Australia-Singapore Double Tax Treaty
The Avoidance of Double Taxation Agreement (DTA) between Singapore and Australia first came into force in 1969. It’s second protocol was signed on September 8, 2009, and came into force on December 22, 2010. This agreement eliminates the double taxation of income between Singapore and Australia and reduces the overall tax burden on citizens of both countries.
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Tax treaties are beneficial to taxpayers as they provide double tax relief, reduction in tax rates, tax credit etc. to the residents of countries that are parties to the agreement. Singapore has tax treaties with many countries and these treaties make the country’s already efficient tax system even more so. This article will discuss the key provisions of the DTA between Singapore and Australia. It will highlight the scope of the agreement, the advantages of the DTA and where specific income arising in Singapore and Australia will be taxed according to the provisions of the DTA
An Overview of Double Taxation Avoidance
A DTA is an agreement between two countries which aims to eliminate the double taxation of the same income in the two countries. Often the tax laws of the countries are such that if any income flows from one country to the other, it may be liable to get taxed twice; a DTA prevents this from happening. Besides preventing a business or personal income from being taxed twice, the DTA may also provide lower tax rates for certain types of income in comparison to their prevailing tax rates; these provisions are beneficial to a taxpayer and can reduce his or her overall tax burden.
The key aspect of a Double Tax Agreement is that it 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.
For the Australia-Singapore DTA, this implies that if a taxpayer is a resident of Australia and derives income from Singapore, his income could be taxable in both the countries. But under the provisions of the DTA, Australia will provide tax relief by crediting the tax paid on the income in Singapore against the tax due to Australia. Similarly, Singapore would do the same for the opposite case.
Scope of the Agreement
The Australia-Singapore DTA is applicable to the residents of the DTA agreement signing states (Singapore and Australia). The key terms of the agreement are as follows:
Types of taxes covered
The following types of taxes are covered in the DTA agreement:
- In Australia:
Income tax and petroleum resource rent tax pertaining to offshore projects.
- In Singapore:
The state where the income is taxed
The DTA specifically states where the different types of income of a resident of either Singapore or Australia will be subject to tax (as explained below). This is important since the country where the income is taxable will determine the tax rate applicable on the taxpayer’s income.
The DTA states the kinds of income that may arise and the tax rate applicable. For example, in the case of interest income, the tax rate in the DTA is 10%. This implies that if a taxpayer resides in Australia and receives interest income from Singapore, the tax rate on the income will be 10%. This is important since the rates in the DTA agreed by the countries and the prevailing tax rates of the country can differ.
Key provisions of Australia and Singapore DTA
The key provisions of the Australia-Singapore DTA include:
As per the DTA, profits of an enterprise are taxed only in the state (state A) where the business operations are carried out unless the other state (state B) has a permanent establishment of the business. If the state B has a permanent establishment of the business, the profits generated from that permanent establishment will be taxable in state B and only in state B.
In case Singapore and Australia did not have any double taxation avoidance agreement entered into, the profits of the business could be taxed in Singapore as well as Australia. The profits generated by the permanent establishment would bear the tax burden twice in such a case. This outlines the importance of the DTA to avoid double taxation of business profits.
Interest, Royalty and Dividends
The DTA specifies the rates applicable in the case of income from interest, royalties, dividend etc. Generally, the tax rates in the DTA are lower than the prevailing tax rates in the countries who are parties to the agreement.
Without the treaty, the withholding tax rate in Singapore for any interest paid to non-residents is 15% whereas in Australia the withholding tax rate for interest paid to non-residents is 10%. Under the DTA, the reduced tax rate of 10% for interest payments is applicable in both cases. Thus, the lower interest tax rate of 10% for Australian residents who are non-residents in Singapore reduces their tax burden.
Without the treaty, the withholding tax rate in Australia for any royalties paid to non-residents is a flat rate of 30% whereas in Singapore the withholding tax rate for royalties paid to non-residents is 10%. Under the DTA, the reduced tax rate of 10% for royalties is applicable in both cases. Thus, the lower royalty tax rate of 10% for Singapore residents who are non-residents in Australia reduces their tax burden.
Without the treaty, the withholding tax rates in Australia for any dividend paid to non-residents is at a flat rate of 30% whereas in Singapore dividends paid to non-residents are exempt from tax. According to the DTA, the reduced tax rate of 15% for dividends is applicable. Thus, the lower dividend tax rate of 15% for Singapore residents who are non-residents in Australia is beneficial to reduce their tax burden.
According to the Singapore’s Economic Expansion Incentive (Relief from Income Tax) Act, 1967, Singapore authorities have the exclusive power to reduce a tax payable by a non-resident on interest and royalties to “nil”. However, if the tax applicable is “nil” in Singapore but the same amount is taxable in Australia, it would nullify the incentive to the non-resident taxpayer. In order to ensure that these incentives are not lost for non-residents of Singapore, the DTA ensures that Australia provides a tax credit for the tax on interest or royalty that Singapore forgoes.
For example, an Australian resident derives interest income from Singapore. According to the DTA, the tax rate is 10%. However, Singapore wholly forgoes this tax. In such as case, even though Singapore does not tax the taxpayer for the interest income, the Australian authority will calculate the tax paid in Singapore as 10% and the taxpayer will be allowed a credit for that amount against his tax in Australia as if the taxpayer had actually paid the tax to Singapore.
DTA – At A Glance
The DTA specifically states where the different types of income of a resident of either Singapore or Australia will be subject to tax. The following table states the type of income or payments made and the state where the income is taxed. This is important since the place of taxation will determine the rate of tax applicable to that type of income under the DTA.
|Type of Income/Payment||Where is the income taxed?|
|Income from real property||Taxed in the state where the property is situated.|
|Profits from Business||Taxed in the state where the enterprise carries out its business.|
|Profits from Shipping and Air Transport||Taxed in the state where the enterprise carries out its operations.|
|Dividends||1.Where Singapore resident shareholders receive a dividend from Australian company: Australian Tax of 15% on Dividend Income.
2.Where Australian-resident receives a dividend from Singapore Company: Singapore exempts dividend tax.
|Interest||Taxed in the state where the interest arises.|
|Royalty||Taxed in the state where the royalty arises.|
|Income or gains from alienation of property||Taxed in the state where the property is situated.|
|Personal and Professional Service||Taxed in the state where the individual is a resident unless services are carried out in the other state.*|
|Pension and Annuity||Taxed in the state where the individual is a resident.|
|Remuneration paid by the Government||Taxed by the government of the state unless the individual is a resident of the state where he performs the services.|
|Payment to Students and Trainees||Taxed in the state where they reside.|
* These services are not taxable in the other state even if the services are carried out in that state in the following circumstances:
- If the individual resides in the other state for a period less than an aggregate of 183 days for the year of income.
- The services of the individual are performed on behalf of a person residing in another state.
- The income or profits are not attributable to any permanent establishment in the other state.
These exemptions are not applicable to any personal income that a public entertainer, such as musicians, athletes, stage and movie show artists derives from their personal activities. The public entertainers are taxed in the state where they carry out their services.
This article highlights the tax treatment of income and profits flowing between Singapore and Australia. It explains which state will tax specific types of income and their applicable tax rates. To minimise your tax burden, and to understand how to maximize the tax benefits available to your specific income and profit, it is advisable to engage the services of a professional corporate services provider.
- A lease of land
- Interest over land
- Right to explore and exploit mineral, oil, gas deposits and other natural resources etc
- Right to receive variable or fixed payment as consideration for the exploration and exploitation of natural resources.