Understanding The Singapore-France Double Tax Treaty
Connecting two economic powerhouses. Considered to be the gateway to the European Union (EU), as well as neighbouring Africa and Middle East, France is a key market for any Singapore business hoping to expand out of ASEAN. Its membership in the EU gives you instance access to 500 million potential customers with enormous purchasing power, and offers excellent support for businesses hoping to enter the European market. The EU is the holder of a considerable proportion of investments from the world’s emerging economies, and is also the world’s leading overall recipient of foreign investment.
France itself boasts the second largest economy on the continent, the fourth highest total cumulative FDI inflow in the world ($963.8 billion, behind the US, China and the UK) and a reputation as one of the region’s most popular destinations for the establishment of foreign financial firms. Its capital city, Paris, is a leading global asset management hub, and port cites Le Havre and Marseille rank in the top ten ports on the continent. Air freight is made easy and convenient by the presence of Charles de Gaulle Airport in Paris, which is the second largest European passenger airport and the largest cargo hub on the continent. Backed by an exceptional road, traditional rail and high-speed rail network (the second best in Europe), its world-leading logistics infrastructure gives business-owners – specifically exporters – numerous roads into and out of the rest of Europe. After recovering well from the Global Financial Crisis – in part aided by growing demand from the United States and the United Kingdom – the French economy is growing consistently and offers fertile soil for entrepreneurs looking to get their business off to a great start.
France and Singapore’s economic relationship
The economic and trade ties between France and Singapore a bilaterally beneficial. Singapore is France’s largest trading partner in the Association of Southeast Asian Nations (ASEAN), while France is the second largest trading partner in the European Union to Singapore. Additionally, Singapore has a proven track record for supporting French enterprise, with some of the largest French companies choosing to build their regional headquarters here, including Remy Cointreau International, Michelin and Renault. Singapore is also home to the greatest concentration of French companies in the region, providing a readymade business network for French entrepreneurs, and is the leading recipient of French investment in Asia barring Japan.
The benefits offered to French entrepreneurs are only set to grow upon ratification of the EU-Singapore Free Trade Agreement, growing the number and depth of mutual economic engagements between our nations. Both Singapore and France offer the requisite location, capital and logistical support to serve as springboards for businesses and investors targeting ASEAN and the European Union respectively. The Avoidance of Double Tax Treaty described here ensures that individuals and companies resident in one jurisdiction and deriving income from the other are protected from double taxation through the provision of competitive withholding tax rates, generous foreign tax credits and other tax benefits.
The contents of the Singapore-France DTA
This agreement was concluded on 9 September 1974 between the French Republic and the Government of Singapore, came into force on 1 August 1975 and carries an effective date of 1 January 1971.
|Nature of Income||Normal Withholding Tax France||Normal Withholding Tax Singapore||Treaty Rate|
|Dividends||30%||Nil||5% or 15%|
|Royalties||33.33%||10%||10% or 33.33%|
Scope and affected parties
Only persons who are residents for tax purposes of Singapore and/or France (the ‘Contracting States’) shall be covered by this double taxation agreement. ‘Persons’ here is used to refer to an individual natural person, or a company or any other body or organisation of persons, who are treated by either jurisdiction as an entity for the purposes of taxation. The DTA’s provisions are to be applied on all taxes imposed on behalf of either Contacting State on total income or on elements of income, such as taxes on the total amount of salaries or wages, or gains made from the alienation of immovable or movable property.
In both Contacting States, the DTA covers income tax. Additionally, in France, provisions apply to corporation tax, and will also cover withholding tax as well as prepayments related to income or corporation tax.
Defining ‘a resident of a Contracting State’
When used, this term refers to any person liable for the payment of tax to a contracting state’s tax authority by reason of their residence, domicile place of control, management or head or main office, or other similar qualifying condition.
Where an individual is resident in both countries, their tax residency is to be determined based on the location of his permanent home. Should they possess a permanent home in either both or neither Contracting State, their centre of vital interest is to be used to determine their tax residency. Should this additional step fail to determine their tax residency, habitual abode, then nationality will be considered? Should none of these steps aid in determining the tax residency of the individual, mutual agreement between the Contracting States will be the determiner.
The tax authorities of the Contracting States will determine the tax residency of a person who is not an individual who is resident in both Contracting States through a mutual agreement that takes into account all relevant factors.
Permanent establishment’ (PE) refers to the fixed place of business through the enterprise partly or wholly carries on its trade or business. This can be used to refer to any workshop, factory, office, farm, plantation, installation including drilling rigs, or a place where natural resources are extracted such as oil wells, mines, quarries, et cetera.
The following restrictions and exclusions apply to Permanent Establishments:
- Only where the relevant operations last longer than six months does a building site or installation/assembly/construction project qualify
- Where they are carried on for more than six months, supervisory activities by an enterprise of a Contracting State in connection with a building site or installation/assembly/construction project will constitute a PE.
- When used for the storage of goods for the purpose of display, processing or delivery, or other related purposes, storage facilities do not constitute a PE
- Similarly, the maintenance of a fixed facility for the sole purpose of carrying out auxiliary or preparatory activities will not constitute a PE.
- Carrying out business in a Contracting State via the engagement of a broker, general commission agent or any other independent agent shall not constitute a PE.
- Where the aforementioned agent acts on behalf of an enterprise and habitually exercises a granted authority on behalf of the enterprise to secure orders, maintain and deliver stocks of goods or conclude contracts, or their activities of are almost wholly or wholly on behalf of and for the benefit of the enterprise, then shall they be determined to be a PE.
- Should the agent’s activities be deemed auxiliary in nature, they will not qualify for PE status.
- Any resident company of a Contacting State controlled or being controlled by a resident company of the other contracting state shall not make either company a PE of the other.
Where dividends have been paid by a resident company of one Contracting State to a resident of the other, this income is eligible for taxation in the other State (the point it was received). That said, the dividend may be eligible for taxation in the State in which the paying company was resident. Should this occur, the tax charged at the point the income was derived shall not exceed either:
- 5 per cent of the gross dividend amount where the recipient is a company who directly owns a minimum of 10 per cent of the capital of the company paying the dividend;
- 15 per cent of the gross amount in all other cases
This provision does not apply should the recipient have a PE in the Contracting State of which the company responsible for payment of the dividends is resident and the dividend is effectively connected to that PE. In these cases, income from dividends will be regarded as Business Profit and corporate income tax applied appropriately. Additionally, the DTA makes provision that these profits may be subjected therein to any withholding tax applied by the law of the other Contracting State providing that such tax does not exceed 15 per cent of one-third of the PE’s profits after corporation tax is paid on same profits.
Where interest arises in a Contracting State and the recipient of the payments is resident in the other Contracting State, the income may be taxed in that other State. Interest is also eligible for taxation in the Contracting State in which the income arises should the recipient be a beneficial owner of the interest. This tax is not to exceed 10 per cent of the gross amount of the interest.
Where the Government and specified government bodies of a Contracting State derive interest in the other State, they are to be exempt from taxation.
Interest paid to a resident of a Contracting State that arose in the other Contracting State from loans and debentures made to an enterprise engaged in an industrial undertaking in that other State is exempt from tax in the second-mentioned Contracting State.
Industrial undertaking shall include any manufacturing, processing, construction or civil engineer, ship-building, docking & breaking, water and energy supply, assembling, mineral and mining works, agricultural, plantation, forestry or fishery, or any other operation as approved by the competent relevant authority.
The aforementioned provisions are not to apply where the beneficial owner is in possession of a fixed base or Permanent Establishment in the same Contracting State in which the payer of the income is resident, and where the interest paid is effectively in connection to the same PE or fixed base.
Similarly, should interest arise in the Contracting State where the payer is resident, the aforementioned provisions will not be applicable. If the payer of the income has a PE in the same Contracting State in which the beneficial owner is resident, and the income is to be paid in connection with indebtedness linked to that PE, the interest is to be regarded as arising in the other State.
Where the amount that would otherwise be paid is lesser than the amount of interest paid, then the treaty’s provisions shall only apply to the amount that would otherwise be paid. Excess amounts are to be taxed according to tax authority of each Contracting State.
In the absence of a relevant double taxation agreement, foreigners who receive interest from a tax resident of Singapore are eligible for a 15 per cent withholding tax. Please note that France does not levy withholding tax on any interest paid to non-residents.
Where a royalty arises in a Contracting State and the recipient of the income resides in the other Contracting State, the income is to be taxed in the second-mentioned State. Royalties are defined as payments received as remuneration for the right to use or the use of any trade mark, copyright payment, design or model, plan or artistic, literary or scientific work including tapes and cinematograph films for broadcasting or television, etc.
Royalties arise in a Contracting State where any such aforementioned property has been used.
However, a Contracting State has the right to taxes on royalties paid for the right to use or the use of a literary or artistic work’s copyright, including copyrights for cinematographic films, television or radio tapes, or for information resulting from commercial experience where the royalties arose in the same Contracting State.
Should a special relationship exist between the payer and the person deriving the royalties, and the amount of royalties paid is greater than the amount that would have otherwise been paid in the absence of that special relationship, then the provision of the DTA is only to apply to the amount that would otherwise have been paid. Excess amounts are eligible for taxation according to the tax authority of each Contracting State.
Should the recipient of the royalty have a fixed base or PE in the same Contracting State in which the payer of the royalty is resident, and should the royalty payment be effectively connected with the aforementioned fixed base or PE, then the provisions of the DTA are not to apply.
Taxing capital gains
The Contracting State in which a piece of immovable property is located may tax any gains made from the alienation of that property. A Contracting State may tax gains made from the alienation of movable property connected to a fixed base or PE – or the fixed base or PE itself – within the same State, even where the gains are derived by a tax resident of the other Contracting State.
Where gains have been derived by a resident of a Contracting State from the alienation of aircraft or ships operated in international waters by an enterprise of the same State, or movable property relating to the operation of the same, those gains are only taxable in that Contracting State.
Broadly, gains from the alienation of assets or property not explicitly covered under this provisions are eligible for taxation in the state in which the alienator is a tax resident. However, they may be eligible for tax should these assets or property be used in the other Contracting State.
The Contracting State in which the relevant property is located shall have taxation jurisdiction over any sale or exchange of comparable interests or shares in any real property cooperative or any company whose principal assets are real property.
France treats capital gains as ordinary income and French corporate income tax makes provision for the taxation of capital gains. Singapore does not tax capital gains.
A Contracting State shall have sole rights to tax the business profits of an enterprise resident in that State, except where the enterprise is engaged in business in the other contracting state through a Permanent Establishment. The other Contacting State may only tax profit that can be effectively attributed to the PE.
When determining a PE’s profits, the PE shall be allowed to claim all expense and deductions reasonably attributable to it, and deductible as if it were an independent enterprise. The PE is to be treated as a separate and independent enterprise engaged in the same or similar activities as the controlling enterprise and under the same or similar conditions.
Where a PE purchase goods or merchandise for the controlling enterprise, that purchase shall not render profits attributable to the PE.
‘Associated enterprises’ refers to a situation wherein an enterprise or person involved in an enterprise in a Contracting State are simultaneously participating directly or indirectly in the control, capital or management of another enterprise in the other Contacting State,
Being associated enterprises, the terms and conditions for inter-corporate operations and transactions will differ from those agreed to between independent enterprises. This will affect the income and profitability of the companies.
In the circumstances, the double taxation agreement makes provision that the Contracting States may deem a taxable income for the associated enterprises that they would have otherwise accrued were they independent. This new income will be taxed accordingly.
Profits that would have arisen were the two enterprises not associated are to be included in the profits of the enterprise and tax is to be charged on these profits.
Income from air & shipping transport
Where an enterprise derives profits from the operation of ships and aircraft in international traffic, its profits shall only be taxable in the Contracting State in which it is resident.
These provisions also cover the share of income derived from the operation of ships and aircraft in international traffic by an enterprise of a Contracting State via its participation in a joint business, international operating agency or a pool.
Income from property
A Contracting State may tax income derived by the resident of the other Contracting State on immovable property located in the first-mentioned Contracting State. This provision also covers income from immovable property used for the provision of independent personal services and immovable property owned by an enterprise.
The double tax agreement also covers income derived from the letting, direct use or use in any other form of the immovable property. ‘Immovable property’ here comprises properties defined by the law of the Contracting State in which the property is located. The term includes rights to fixed or variable payments as consideration for rights to variable or fixed payments as consideration for the right to work or working of sources of natural resources and mineral deposits.
Unless the employment from which the payment is derived is exercised in the other Contracting State, all salaries, wages and any other similar remuneration derived by tax resident of a Contracting State are to be taxed only in the second-mentioned State. Where the employment is exercised in the other Contracting State, the other State may tax the resulting remuneration. That said, even where the employment is exercised in the other Contracting State, the person deriving the income shall be subjected to taxation only in the Contracting State in which they are resident should:
- the recipient spends aggregate 183 days or fewer in the relevant calendar year in the other Contracting State in an unlimited number of individual periods; and
- an employer resident in the State in which the recipient is resident pays their remuneration or someone acting on the employer’s behalf pays their remuneration; and
- the remuneration is not borne by a PE which the employer has in the other state
Where a resident of a Contracting State derives a director’s fee or any other similar payments resulting from their functioning as a member of the board of directors of an enterprise resident in the other Contracting State, those fees are to be taxed in the other State.
Sportspeople and artists
Where a resident of a Contracting State derives income from personal activities exercised in the other Contracting State as an entertainer, e.g. in theatre, motion pictures, radio or television, or as an athlete or musician, the resulting income may be taxed in the other State. This provision shall not apply where the work exercised in the other Contracting State was substantially supported by a political subdivision, local authority, statutory body or through public funds of the government of the other Contracting State.
A resident of a Contracting State deriving income from an annuity or pension from the other Contracting State shall only be taxed on that income in the first-mentioned State.
Researches, teachers and professors
Any individual resident in a Contracting State who on invitation travels to the other Contracting State for no longer than two years for the sole purpose of researching or teaching at any educational institution existing primarily for research purposes such as a university, college or school, or any other similar public institution located in the other Contracting State, may claim exemption from tax in that other State on any remuneration paid for research or teaching at that institution.
Where a resident of a Contracting State is temporarily present in the other Contracting State as a student at a recognised university or other educational institution, or as a business apprentice, or acting as the recipient of an allowance, award or grant from any religious, charitable, government or other similar organisation, they shall be exempt from taxation by the other Contracting State on all grants and remittances received from overseas, and on any remuneration provided in respect of services provided in that other State, as long as the services were performed for the purpose of supplementing the resources available to the resident for their maintenance.
Similarly, a resident of a Contracting State temporarily present in the other Contracting State for no longer than three years for the sole purpose of studying, researching or training as the recipient of any allowance, award or grant provided by an educational, scientific, religious or charitable organisation, or through a technical assistance program entered into by either Contracting State shall be exempt from taxation on income derived from remunerations, grants and allowances in the other State.
A resident of a Contracting State visiting the other Contracting State as an employee or contractor of the second-mentioned Contracting State or any enterprise thereof for a period no greater than twelve months for the purpose of acquiring professional, technical or business experience is to be exempt from taxation by the other Contracting State on any remittance or remuneration received.
Measures to eliminate double taxation
This agreement provides relief for residents of the Contracting States from double taxation where income is subject to taxation in both States.
For Singapore residents, French tax payable on income derived from a French source shall be permitted as a credit against any Singapore tax payable on income derived from a French source. This credit is not to exceed the value of the Singapore tax chargeable, as calculated prior to granting the credit. When considering dividend income derived by a Singapore resident from a French company, where they directly or indirectly own a 10 per cent share in the paying company, the Singapore tax authority is to take into account any French corporate tax payable by the company with regards to the income out of which the dividend is to be paid. Likewise, the credit shall not exceed the value of the Singapore tax chargeable, as calculated before the credit was granted.
For French residents, any Singapore sourced income other than interests, director’s fees, dividends, royalties and the earnings of entertainers, athletes and artists is to be exempt from French taxation. The French tax authority retains the right to consider the items of income thus included when determining the resident’s tax rate.
Credits are permitted against any French tax for Singapore tax payable on income derived from Singapore in respect of dividends, director’s fees, royalties, interest and incomes of athletes and artists. A French resident receiving a dividend payment must own at least a 10 per cent share in the Singapore company paying the dividend to qualify for credit.
Upon ratification of the Free Trade Agreement between the European Union and Singapore and with the establishment of the ASEAN Community, the rate of bilateral trade and investments will accelerate. With both France and Singapore possessing the strategic location and infrastructure to facilitate vital external links to their respective unified markets. The double taxation agreement between the two countries provides further confidence for potential traders and investors and is expected to further catalyse transactions of the two communities.
For details on the specific provisions of the tax treaty, please refer to documentation on the IRAS website.
For a broad overview of Singapore’s double taxation agreements, please refer to Ottavia’s our Double Taxation Agreements (DTA) Guide.