. Some of them are the Leaders' Retreat, the Civil Service Exchange Program, and the Singapore-Thailand Enhanced Economic Relationship Program. Singapore continues to be one of Thailand's largest foreign investors.

Singapore and Thailand governments also reinforced broad institutional linkages by establishing various cooperation programs, such as the Thailand-Singapore Civil Service Exchange Program (CSEP) and the Singapore-Thailand Enhanced Economic Relationship (STEER). Both programs aim to strengthen citizen-level interactions between the two countries. In particular, the Thailand-Singapore Civil Service Exchange Program, established in 1997, promotes educational networking and regular exchanges of personnel and experiences. Under the STEER program, Thailand and Singapore agencies conduct regular meetings to foster closer economic integration.

Thailand and Singapore also have a strong defense relationship that includes traditional bilateral activities such as defence-related exchanges, visits, exercises, and an overseas training area for Singapore in Thailand, as well as multilateral interactions, including those within the ASEAN framework.

Overview of Singapore's Bilateral Agreements With Thailand

Singapore and Thailand are part of the ASEAN Free Trade Area. The conclusion of the ASEAN Trade in Goods Agreement (ATIGA) significantly improved the environment for trade and investment between the two countries. It promotes the free flow of goods between member states and diminishes trade barriers in the region; this leads to deeper economic integration among members, lower business costs, increased trade, a larger market, and greater economies of scale for businesses operating within ASEAN. Through the ATIGA, Singapore and Thailand have eliminated their intra-ASEAN import duties on 99.65% of goods.

In 2019, the Monetary Authority of Singapore and Thailand’s Office of Insurance Commission have signed a Memorandum of Understanding to strengthen cooperation in the area of insurance supervision. This agreement promotes effective partnership between insurance regulators. The MOU advances the framework for cooperation, exchange of information, assistance in insurance supervision between the two authorities, and improves the infrastructure of the insurance system in both jurisdictions.

The Thailand-Singapore Mutual Recognition Arrangement (MRA) of Authorised Economic Operator programs was signed in 2018 by Singapore Customs and the Customs Department of Thailand to improve customs-to-customs cooperation and ensure compatibility of their respective Authorized Economic Operator (AEO) programs.

Enterprises that are certified as AEOs for their robust security practices under either of the two programs are recognized by both customs administrations. Under this agreement, recognized companies will benefit from the reduced documentary and cargo inspections at customs.

Furthermore, the MRA reaffirms the collective commitment to the ASEAN Economic Community Blueprint 2025 in the area of trade facilitation.

Thailand-Singapore Double Tax Treaty details

Why the Thailand-Singapore Double Tax Treaty?

In 2015 Singapore and Thailand signed a bilateral agreement for the avoidance of double taxation and the prevention of fiscal evasion, which came into effect in 2017 replacing the old Convention. The Agreement ensures attractive tax treatment for the investors operating across the two countries. It is especially beneficial for numerous corporations that base their management and other back-office functions in Singapore while maintaining their revenue-making operations in Thailand. This structure that many multinationals employ in order to leverage Thailand’s vast labor while simultaneously accessing Singapore’s financial services infrastructure.

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Scope of the Thailand-Singapore Tax Treaty

The Singapore-Thailand Double Tax Agreement (DTAA) applies to all residents (individuals and legal entities) of one or both countries. Therefore, if you are a resident of Singapore, Thailand, or both, then you can avail the provisions of this DTAA.

According to Article 4, the term "resident of a country" means any individual, company, or other legal entity that, under the laws of that country, is subject to taxation in that country due to his or her domicile, residence, place of management, or place of incorporation.

If according to the above definition, an individual taxpayer can be considered as a tax resident of both countries, the taxpayer’s residency status will be determined according to the following rules in order of decreasing priority:

Location of taxpayer’s permanent home.
If an individual has a permanent home in both countries, the location of his or her vital interests (such as family and social relations, political and cultural activities, the place of business and occupations) is taken into account to determine residency;
If the above factors fail to settle the residency status, an individual will be regarded as a resident of the country in which he or she has a habitual abode. It is determined by the frequency, duration, and regularity of stay that are part of the established routine of an individual’s life;
If a person has a habitual abode in both countries or in neither of them, he or she will be considered as a resident of the country of which he or she is a national.

If none of the above rules determines residency, the competent authorities of the countries will settle the question by mutual agreement.

The new DTAA provides greater clarity in relation to the taxable presence definition comparing with the old Convention. In particular, it specifies that a building site, a construction, assembly, or installation project will not create a taxable presence if such site, project, or activities last not more than 12 months.

Regarding the provision of services, a taxable presence will not be created if the services, including consultancy services, are provided within a country by employees for not more than 183 days within any 12 months period.

The Singapore-Thailand DTAA specifies the tax rates applicable to various types of income that flows from one country (Country A) to the second country (Country B). For example, in the case of royalties income, the specified withholding tax rate in the DTAA is 5%, 8% or 10% depending on the type of royalties. This is very beneficial for taxpayers of both countries since the withholding tax rate on royalties in Singapore is 10% and the corresponding tax rate in Thailand is 15%. Provisions like this are designed to encourage cross-border trade and income flows between the two countries.

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

The DTAA defines the country where the income of a resident of either Singapore or Thailand will be subject to tax. This is important because, by default, the country where the income is taxable will determine the tax rate applicable to the taxpayer’s income if those rates are not explicitly specified in the DTAA.

Dividends are traditionally taxed in the country of a recipient's residency. However, in some situations, they may also be taxed in the country of residency of the company that is paying the dividends. In such cases, if the company is a resident of Country A and the beneficial owner of the dividends is a resident of Country B, the dividend tax charged by Country A shall not exceed 10% of the gross amount of the dividends.

Please note that the above provisions will not be applicable if the recipient has a permanent establishment in the source country of the dividends (i.e. Country A) and such dividends are paid for shares of the permanent establishment or are otherwise effectively connected with that establishment. Such dividend income will be treated as business profits or independent personal services and subject to tax treatment in that country (i.e. Country A).

The approach for avoiding double taxation of interest income is similar to that of dividend income. Interest is taxed in the country where the recipient of the interest income resides (i.e. Country B). However, in some cases, such interest may be taxed in the country in which it arises (i.e. Country A). For these situations, the DTA establishes an upper limit as follows. If the beneficial owner of the interest income is a resident of Country B, the tax charged by Country A shall not exceed:

10% of the gross amount of the interest if the interest is beneficially owned by any financial institution or insurance company;
10% of the gross amount of the interest if the interest is paid in relation to indebtedness arising as a result of a sale on credit of any equipment, merchandise or services;
15% of the gross amount of the interest in all other cases.

Without the treaty, the withholding tax rate for interest income paid to non-residents is 15% in Singapore and Thailand.

Notwithstanding the previous paragraph, the Government, the Central Bank, or any other government institution of Country B will be exempt from tax in Country A in respect of the interest income received from Country A.

Generally, royalties are taxed in the country of the recipient's residency, i.e. Country B.

According to the DTAA, royalties can also be taxed in the country where they arise i.e. Country A. If the recipient is a resident of the other country i.e. Country B, the tax so paid to Country A shall not exceed:

5% of the gross amount of the royalties if they are paid for the use of any copyright of literary, artistic, or scientific work;
8% for the use of any patent, trademark, design or model, plan, secret formula or process, or for the use of industrial, commercial, or scientific equipment;
10% of the gross amount of the royalties in all other cases.

These rules are not applicable if the recipient of the royalty has a permanent establishment in the country in which the payer resides (i.e. Country A) and the royalty payment is attributable to that permanent establishment. Such income from royalties will be treated as business profits or independent personal services income in Country A.

Capital gains derived from the sale of immovable property situated in a country are taxed in that country. Likewise, gains from selling movable property that is part of a permanent establishment which an enterprise of Country B has in Country A will be taxed in Country A.

Please note that capital gains received by a resident of a country from the sale of ships or aircraft operated in international traffic shall be taxable only in that country.

Gains received by a resident of Country A from the sale of shares, other than shares traded on a recognized Stock Exchange, deriving at least three-quarters of their value from immovable property situated in Country B may be taxed in Country B.

Finally, capital gains resulting from the sale of any property other than of the type described above shall be taxed in the country where the seller is a resident.

“Permanent establishment” (PE) means a fixed place through which the business of an enterprise is wholly or partly carried on. PE includes a place of management, office, factory, workshop, farm, plantation, and places of extraction of natural resources, such as mines, quarries, oil wells, etc. Any building site or construction, assembly, or installation project constitutes a PE only if it lasts more than 12 months.

In the new DTAA, the definition of the PE was modified and the threshold period for determining the presence of a permanent establishment was lengthened from 6 months to 12 months.

Comparison: Changes in Thailand-Singapore DTAA's Provisions

In 2017, the Double Taxation Agreement (DTAA) between Singapore and Thailand came into effect. Prior to the current DTAA, the tax cooperation between Singapore and Thailand was regulated according to the Convention for the Avoidance of Double Taxation. The Convention was concluded in 1975 and served more than 35 years as an effective fiscal mechanism that prevented double-taxation issues.

The current agreement amends regulations regarding cross-border tax rates, several provisions that were outdated, which helps to improve the commercial relationship between the two countries.

The DTAA aligns the provisions with the model tax imposed by the Organisation for Economic Cooperation and Development (OECD).

Among other changes, the DTAA lengthens the threshold period for determining the presence of a permanent establishment and lowers the withholding tax rates for dividends, interest, and royalties. These amendments were necessary to improve the business environment between Thailand and Singapore.

Type of income or payment

Where it is taxed: the New DTAA

Changes in Provisions

Income from immovable property

Taxed in the state where the property is situated.

There was no change in this provision.

Business profits

Taxed in the country where the company is managed and controlled.

There was no change in this provision.

Permanent establishment profits

Taxed in the country where the PE is situated and carries out its business, but only on the amount attributable to that PE.

A branch profits tax may be also imposed on the after-tax profits of the PE, which shall not exceed 15% of the amount of such profits after deducting income tax.

The DTAA specifies that the tax rate on the disposal of branch remittance profits shall not exceed 10% of the gross amount of the profits.

There was no change in this provision.

Profits from shipping and air transport

Profits received from the operation of aircraft in international traffic by an enterprise that is resident of a country shall be taxable only in that country.

Income or profits received by an enterprise of Country A from the operation of ships in international traffic may be taxed in Country B, but the tax imposed in Country B shall be reduced by 50%.

There was no change in this provision.

Dividends

Taxed in the country where the recipient resides.

The withholding tax on dividends was reduced from 20% to 10% of the gross amount of the dividends.

Interest

Taxed in the country where the recipient resides.

The withholding tax on interest was lowered from 25% to 15% for all recipients except for financial institutions.

Royalties

Taxed in the country where the recipient resides.

The withholding tax rate on royalties was reduced from 15% to 5%, 8%, or 10%, depending on the type of royalties.

Capital gains

Taxed in the country where the property is located.

There was no change in this provision.

Independent personal services

Taxed in the country where the recipient resides unless he has a fixed base regularly available in the other country for the purpose of performing his or her activities, or his or her stay in the other country is for more than 183 days in any 12-month period.

There was no change in this provision.

Dependent personal services

Taxed in the country where the recipient resides unless the employment is exercised in the other country. However, there are some exceptions.

There was no change in this provision.

Directors’ fees

Taxed in the country where the company (paying the directors’ fees) resides.

There was no change in this provision.

Income of artists and sports persons

Taxed in the country where activities are performed.

There was no change in this provision.

Pensions and other similar remuneration (including any annuity)

Taxed in the country where the recipient resides.

There was no change in this provision.

Government services

Taxed by the government of that country unless the individual is a national of the other country where he or she performs the services.

There was no change in this provision.

Payments to students and trainees

Payments that a student or trainee receives for the purpose of his or her maintenance, education, or training are exempt from tax in the country of education if:

A student or trainee is a resident of the other country (Country B).
A student or trainee is present in Country A solely for the purpose of his or her education or training.
Such payments arise from sources outside of the Country A.

There was no change in this provision.

Income that cannot be included in the above-mentioned categories should be taxable only in the country in which it arises.

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FAQs about Thailand-Singapore DTA

If the recipient of the dependent personal services income is a resident of Country B and carries out his services in Country A, the income will be taxable only in Country B if all of the following conditions are met:

The individual resides in Country A for a period less than an aggregate of 183 days for the year of income.
The remuneration is paid by, or on behalf of, an employer who is not a resident of Country A.
The income or profits are not attributable to any permanent establishment in Country A.

The World Customs Organization (WCO) defines an AEO as “a party involved in the international movement of goods in whatever function that has been approved by a national customs administration as complying with WCO or equivalent supply chain security standards.”

Simply put, under the AEO system, the customs authorities set up certain standards, and qualified enterprises that have met those standards will be granted preferential treatment.

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