The Singapore-Thailand Double Tax Agreement
s of 2020, 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 — such as 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.
The Singapore-Thailand DTA that came into effect in 2017 is an important step towards enhanced trade and investment flows between the two countries. It ensures attractive tax treatment for the investors operating across the two countries. This agreement is especially beneficial for numerous corporations that base their management and other back-office functions in Singapore (see how to incorporate a Singapore company) while maintaining their revenue-making operations in Thailand; this is a structure that many multinationals employ in order to leverage Thailand’s vast labor while simultaneously accessing Singapore’s financial services infrastructure.
The following topics are covered in the article:
- Introduction and Background of Singapore-Thailand Relationship
- Singapore’s Bilateral Agreements with Thailand
- Scope of the Double Taxation Agreement
- Key Provisions of the DTA
- Detailed Description of the DTA
- Comparison: The Convention for the Avoidance of Double Taxation (1975) and The Double Taxation Agreement (2017)
The Singapore-Thailand Relationship
Singapore-Thailand relationship is undergirded by strong ties between the governments and is reinforced through broad institutional linkages, 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.
Singapore’s Bilateral Agreements with Thailand
Free Trade Agreement (FTA)
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.
Memorandum of Understanding (MOU)
In 2019, the Monetary Authority of Singapore and Thailand’s Office of Insurance Commission have signed a Memorandum of Understanding (MOU) 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.
Mutual Recognition Arrangement
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 the 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.
Double Tax Agreement (DTA)
In 2017, the Double Taxation Agreement (DTA) between Singapore and Thailand came into effect, replacing the Convention that had been in force for more than thirty years. The current agreement amends several provisions that were outdated and thus improves the commercial relationship between the two countries.
The DTA aligns the provisions with the model tax imposed by the Organisation for Economic Cooperation and Development (OECD).
Among other changes, the DTA 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.
Scope of the Double Taxation Agreement
The Singapore-Thailand Double Tax Agreement (DTA) 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 DTA.
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.
Type of Taxes Covered
- The income tax
- The petroleum income tax
- The income tax
The Singapore-Thailand DTA 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 DTA 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.
The State Where the Income Is Taxed
The DTA also 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 DTA.
Key Provisions of the DTA
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 for dividend income described in the previous section. 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 DTA, 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.
Detailed Descriptions of the DTA
|Types of Income/Payments||Where is the income taxed?|
|Income from immovable property||Taxed in the state where the property is situated.|
|Taxed in the country where the company is managed and controlled.|
|Permanent Establishment Income||Taxed in the country where the PE is situated and carries out its business, but only on the amount attributable to that PE.|
|Branch Profits Remittance||The DTA specifies that the tax rate on the disposal of branch remittance profits shall not exceed 10% of the gross amount of the profits.|
|Taxed in the country where the recipient resides.|
|Taxed in the country where the recipient resides.|
|Royalties||Taxed in the country where the recipient resides.|
|Capital Gains||Taxed in the country where the property is located.|
|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%.
Independent Personal Service
|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 twelve-month period.|
|Dependent Personal Services|
(salaries, wages, and other similar remuneration)
Taxed in the country where the recipient resides unless the employment is exercised in the other country.
However, 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 income or profits are not attributable to any permanent establishmentin Country A.
|Directors’ Fees||Taxed in the country where the company (paying the directors’ fees) resides.|
|Artists & Sportspersons||Taxed in the country where activities are performed.|
|Government Service||Taxed by the government of that country unless the individual is a national of the other country where he or she performs the services.|
Pensions and other similar remuneration (including any annuity)
|Taxed in the country where the recipient resides.|
|Payment to Students and Trainees|
Payments that a student or trainee receives for the purpose of his or her maintenance, education or training are not taxed in the country of education (Country A) if:
|Income that cannot be included in the above-mentioned categories shall be taxable only in the country in which it arises.|
Comparison: The Convention for the Avoidance of Double Taxation (1975) and The Double Taxation Agreement (2017)
Prior to the current DTA, 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 DTA amends regulations regarding cross-border tax rates and further encourages foreign investments. For a comprehensive overview of the key changes that came into effect under the current version of the agreement, please refer to the table below.
Definition of taxable presence
The DTA provides greater clarity in relation to the taxable presence definition. 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.
Withholding tax on dividends
|The withholding tax on dividends is reduced from 20% to 10% of the gross amount of the dividends.|
|Withholding tax on royalties||The withholding tax rate on royalties is reduced from 15% to 5%, 8%, or 10%, depending on the type of royalties.|
Withholding tax on interest payments
|The withholding tax on interest is lowered from 25% to 15% for all recipients except for financial institutions.|
|According to the DTA, the provisions on the taxation of dividends, interest, and royalties specify that a recipient must also be the beneficial owner of the income in order to avail of the benefits of the DTA.|
|The definition of the permanent establishment was modified and the threshold period for determining the presence of a permanent establishment was lengthened from 6 months to 12 months.|
Frequently Asked Questions
Singapore and Thailand actively work together to improve economic relations between the two countries. Several joint projects and agreements — including the Double Tax Avoidance Agreement — execute this by improving collaboration in diverse areas such as trade, investment, cultural, and defense sectors. Both Thailand and Singapore recognize the importance of these bilateral linkages for the maintenance and development of their economies.
Though the DTA provides a detailed description of all income-related provisions, it is always advisable to engage the services of high-quality tax professionals who can offer expert guidance and ensure that all tax issues are managed in compliance with all laws and requirements.
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