UK-Singapore DTAA: Double Tax Avoidance Agreement
This article covers the following topics:
What Is the DTAA between Australia and Singapore?
The Avoidance of Double Taxation Agreement (DTAA) is an agreement between two countries which aims to eliminate the double taxation of the same income in the two countries.
The DTAA between Singapore and United Kingdom (UK) came into force in 1998 for income and corporate taxes; and in 1999 for capital gains taxes. Certain amendments were made to the treaty in 2009 for the exchange of tax information, and in 2012 for capital gains and corporate tax rates related provision, and in 2018 for prevention of treaty abuse and arbitration procedure between states.
The two main aspects of the UK-Singapore DTAA are the taxability of business profits and income from sources such as interest, royalties, dividends, and other income.
For businesses, the DTAA provides tax relief on circumstances where the enterprise is taxed on the business profits arising in both the contracting states. With respect to the other common types of income such as interest, royalty, dividend etc, the DTAA provides a reduced tax rate in comparison to the prevailing tax rates in the contracting state.
Scope of UK-Singapore DTAA
What Taxes Will I Owe Under the UK-Singapore Double Tax Agreement?
Double Tax Avoidance Agreement at a Glance
Type of income or payment
Where it is taxed
Income from immovable property
Profits from shipping and air transport
Independent personal services
Dependent personal services
Income of artists and sports persons
Payments to students and trainees
Advantages of the UK-Singapore DTAA
The DTAA provides tax relief to residents of countries that enter into an agreement with each other. The tax relief arises in circumstances where income would otherwise be subject to tax in both the contracting states.
Any tax payable according to the laws of Singapore on the profits, income or gain a person derives from sources within Singapore is allowed as a credit against the tax that the UK may levy on the same profit, income, or gain. Similarly, the tax payable in the UK on such profits, income, or gains will also be allowed as a credit against the Singapore tax that Singapore levies on the same profit, income, or gain.
Here is an example of claiming the tax credit relief in the UK:
Sally receives £100 as foreign interest from a Singapore-based bank. The tax deducted on the interest is £15. In the UK, the tax on foreign interest is £20. The amount of Foreign Tax Credit Relief (FTCR) that a person can claim is £15. In the UK, when a person claims FTCR, the amount a person can claim will be the lesser of the following:
- The foreign tax amount or tax rate according to the treaty and
- The amount of tax according to the UK tax laws.
In the same situation, if there was no DTAA between Singapore and UK, the tax amount that Sally would have to pay on the foreign interest would be £15+ £20 = £35.
Thus, the DTAA is beneficial as it avoids the double taxation of the same income that arises in both the contracting states. In the absence of a DTAA, the tax-payer would end up paying tax twice – once in Singapore and once in the UK. Not only does a DTAA eliminate this double taxation, but often the DTAA’s provide for reduced tax rates in order to promote trade and commerce between the contracting countries.
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