Understanding the Singapore-Australia Double Tax Treaty
Since 2010, tax residents of both Australia and Singapore have benefitted from an agreement struck between the two country’s governments that protects them from double taxation of income. This comprehensive bilateral tax treaty was signed on the 8th of September 2009, and entered into force on and was effective from the 22nd of December 2010. This guide is ordered by income source and type.
Specifics of the DTA
The table below provides a brief summary of the salient features of the agreement.
|Scope of DTA
||Australia tax residents & Singapore tax residents.
|Taxes covered by the DTA
||Income tax & petroleum resource rent tax in respect of offshore projects.
|Real Estate Income
||Taxed in the country where the property is located.
||Eligible for tax in the country where the enterprise is present.
||Taxed in the operator’s country of residence.
||– 15 per cent Australian tax on gross dividend income received by Singapore-resident shareholders from an Australian company
– Exemption from Singapore taxation for dividends received by Australian-resident shareholders from a Singapore company.
||Taxed at a concessionary rate of 10 per cent in the jurisdiction in which the interest income arises.
||A reduced taxation rate of 10% is provided in the country in which the royalty income arises.
|Personal/Professional Services Income
||Taxed in the country in which services are performed. Tax payers may be eligible for exemptions per their meeting certain conditions (see below).
|Pension & Annuity
||Taxed in the recipient’s country of residence.
||Remuneration of government officials is to be taxed by the relevant government unless in cases where the official is a permanent resident or citizen of the country in which their services are performed.
|Student Trainee payments
||Overseas payments made to visiting students for their education, training or maintenance are exempt from tax in the country in which they are pursuing their education.
Scope of the agreement
Tax residents of Australia and Singapore are covered by the Double Tax Agreement.
Taxes covered under the agreement
- Singapore Income Tax
- Australian Income Tax and petroleum resource rent tax (in respect of offshore petroleum projects)
Defining Permanent Establishment
A permanent establishment refers to a fixed, defined place of business, through and at which the business of an enterprise is either partly or wholly carried on. This normally refers to a place of management, an office, a branch, a workshop, a factory, a place where natural resources are extracted, et cetera.
Income derived from real estate property is eligible for taxation in the country where the property is located. Real estate property includes:
- A lease of land;
- Any other interest in land, including a right to exploit or explore for natural resources including minerals, oil or gas deposits or to receive fixed or variable payments as consideration for the same in addition to quarries or any other place of natural resource extraction.
- Income from real estate property owned by an enterprise or is used for performing professional services
An enterprises’ profits are only taxable in the country in which the enterprise resides. Should the enterprise carry out business in the contracting company through the use of a permanent establishment situated in the contracting country, that enterprise is then additionally liable for taxation in the contracting country. Please note that tax liability in the contracting country is limited to profits derived by the permanent establishment in the contracting country.
Airline or Shipping Activities
- Profits derived by a resident of a contracting company through the operation of aircraft or ships are eligible for taxation in the country in which the operator is resident only.
- Notwithstanding the above, profits derived from the operation of aircraft or ships solely in the jurisdiction of the other contracting country are liable for tax in that country (the source country).
- Profits resulting from airline or shipping include:
- Income derived through the entity’s participation in a pool service, international operating agency or joint transport operating organisation.
- Interest earned on funds held by a resident of one of the contracting countries in the other contracting country connected with the operation of aircraft or ships. This operation must be separate to operations confined solely to places in former country.
- Income derived from the carrying of passengers, goods, merchandise, livestock or mail via ship or aircraft in one of the contracting countries for discharge in another place in the same, or at one or more structures situated in waters adjacent to the territorial waters of that contracting country connected to the exploitation or exploration of natural resources. This income shall be treated as profits derived from operations confined solely to places in that contracting country.
- Singapore-resident shareholders who are recipients of dividend payments from a company resident in Australia are liable for Australian taxation at a concessionary rate of 15 per cent on the gross dividend income amount.
- Australian-resident shareholders receiving dividend payments from a Singapore-resident company or a Malaysian-resident company with a Singaporean-based source of profit are exempt from Singaporean taxation on dividend income.
- Be aware that the aforementioned tax concession or exemption will not be applicable where:
- the recipient of the income has a permanent establishment in the country in which the company paying the dividend is a tax resident; and
- he holding that gives rise to the dividend payments is effectively connected with any business or trade that is carried on or performed through that permanent establishment.
- Should the above criteria be met, the dividend income will be treated as income derived by the permanent establishment.
- Income derived from interest is to be taxed at a concessionary rate in the country where the income arises (i.e. the source country).
- Interest income derived in Singapore by an Australian resident will be taxed under the Singaporean system at a reduced rate of 10 per cent calculated on the gross amount of interest earned. Equally, interest derived by Singapore residents from Australia is to be taxed under the Australian system at an identical rate of 10 per cent, also calculated on the gross amount of interest earned.
- Similar to the restrictions on tax reductions/exemptions on dividend payments, the 10 per cent concessionary rate does not apply should a person who is beneficially entitled to the interest and is a resident of the one of the contracting companies has a permanent establishment in the other contracting country, and the indebtedness giving rise to the interest payments is effectively connected with business or trade conducted at or carried on through that establishment. Where the income has arisen in connection with the permanent establishment, it is to be considered the permanent establishment’s business profits and is to be taxed accordingly.
- Should a special relationship exist between the lender and the borrower, and because of such a relationship the interest paid exceeds the amount which both parties may have agreed to in the absence of such a relationship, the concessionary tax rate will only apply to the agreed upon amount, and not any excess paid.
- Interest earned upon bonds, securities, debentures and any other form of indebtedness shall be considered interest income for the purposes of the double taxation agreement.
- Royalty income is eligible for a reduced rate of taxation in the source country of the royalty income.
- Singapore residents deriving income from Australia will be eligible for Australian taxation on their royalty income at a rate of 10 per cent on the gross amount. Equally, Australian residents deriving income from Singapore will be subject to Singaporean taxation at 10 per cent on the gross amount.
- The aforementioned concessionary tax rate will not apply where the recipient is both the resident of the one of the contracting companies and is beneficially entitled to royalty income while also having a permanent establishment in the other contracting country, and the property, information or right giving rise to the royalties can be said to be effectively connected with business or trade conducted through that permanent establishment. Where the income arose in connection with the permanent establishment, it is to be considered business profits of the establishment and is to be taxed appropriately.
- Should a special relationship exist between the recipient and the payer of the royalties, and the amount of royalties paid is in excess of an amount which both parties might have agreed to should such a relationship have not existed, the concessionary tax rate will not apply to payments in excess of this amount.
- Royalty income refers to payments received in connection to the:
- Use of, or right to use, any patent, design, model, process, secret formula, trademark, copyright (while not being a musical, artistic, dramatic or literary copyright), or other similar right or property; or scientific, industrial or commercial equipment; or
- Supply of information concerning the royalty recipient’s commercial, industrial or scientific experience.
- Payments made in connection to the operation of quarries or mines, or exploitation of natural resources, or payments made in relation to the right to use or the use of motion picture films, tapes for purposes related to radio broadcasting or films or video tapes used in connection with television are not to be included under royalty income.
Provision of Personal or Professional Services
- Income derived in relation to the provision of professional or personal services is to be taxed in the country in which the services were performed. Per the following conditions, this income may be exempt from tax:
- The individual receiving the income has spent 183 days or fewer in the country in which they were performing the services.
- The employer of the individual is a resident of the other contracting country instead of the country in which the services were performed.
- The recipient’s remuneration is not derived from a permanent establishment of the contracting country in which the services were performed.
- Public entertainers such as motion picture, stage, radio or television artistes or athletes or musicians may not benefit from the above exemptions on their remuneration/income.
- Director’s fees are eligible for taxation in the jurisdiction in which the company bearing the remuneration is resident.
- Individuals deriving income from employment exercised on aircraft or ships operating in international traffic who are resident in one of the contracting countries are not to be taxed in the other contracting country on this income.
Annuities and Pensions
Pensions and annuities are to be taxed in the country in which the recipient is resident. This rule does not apply where the pension is paid by either the Government of Singapore or the Government of Australia to an individual in respect of services rendered as an employee of either government.
- Excluding pensions, an individual is exempt from Singaporean taxation on any remuneration received from the Government of Australia for services rendered on behalf of the Australian government. This exemption will not apply where the individual is not a citizen of Australia and is resident in Singapore.
- Likewise, remuneration paid to an individual for services rendered on behalf of the Government of Singapore – excluding pensions – and from the same shall be exempt from tax except where the recipient is resident in Australia and is not a Singapore citizen.
- The above rules are not applicable to income derived from the provision of services rendered in connection with a business enterprise owned by a government, such as a business or trade carried on for the purposes of profit.
Payments Made to Student Trainees
Students resident in one contracting country and visiting the other solely for the purposes of education or training shall not be taxed by the other contracting country on payments they receive from overseas sources for the purposes of education, training or maintenance.
Provisions governing the exchange of information
- The Singapore and Australian tax authorities shall exchange information relating to tax as and when it is necessary.
- Information exchange shall remain confidential and disclosure will only be made to persons, including tribunals and courts, concerned with collection, enforcement, assessment or prosecution in respect of taxes or payments covered by the double taxation agreement.
- No disclosure will be made of any business, trade, professional or industrial secret or trade process.
For more information on any of the specific provisions summarised above, please refer to the official website of the Inland Revenue Authority Of Singapore.
For a broad overview of the intent and construction of Singapore’s double taxation agreements, please refer to Ottavia’s Singapore Double Taxation Agreements (DTA) Guide.