SINGAPORE Law and Practice Contributed by: Lee Woon Shiu and Cheung Kuan Swan (Catherine), DBS Private Bank
driven by Singapore’s economic policies or negotia - tion strategies. While Singapore does not primarily follow the Unit - ed Nations Model Double Taxation Convention (UN Model), it incorporates aspects of the UN Model in its treaties with developing countries to suit its bilateral relationships (eg, to allow a greater share of taxing rights to the source country). Significant variations frequently occur in specific arti - cles, such as those pertaining to withholding taxes on dividends, interests, and royalties. As Singapore often negotiates reduced withholding tax rates or alterna - tive allocation rules to facilitate cross-border trade and investment, the provisions addressing the taxa - tion of technical fees or certain independent personal services may differ from the OECD Model. 1.4 Multilateral Instrument Singapore is a signatory to the Multilateral Instrument (MLI) which has been fully ratified. Singapore signed the MLI on 7 June 2017, ratified it on 22 December 2018, and implemented it from 1 April 2019. Singapore has adopted key provisions of the MLI, including the principal purpose test (PPT), preamble language, and mutual agreement proce - dure, while reserving its position on certain optional provisions. Instead of having to renegotiate every bilateral tax treaty one by one, the MLI serves to modify how domestic law interacts with multiple international trea - ties designed to prevent tax abuse, including Base Erosion and Profit Shifting (BEPS). The extent of modi - fication of the existing bilateral treaties and its effects vary depending on whether Singapore treaty partners have also ratified the MLI and the specific provisions that both jurisdictions have elected to adopt.
from, Singapore is generally subject to Singapore income tax. Foreign-sourced income is typically taxed only when it is received in, or deemed received in, Singapore. Foreign-sourced income received in Singapore by tax resident companies and limited partnerships is generally subject to tax, unless a specific exemption applies. Under the foreign-sourced income exemption (FSIE) regime, certain categories of foreign-sourced income, namely foreign-sourced dividends, foreign branch profits and foreign-sourced service income, may be exempt from tax when received in Singapore by a Singapore tax resident company, provided the prescribed conditions are met. To qualify for this exemption, the key conditions are as follows. • The foreign income must have been subject to tax in the foreign jurisdiction from which it was received. This means the foreign jurisdiction had the right to tax the income, even if the tax actually paid was different from the headline tax rate. • The highest corporate tax rate (headline tax rate) in that foreign jurisdiction must be at least 15% at the time the foreign income is received in Singapore. This condition is intended to prevent the exemption of income from low-tax or zero-tax jurisdictions. • The Comptroller of Income Tax must be satisfied that granting the tax exemption would be beneficial to the Singapore tax resident company. For foreign-sourced service income to qualify for exemption, the services must generally be provided through a fixed place of operation in the foreign coun - try. If this is not the case, the income may be treated as Singapore-sourced and subject to Singapore tax. 2.2 Tax Residence of Individuals An individual is considered a tax resident in Singapore for a particular Year of Assessment based on the fol - lowing criteria. • Singapore Citizen or Singapore Permanent Resi - dent (SPR) – the individual is a Singapore Citizen or Permanent Resident who normally resides in Singapore except for temporary absences.
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation Singapore operates a territorial basis of taxation. This means that only income that accrues in, or is derived
388 CHAMBERS.COM
Powered by FlippingBook