France-Singapore DTAA: Double Tax Avoidance Agreement

The company’s profits should be taxed in the country of the company’s residence. If that company carries on business activities in the other country through a PE, the company’s profits attributable to that PE will be taxed in the country where the PE is located. Such profits will be exempt from taxation in PE’s country if it is remitted outside that country.

It is important to note that all your company’s expenses (including executive and administrative) that could be reasonably attributable to the PE situated in the other state, should be allowed as deductions while determining the PE's profits. A PE’s mere purchase of goods or merchandise for the enterprise should not render profits attributable to that PE. The PE must conduct the activities described above, only then its profit is subject to taxation by the country where the PE is located.

Under the France-Singapore DTAA, dividends refers to income received from shares, from participating in company profits, mining shares, founder’s shares, or other securities that do not provide the holder with any shareholder rights, but carry financial rights (i.e. “jouissance” shares).

The DTAA does not prescribe an exclusive rule for taxation of dividends. In some situations, dividends may be taxed in the country of the beneficiary’s residence; while in other cases in the country of which the company paying the dividends is a resident. But with proper design of corporate structure, taxation in both countries can be minimized or eliminated as described in scenarios below.

Note that Singapore tax rules do not impose withholding tax on dividend income.

CASE study

Scenario 1: Dividends paid by a Singapore resident company to a French beneficiary are not subject to tax at source, according to the Singapore tax rules. Furthermore, foreign dividend income received by a resident of France will be exempted from French tax if at least 10% of the capital of the Singapore subsidiary is owned directly by a French parent company.

Scenario 2: Dividends paid by a French resident corporation to a beneficiary that is a Singapore resident are subject to a reduced tax rate in France which can at maximum be 15% (reduced from 26,5%) for individuals and non-parent companies. If a beneficial owner is a Singapore resident company holding at least 10% of the share capital of the subsidiary that is a French resident, the tax in France can not exceed 5%. Such dividends will be exempted from Singapore tax if at least 10% of the capital of the French subsidiary is owned by a Singapore parent company. Again, with proper design of the corporate structure, dividend taxes can be minimized significantly, and in some cases eliminated completely.

For the purposes of the DTAA, interest refers to income received from debt-claims, bonds, debentures, government securities, including premiums and prizes attaching to such securities, bonds, or debentures. Provisions of the DTAA stipulate that interest may be taxed in the country of the recipient’s residency, but the tax should not exceed a rate of 10%; in some situations the interest may alternatively be taxed in the country in which it arises.

CASE study

Scenario 1: The interest paid by a Singapore company to a French resident is subject to withholding tax at a rate that can not exceed a 10% of the gross amount of interest. Certain interest paid to non-resident individuals that does not qualify for a domestic concession rate can be taxed at a rate of 22% in Singapore; however, with proper design such a situation can be avoided. Foreign interest income received by a French resident is subject to a flat tax set at 30% in France, which will be reduced by the amount of tax paid in Singapore. 

Scenario 2: The interest paid by a French company to a Singapore recipient is not subject to withholding tax. Such interest income will be treated as foreign-sourced income in Singapore, and taxed accordingly. 

Scenario 3: The interest will be taxed only in the country of the recipient’s residency (Country A) if the recipient is a beneficial owner of such interest, and if: (i) interest is paid for a debt-claim or a loan guaranteed or insured by the government, or any other person acting on behalf of Country A; or (ii) interest is paid by an enterprise of one country to an enterprise of the other country.

According to the DTAA, payments of any kind received as consideration for the use of any objects of intellectual property rights (i.e. objects of industrial property rights, copyright, and rights related to copyright) are treated as royalties. Royalties usually paid in the state where such an object is used.

Royalties arising in Country A received by a resident of Country B are taxable only in the beneficiary's state i.e. Country B. If double taxation arises, the DTA provides that the tax burden can be reduced by the amount of tax paid in the other country with application of foreign tax credit method.

CASE study

Scenario 1: Royalties paid by a Singapore company to a French resident are subject to withholding tax at a rate of 10% for corporate entities; and 10% of the gross income, or at 22% on net income (whichever is lower) for individuals. Foreign royalty income received by a French resident (whether company or individual) in certain cases may be subject to French tax, which will be reduced by the amount of tax paid in Singapore.

Scenario 2: Royalties paid by a French company to a Singapore resident (company or individual) are subject to withholding tax at a rate of 26.5%. Foreign-sourced royalty income is taxable in Singapore when it is remitted or considered to be remitted to Singapore. Such income is not further taxed in Singapore, if the foreign tax credit scheme under the DTAA is applied.

It should be noted that Singapore does not impose tax on capital gains.

Under the DTAA, capital gains are treated as follows:

• Gains from disposition of immovable property are generally taxed in the country in which such property is situated. Capital gains from the disposal of immovable property are taxed in France at a flat tax rate of 19% for individuals, and 26.5% for corporate entities.
• Gains from selling movable property forming part of the business property of a PE of Country A of a parent company of a Country B, are exempt from tax in Country B. However, gains from selling ships or aircraft operated in international traffic, and movable property for the operation of such ships and aircraft, should be taxable only in Country B (i.e., in which the place of effective management of the receiving company is situated). Capital gains from the disposal of movable property generally are taxed in France at a rate of 30% for individuals and 26,5% for enterprises.
• Gains from selling of shares, or other rights in a company, trust, or other institution, the assets or property of which consist of, or derive more than 50% of their value from, immovable property situated in Country A, or from rights connected with such immovable property, should be taxed only in Country A. Capital gains arising from the sales of shares in France are generally subject to corporate tax at the standard rate, unless the participation exemption rule applies, according to which such income is subject to a reduced tax rate.

The DTAA provides that salaries, wages, and other similar remuneration received by employees is taxed in the country where the employee is resident (Country A), unless employment is exercised in the other country (Country B). Note that, in general, the resident status or location of the payer is not relevant. In case double taxation arises, it will be reduced by the amount of tax paid in the other country.

Income received from employment exercised in Country B by a resident of Country A is exempted from tax in Country B, if the following conditions are met:

• The employee is present in Country B for no longer than 183 days in any 12-month period; and
• The remuneration is paid by a company residing in Country A; and
• The remuneration is not borne by a PE in Country B of a company residing in Country A (no recharge between inter-related companies).

CASE study

Scenario 1: Employment income received by a French resident for work performed in the territory of Singapore is taxed only in France if: (i) he or she resides in Singapore for less than 183 days; (ii) the employee’s remuneration is paid by, or on behalf of, a French company; (iii) the employee’s remuneration is not borne by a PE located in Singapore. Employment income is taxed in France at a progressive rate, ranging from 0% to 45%, plus special security surcharges. In certain cases, such income may be treated as Singapore-sourced income and taxed at 15% on gross income, or 22% on net income (if the individual opts to be taxed so). If this is the case, an individual's tax liability can be reduced by the amount of tax paid in Singapore with application of foreign tax credit method.

Scenario 2: Employment income received by a Singapore resident for work performed in the territory of France is taxed only in Singapore if: (i) the employee resides in France for less than 183 days; (ii) the employee’s remuneration is paid by or on behalf of a Singapore company; (iii) the employee’s remuneration is not borne by a PE located in France. Otherwise, it should be treated as French-sourced income and may be subject to tax in France. If double taxation arises, it can be eliminated by applying the foreign tax credit method. This means that the amount of tax paid in one country may be credited against the amount of tax liability due in the other country.

Directors' fees and similar payments received by a resident of Country A as a member of the board of directors of a company that is a resident of Country B may be taxed in Country B.

Director’s fees received by a French resident from a Singapore company are subject to withholding tax at a flat rate of 22% in Singapore. Director’s fees received by a Singapore resident from a French company are subject to tax at a progressive rate from 0% to 30%.

If taxed in one country, such income is exempted from tax in the other one; otherwise the foreign tax credit should apply to eliminate double taxation.

An individual or trainee who was a resident of Country A before visiting Country B and who resides in Country B for the purposes of study or training should be taxed only in Country A, if he or she received:

• Remittances from Country A;
• Remuneration for personal services provided in Country B (under certain conditions);
• A grant, allowance, or award in Country B.