Double taxation is when the same taxpayer, for the purpose of this article we are referring is taxed twice by 2 countries. The income is first taxed at the source i.e. the country where the income was generated and also the country of residence where the income is repatriated to. So for example, a Singapore company might be conducting business in China. The income is from China and taxed in China and when the monies are sent back to Singapore, the monies are again taxed in Singapore. This is double taxation.
To avoid double taxation, companies may come up with Avoidance of Double Taxation Agreements (DTAs). This would mean that the two countries signing the agreement would avoid double taxation.
Avoidance of Double Taxation Agreements (DTAs)
DTAs are implemented to provide clarity as to where taxes should be paid. DTAs are also a method for preventing international tax evasion. Tax reliefs can also be claimed for taxes that are paid overseas.
An example of double taxation would be if a Chinese set up a company in Singapore to do business. The company turns a profit, pays taxes and issues dividends back to the shareholder, the Chinese. This dividend is taxed when the monies reach China. The same dollar of profit is taxed more than once. The concept is to avoid the same dollar of profit from being taxed more than once.
Types of income that might incur double taxation would include but are not limited to, the following:
- director fees
- income from property
- capital gains
- licencing fee income
Singapore tax resident companies stand to benefit from DTAs as income received from a country with a tax treaty will be eligible for tax relief. You will need to submit a certificate of residency to the foreign country.
If you need assistance with matters relating to the avoidance of double taxation matters, you may contact us at [email protected].
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Singapore Secretary Services
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