Spain-Singapore DTAA: Double Tax Avoidance Agreement
Singapore and Spain share robust and longstanding ties, underpinned by strong trade and flow of investment. They have come a long way since the establishment of diplomatic relations in 1968. Over the years, the countries have substantially deepened their bilateral linkages, with regular exchanges across political and economic spheres.
Today Singapore plays host to more than 200 large Spanish companies, one of the largest concentrations of Spanish businesses in the region. Spanish companies in Singapore are involved in key sectors such as info-comms and technology, energy and chemicals, as well as construction and infrastructure. They have lent their expertise and technological know-how to Singapore, and many have found success in partnering with local companies.
Spain, as a member of the European Union, shares with Singapore many international agreements such as the EU-Singapore Free Trade Agreement, EU-Singapore Investment Protection Agreement, EU-Singapore Partnership and Cooperation Agreement, etc. One of the agreements enhancing Spain-Singapore cooperation in the tax field is the Spain-Singapore Double Tax Treaty, which we will focus on in this article.
Why the Spain-Singapore Double Tax Treaty?
The Spain-Singapore Double Taxation Agreement (DTA) is an agreement between the two states designed to:
- Protect the residents of both countries against double taxation where the same income may be considered taxable in both states
- Provide certainty of treatment for cross-border trade and investment
- Prevent excessive foreign taxation and other forms of discrimination against business interests abroad
Singapore’s DTA with Spain became effective on January 1, 2013. It was Singapore’s 69th DTA, concluded to encourage and facilitate cross-border trade and investment between Singapore and Spain by providing greater clarity on taxing rights and minimizing the scope of double taxation between the two nations. The DTA also includes the internationally agreed standard for the exchange of information for tax purposes upon request.
Scope of the Tax Treaty
Who is covered?
Type of taxes covered
The DTAA covers all taxes on income levied by the relevant tax authorities. It clarifies that taxes on income include all taxes imposed on total income or on elements of income, including taxes on gains from selling movable or immovable property, taxes on total wages or salaries paid by enterprises, and taxes on capital appreciation.
In the case of Spain, the treaty applies to "Spanish tax," namely:
- Income tax on individuals;
- Corporation tax;
- Income tax on non residents; and
- Local taxes on income
For Singapore, the DTA applies to the "Singapore tax," namely:
- Income tax
This agreement also applies to any taxes that may be imposed in addition to or in place of those that currently exist.
How is Tax Residency Defined Under the Treaty?
What Taxes Will I Owe Under the Spain-Singapore Double Tax Avoidance Agreement?
How Spain-Singapore DTAA Avoids Double Taxation?
The main goal of any DTA is to reduce the tax burden on individuals and companies by eliminating the possibility of being taxed twice on the same income. The basic instrument established by the DTA for this purpose is the foreign tax credit. It allows for a tax credit in the country of residence if the income was taxed in the source country.
The foreign tax credit is a tax break that offsets income tax paid to the other country. For example, if you paid S$1000 of Spanish taxes and you are liable to pay S$1500 on that same income in Singapore, your tax credit will be S$1000 and you will have to pay only S$500 in Singapore.
In Which Country Will the Income be Taxed?
Type of income or payment
Where it is taxed
Income from immovable property
Permanent Establishment profits
Profits from shipping and air transport
Salaries and wages
Income of artists and sports persons
Payments to students and trainees
Protect Your Income From Excessive Taxation
Today Spain is a strong economic partner to Singapore, with bilateral trade amounting to S$2 billion yearly. There are more than 200 large international Spanish companies in Singapore, and many of them use Singapore as a gateway to the ASEAN region.
A significant step forward in bilateral relations was made when the EU-Singapore FTA was signed. Another important legal instrument enhancing business relations between Spain and Singapore is a DTA that became effective in 2013. Like every other DTA Singapore has entered into, its agreement with Spain contains information on how tax residency is established, with the purpose of avoiding a levy of similar taxes on taxpayers with activities in both countries.
You can find the full text of the Singapore-Spain DTA. If you are an investor from Spain who needs information about how the DTA can influence the way your income is taxed, or if you would like to incorporate a Singapore company, please contact us in Singapore.