In order to push the economies and strengthen the partnership, Singapore and Australia have both signed a Tax Treaty Agreement for Avoidance of Double Taxation (DTA). Its main purpose is to prevent the income from being taxed twice when flowing from one country to the other. Moreover, for some specific types of income, DTA offers reduced rates of tax, which brings significant benefits to taxpayers or businesses in both nations.
1. Introduction to the Singapore-Australia DTA
Before diving into the key provisions of the tax treaty between Singapore and Australia, it is necessary for you to go through an overall review of this DTA.
The Agreement shall apply to residents of both Contracting States, which are Singapore and Australia. The word “resident” means any company and person who is resident in either the countries.
The DTA covers the following types of tax:
- The income tax in Singapore
- The income tax and the petroleum resource rent tax in offshore projects in Australia (under the federal law of the Commonwealth of Australia)
A permanent establishment of an enterprise is the fixed place through which that enterprise partly or wholly operates its business activities. It can be a place of management, branches, offices, factories, etc.
An enterprise is considered to have a permanent establishment in the other Contracting State if:
- It has carried on supervisory activities for a period of total more than 6 months within a 12 month period in relation to that permanent establishment; or
- Significant equipment has been used in that other state by, for or under contract with the enterprise.
2. Key Provisions of The Double Tax Agreement Between Australia and Singapore
This section will cover some of the most important points of the DTA – tax treaty for certain income types under both Contracting States, including real estate income, profits, dividends, interest, royalties, and other types of income.
For the in-depth information, you can check the official document here.
2.1. Real Estate
Income generated from real property may be taxed in the country where that property is located. Real property includes
- Lease of a land;
- Right to receive payments for natural-resource exploitation;
- Property of an enterprise;
- Property used for professional services.
Profits of an enterprise are only taxed in the Contracting State where it is situated. If an enterprise has a permanent establishment in the other state and runs business through it, then the enterprise shall also be taxed in the other state.
However, the profits that are subjected to tax in the other state shall only be limited to the profits generated from the permanent establishment. In the determination of the profits of a permanent establishment, it is allowed to have expenses deduction if that permanent establishment is an independent entity and paid those expenses.
Likewise, profits from the operation of ships or aircraft received by a resident in one Contracting State is taxable only in that State. If such profits are generated from ship or aircraft operations solely in the other State, it shall be taxed in that other State.
A resident in Singapore who receives dividends from a resident company in Australia shall not be taxed more than 15% of the gross dividend amount in Australia.
Meanwhile, a resident in Australia who receives dividends from a resident company in Singapore or a Malaysian company having a profit source in Singapore shall be exempt from any dividend tax in Singapore.
DTA puts a cap on tax on interests in the country from which the interest income is generated. To be specific, a resident in one Contracting State who receives interest from the other State shall not be taxed more than 10% of the gross interest payment. The interest in this DTA includes interest coming from bonds, securities, debentures or any other form of indebtedness.
Nevertheless, if a resident in one Contracting State who receives interest from the other State has a permanent establishment in that other State and the received interest is connected to that permanent establishment, then that interest shall be considered as profits generated from the permanent establishment and it shall be taxed accordingly as profits.
Same as interest, income from royalties is imposed with a favorable tax rate thanks to the DTA. Particularly, a resident in one Contracting State who receives royalties from the other State shall only be taxed at the 10% rate or less of the gross payment for royalties.
Similarly, if a resident in one Contracting State who receives royalties from the other State has a permanent establishment in that other State and the received royalties are connected to that permanent establishment, then the income from such royalties shall be considered as profits generated from the permanent establishment and it shall be taxed accordingly as profits.
Remuneration or payment for personal services is only taxable in the Contracting State where an individual is a resident of that Contracting State. Remuneration is also taxed in the other Contracting State only if the services are performed in that other Contracting State. However, in case of an individual in one Contracting State exercising service in the other State, there are circumstances under which that person can be exempted from tax in that other State (the followings do not apply to public entertainers):
- The presence of that individual is less than 183 days in that other State
- The service is exercised for or on behalf of a person who is a resident of the first-mentioned State (not the other State where the service is performed)
- The remuneration of that individual is not deductible when determining the profits of a permanent establishment in that other State
In addition, remuneration or income, which is received in one Contracting State from the other State, from employment exercised on ships or aircraft in international traffic is also exempted from tax.
3. Key Takeaways
All in all, Singapore and Australia tax treaty states that:
- Income from real property is taxed in the State where the property is situated.
- Profits of a business are taxed only in the State in which the enterprise is present unless it has a permanent establishment in the other State.
- Dividend tax rate is 15% or less of the gross amount of dividends when a Singapore resident receives dividends from an Australia-resident company. Meanwhile, an Australia resident receiving dividends from a Singapore-resident company is exempt from Singapore dividend tax.
- Interest and royalties are taxed in the state where they arise with a 10% rate or less.
- Remuneration for personal services is taxed both in one State where a person is a resident and in the other State where the services are carried out. In case of these services are performed in the other State, the tax exemption can be allowed but under specific circumstances.
Should you want to read other tax treaties in Singapore, contact us if you have any further questions!