The Singapore-UK Double Tax Treaty

This guide provides an overview of the bilateral tax treaty between the Government of the Republic of Singapore and the Government of the United Kingdom of Great Britain and Northern Ireland (UK) in order to manage relief from double taxation in relation to income tax, corporation tax, capital gains tax and taxes of a similar character to enhance trade and investment flows between the two countries. The latest protocol was signed on 15 February 2012 which came into force on 27 December 2012 and its provisions took effect in April 2013 (UK) and in January 2013 (Singapore).

The provisions of the DTA shall apply to persons, including an individual, a company and any other body of persons but does not include partnerships, who are residents of one or both of the Contracting States.

Taxes covered are:

• UK: income tax, corporation tax and capital gains tax
• Singapore: income tax

In order to claim the benefits of the DTA the person must be a tax resident of either Singapore or the UK, owing to the person’s domicile, residence, place of management, place of incorporation or any other criterion of a similar nature.

Singapore-UK DTA

Snapshot

The key features of the Singapore-UK DTA have been summarized in the table below.

Important Provisions

Tax on Dividends

Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:

• 5 per cent of the gross amount of the dividends if the beneficial owner is a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends;
• 15 per cent of the gross amount of the dividends in all other cases

The provisions of this paragraph shall not affect the taxation of the company on the profits out of which the dividends are paid.

The above provisions shall not be applicable if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State where the dividend paying company is a resident, through a permanent establishment or fixed base situated therein, and the dividends paid is effectively connected with such permanent establishment or fixed base.

It must be noted that Singapore does not charge tax on foreign dividends and also exempts withholding tax on dividends paid to non-residents. Also according to the single tier tax system all dividends paid by a company are exempt from tax in the hands of the shareholders.

If the dividends do not qualify for tax exemption and where the recipient holds a minimum of 10% stake either directly or indirectly in the Singapore dividend paying company, the dividend is subjected to UK tax however credits are available for the Singapore tax paid on profits from which such dividends are distributed. The credits can be used to set off the UK tax payable on the dividends.

Tax on Interest

Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State subject to the following conditions:

• If the recipient is the beneficial owner of the interest the tax so charged shall not exceed
  • 15 percent of the gross amount of the interest where the interest arises or accrues on or before 31 December 1999
  • 10 percent of the gross amount of the interest in any other case.
• Tax shall be exempted in the contracting state where it arises if the recipient is a beneficial owner of the interest and is also the Government of the contracting state or bank or similar financial institution or the interest is paid by a bank or similar financial institution.

The above provisions shall not be applicable if the beneficial owner of the interest, has a permanent establishment or fixed base in the contracting state in which the payer is resident and the interest paid is effectively connected with such permanent establishment or fixed base.

If, due to the special relationship existing between the payer and the recipient, the interest paid is in excess of the amount that would have otherwise been paid, then the provision of the treaty shall apply only to that amount and any excess amount of interest paid will be taxable according to the laws of each Contracting State.

Singapore’s withholding tax rate on interest is 15% when the income is derived from operations outside Singapore. For interest income derived from operations carried out in Singapore if the recipient is individual, the withholding tax rate is 20% and a non-individual person is charged at the prevailing corporate tax rate (presently 17%).

Tax on Royalties

Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State.

However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed:

• 15 per cent of the gross amount of the royalties where the royalties arise or accrues on or before 31 December 1999.
• 10 per cent of the gross amount of the royalties in any other case.

Royalties encompass payments of any kind received as a consideration for the use of, or the right to use, any copyright patent, trade mark, design or model, plan etc.

If, due to the special relationship existing between the payer and the recipient, the royalties paid is in excess of the amount that would have otherwise been paid, then the provision of the treaty shall apply only to that amount and any excess amount of royalty will be taxable according to the laws of each Contracting State.

The general withholding tax on royalties in the UK is 20% and Singapore charges 10%. The DTA thus significantly curtails the tax burden of the recipients.

Tax on Capital Gains

Gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State. Gains derived by a resident of a Contracting State may be taxed in that other State in the following instances.

• Gains derived from the alienation of shares, deriving at least three-quarters of their value directly or indirectly from immovable property situated in the other Contracting State, or
• Gains derived from the alienation of interest in a partnership or trust the assets of which derive at least three- quarters of their value directly or indirectly from immovable property situated in the other Contracting State.

Gains derived by a resident of a contracting state from the alienation of movable property connected to a permanent establishment (PE) or a fixed base located in the other contracting State may be taxed in the other state. Gains derived from the alienation of such PE or the fixed base itself may also be taxed in the other state.

Gains derived by a resident of a Contacting State from the alienation of ships or aircraft operated in international traffic by an enterprise of that Contracting State or movable property pertaining to the operation of such ships or aircraft are taxable only in that Contracting State.

Capital gains derived from alienation of any other property shall be taxable only in the contracting state where the alienator is resident. However, this particular provision will not impact the right of a Contracting State to levy tax on gains from the alienation of any property derived by an individual who is a national of that Contracting State and who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

In Singapore there is no tax on capital gains. In the UK individuals are taxed 18% or 28% depending on their total taxable income and capital gains of companies are subject to Corporation Tax at the normal rates with no annual exemption.

Treatment of Income from Immovable Property

Income derived by a resident of a Contracting State from direct use, letting or use in any other form of immovable property situated in the other Contracting State may be taxed in that other State. Income from immovable property of an enterprise and income from immovable property used for the performance of independent personal services shall also be covered by this provision.

The term “immovable property” shall comprise of properties as defined by the law of the contracting state in which the property is located. It shall include accessories, equipments, livestock, rights and usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. However ships and aircraft shall not be regarded as immovable property.

Treatment of Business Profits

The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein and only that portion of the income that is attributable to the PE shall be taxed in the other Contracting State.

For the purpose of determining the profits of the PE it shall be allowed all expenses and deductions that could be reasonably attributable to the PE and deductable if the PE were an independent enterprise and profits of the PE shall be determined as if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE.

Treatment of Shipping & Air Transport

Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. Profits shall include income from rentals on a bareboat basis and profits from use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise.

Interest on funds connected to operation of ships or aircraft in international traffic shall be regarded as profits from such operations and the provisions relating to interests shall not apply to this income.

Taxation of Individual Income

Independent Personal Service

Income of an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State. The income shall be subjected to tax in the other contracting state in the following conditions

• If the individual has a fixed base in the other State for the purpose of performing his activities. Only that portion of the income that is attributable to that fixed base may be taxed in that other State; or
• If the individual is present in the other State for a period or periods exceeding in the aggregate 183 days in the fiscal year concerned. Only that portion of the income attributable to his stay and activities performed in the other state may be taxed. The provisions of subparagraph shall cease to have effect for any fiscal year beginning after five years from the date on which the Second Protocol first had effect.

Dependent Personal Service

Salaries, wages and other similar remuneration derived by a resident of a State for employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration may be taxed in that other State.

Remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the Contracting State if:

• the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned; and
• the services are performed for or on behalf of a person who is a resident of Contracting State and
• the remuneration is subject to tax in the Contracting State and
• the remuneration is not directly deductible from the profits for tax purposes of a permanent establishment or a fixed base in the other Contracting State

Remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that State.

Directors’ fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Pensions

Pensions and other similar remuneration paid in consideration of past employment or self-employment to a resident individual of a Contracting State, shall be taxable only in that State.

Other Incomes

If a Singapore resident receives any payment out of income received by a UK resident trustee or personal representative that amount shall be treated as arising from the same sources, and in the same proportions, as the income received by the trustees or personal representatives out of which that amount is paid. Any tax paid by the trustees or personal representatives in respect of the income paid to the beneficiary shall be treated as if it had been paid by the beneficiary.

Any withdrawals made by a UK resident from his Supplementary Retirement Scheme account shall be taxed in Singapore.

Taxation of Government Service Remuneration

Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority or a statutory body thereof to an individual in respect of services rendered to that State, subdivision, authority or body shall be taxable only in that State.  Such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State.

Taxation of Teachers Remuneration

An individual, who is a resident of one of the Contracting States immediately before making a visit to the other Contracting State, and who makes such visit at the invitation of the Government of that other Contracting State, or of a recognised university, college, school or other similar recognised educational institution in the other Contracting State, solely for the purpose of teaching at such educational institution for a period not exceeding two years shall be exempt from tax in the first-mentioned Contracting State on his remuneration for such teaching.

Avoidance of Double Taxation

The DTA provides relief from double taxation where income is subject to tax in both Contracting States.

In the case of the UK, Singapore tax payable in respect of income derived from Singapore shall be allowed as a credit against the UK tax payable in respect of that income. The UK tax payable in respect of income derived from UK shall be allowed as a credit against Singapore tax payable in respect of that income. The credit thus provided shall not exceed the respective country’s tax as computed before the credit is given.

Subject to the conditions for exemption of income received from outside Singapore provided for in the Singapore Income Tax Act, income derived from the UK by a Singapore resident shall be exempted from Singapore Tax.

For more details on the specific provisions covered under the tax treaty between Singapore and the UK, please refer to IRAS Website.

For general information on Singapore DTAs, refer to

Singapore Double Taxation Agreements (DTA) Guide.