The Singapore-Ukraine Double Tax Treaty
Bilateral economic ties between Singapore and Ukraine have strengthened in recent years; the recent official visit of the Minister of Foreign Affairs of Ukraine to Singapore is a vivid validation of this trend. The two countries are exploring opportunities for sharing knowledge, cross-learning, and deeper integration in areas of economic development, business regulations, science, and technology. With these objectives in mind, the Singapore-Ukraine Double Tax Treaty has been designed to facilitate trade and investment between the two countries.
This article will highlight the important provisions of the Singapore-Ukraine DTA, its tax applicability, tax rates, scope, and the other advantages of this DTA.
Double taxation occurs when the same income or capital is taxed by two countries because the relevant funds flow through the financial systems of both countries. Such double taxation is disadvantageous to the taxpayer and therefore act as a disadvantage to cross-border transactions. Double tax treaties (DTTs) are an important policy tool to prevent such double taxation and they provide relief from double taxation and prevent (or minimize) other forms of tax discrimination and tax obstacles to cross-border trade and investment between the two countries.
Singapore and Ukraine signed a Double Tax Avoidance Treaty on 26 January 2007 and the agreement came into force in 2010. In addition, the two countries have signed the Multilateral Instrument to Prevent Base Erosion and Profit Shifting (also called the MLI), which affects withholding tax covered by the double tax treaty on payments made after 1 January 2020.
Furthermore, on 4 March 2020, the DTA Protocol was implemented to amend the treaty and bring it in line with OECD standards for information exchange. These amendments are designed to help the two countries accurately monitor income flows between them and enforce their tax rules.
The information presented in this article comprehensively emcompasses rules established by all of the above agreements.
The article is structured as follows:
Scope of the Agreement
The Singapore-Ukraine DTA applies to all residents (individuals and legal entities) of one or both countries. Therefore, if you are a resident of Singapore, Ukraine, 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 liable for tax 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 country, the taxpayer’s residency status will be determined in accordance with the following rules in order of priority:
- Location of the permanent home.
- If an individual has a permanent home available in both countries, the location of his or her vital interests (personal and economic relations) is taken into account to determine residency;
- In case above factors fail to determine the residency status, an individual will be regarded as a resident of the country in which he or she has a habitual abode;
- 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 individual income tax
- The tax on profits of enterprises
- The income tax
The Singapore-Ukraine 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 7.5%. This can be an advantageous provision since the rates specified in the DTA are often lower than the prevailing tax rates of either country (for example, the withholding tax rate on royalties in Singapore is 10% and the corresponding tax rate in Ukraine is 15%).
The State Where the Income Is Taxed
The DTA also defines the country where the income of a resident of either Singapore or Ukraine will be subject to tax. This determination has paramount importance 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 specified in the DTA.
Key Provisions for Various Types of Income
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.
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 shall be charged by country B and it shall not exceed:
- 5% of the gross amount of the dividends if the recipient is a company which owns directly at least 20% of the capital of the company paying the dividends;
- 15% of the gross amount of the dividends in all other cases.
However, if the beneficial owner of the dividends is the Government, the Central Bank, or any other government institution of Country B then the dividends paid by a company which is a resident of Country A shall be taxable only in Country B. This provision overrides the other rules described above.
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 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 above. Interest is taxed in the country where the recipient of the interest income resides (i.e. Country B). However, such interest may be taxed in the country in which it arises (i.e. Country A).
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. Without the treaty, the withholding tax rate for interest income paid to non-residents is 15% in Singapore and Ukraine. Under the DTA, the withholding tax on interest in both countries is only 10%.
Without regards to the previous paragraph, interest paid by a company which is a resident of Country A shall be taxable only in Country B if the beneficial owner of the interest income is the Government, the Central Bank, or any other government institution of Country B.
Royalties are payments to owners of property for use of that property over a specific period of time. Royalties usually involve payments for the right to use intellectual property — such as copyrights, patents, and trademarks. As a general rule, 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 7.5% of the gross amount of the royalties. Without the treaty, the withholding tax rate on royalties paid to non-residents in Singapore is 10% while in Ukraine, the tax rate is 15%.
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.
By and large, capital gains derived from the alienation of immovable property situated in a country are taxed in that country. Therefore, gains from selling movable property that is part of a permanent establishment which an enterprise of Country B has in Country A may be taxed in Country A.
Please take into consideration that capital gains derived by an enterprise of a country from the sale of ships or aircraft operated in international traffic shall be taxable only in that country.
Finally, capital gains acquired from selling any property other than described above, shall be taxed in the country where the seller is resident.
Elimination of Double Taxation
The Singapore-Ukraine Double Tax Treaty aims to prevent the burden of double taxation by providing specific tax reliefs in one or both countries.
If a resident of Ukraine receives income which may be taxed in Singapore, Ukraine will allow a deduction from the tax due on the income of that resident in the amount equal to the tax paid in Singapore. However, such deduction shall not exceed the local country’s tax as computed before the deduction; in other words, the taxpayer can not have a net negative tax.
If a resident of Singapore receives income from Ukraine which may have been taxed in Ukraine, Singapore shall allow the Ukrainian tax paid, whether directly or by deduction, as a credit against similar local Singaporean tax.
In case of the dividend paid by a Ukraine-resident company to a Singapore company that owns 10% or more of the share capital of the Ukrainian company, the credit shall take into account the amount of the Ukrainian tax paid by that company on the portion of its profits out of which the dividend is paid.
Detailed Provisions of the DTA
|Types of income or payments||Where is the income taxed?|
|Income From Immovable Property||Taxed in the country where the property is situated.|
|Treatment of Associated Enterprises||If Country A taxes a resident enterprise on profits, on which an associated enterprise of Country B has been subject to tax in Country B, Country B shall make appropriate adjustment to the amount of the tax charged on such profits.|
|Business Profits||Taxed in the country where the company is managed and controlled.|
|Permanent Establishment (PE) Income||Taxed in the country where the PE is situated and carries out its business, but only on the amount attributable to that PE.|
|Dividends||Taxed in the country where the recipient resides.|
|Interest||Taxed in the country where the recipient resides.|
|Royalties||Taxed in the country where the recipient resides.|
|Taxed in the country where the property is located.|
|Shipping, Air and Road Transport||Profits derived from the operation of ships and aircraft in international traffic by an enterprise that is resident of a country, shall be taxable only in that country.|
|Technical Fees||Taxed in the country from which the fees are derived. The tax shall not exceed 5% of the gross amount of the technical fees.|
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, there are some exceptions as described in the note below this table.|
|Directors’ Fees||Taxed in the country where the company (paying the directors’ fees) resides.|
|Artists & Sportsmen||Taxed in the country where activities are performed.|
|Government Service||Taxed by the government of that country unless the individual is a resident 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:
|Other Income||Income (wherever arising) that cannot be included in the above-mentioned categories shall be taxable only in the country where the recipient resides.|
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.
Protocol Amending the Agreement Between Singapore and Ukraine
In recent years, tax authorities of the two countries have become more active in their collaboration with their counterparts in order to gather information on cross-border transactions and the counterparties of such transactions in order to ensure that the transactions represent genuine economic activity and are not designed merely to evade taxes. For this purpose, in 2019 the Governments of Ukraine and Singapore signed the Protocol amending the Double Tax Treaty between the two countries.
The Protocol amends the Exchange of Information Article in order to align it with existing internationally-agreed standard on exchange of information on request. In particular, the document adds provisions that prohibit the tax authorities from rejecting an information request from their foreign colleagues without a sound reason for such rejection. This change strengthens tax cooperation between the two countries.
On 4 March 2020, this amendment to the Ukraine-Singapore agreement on avoidance of double taxation was entered into force.
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