Netherlands-Singapore DTAA: Double Tax Avoidance Agreement

The sale of capital represented by the immovable property is taxed in the state where it is situated.

Movable property forming part of the business of a PE is taxed in the state where the PE is situated.

The sale of ships and aircraft operated in international traffic, as well as appropriate movable property, are taxable only in the state where the person carrying on the enterprise is resident.

All other elements of capital are taxable only in the state where the owner is a resident.

If an enterprise carries on a business abroad as a permanent establishment (PE), its profits are taxed in that state, but only in the amount attributable to that PE. The PE is considered to be a separate entity for tax purposes.

PE means a fixed place of business situated abroad in which the activities of the enterprise are wholly or partly carried on. The PE is considered to be abroad if any of the following is situated abroad:

• A place of management;
• A branch;
• An office;
• A factory;
• A workshop;
• A farm or plantation;
• A mine, oil well, quarry, or another place of extraction of natural resources; or
• A building site or construction or assembly project which exists for more than 6 months.

However, your business will not be considered as a PE if you:

• Use facilities only for storage, display, or delivery of goods belonging to your enterprise;
• Maintain a stock of such goods only for storage, display, or delivery;
• Maintain a stock of such goods or only for processing by another enterprise;
• Maintain a fixed place of business only for purchasing goods, collecting or supply of information, advertising, or similar activities.

Companies carrying on a ship or aircraft transport business are taxable, like other companies, in the country of their residency. However, if some passengers are boarded or goods loaded in the other state, the carrier may be taxed in that other state, but only on profits derived from such activities in that other state.

The tax rate in such cases must be reduced by 50% of the national rate of that state. For example, if a Dutch airline derives profits in Singapore, the Singapore corporate income tax rate of 17% would be reduced twice, and such income would be taxed at 8,5% in Singapore.

The concept of an Associated Enterprise comes into play when:

• A company of one state participates in the management, control, or capital of an enterprise abroad; or
• The same persons participate in the management, control, or capital of companies of two states; and
• The commercial relations of such companies are different than the relations of independent ones. In other words, the companies do not transact business at arm’s length.

In such a case, any profits that would, but, by reason of the above conditions, have not been accrued to one of the associated companies, may be included in the profits of that enterprise and taxed accordingly.

Dividends are traditionally taxed in the country of a recipient's residency. However, they may be taxed also in the country of residency of the company that is paying the dividends.

The DTAA provides limits on such taxation in the country where the company paying the dividends resides.

• Dividends paid by a company that is a resident of the Netherlands to a resident of Singapore are subject to the dividends withholding tax of 15% in the Netherlands. But if the recipient of the dividends is a Singapore company that holds at least 25% of the capital of the company paying the dividends, the Netherlands does not levy this tax.
• Dividends paid by a company that is a resident of Singapore to a resident of the Netherlands are not taxed in Singapore.

The general principles for avoiding double taxation when paying interest are similar to those applied to dividends. Interest is taxed in the state where the recipient resides.

However, such interest may be taxed in the state in which it arises, according to the law of that state. Without the treaty, the withholding tax rate in Singapore for any interest paid to non-residents is 15%, whereas the Netherlands does not levy an interest withholding tax. Under the DTAA, the withholding tax on interest in Singapore is 10%.

Royalties refer to payments to an owner for the use of copyright for any patent, trademark, design or model, plan, secret formula, etc.

Without the treaty, the withholding tax rate in Singapore for any royalties paid to non-residents is 10%, whereas the Netherlands does not impose such a tax. Under the DTAA, royalties are taxed only in the country of the recipient's residency. When the rights entitling a person to the royalties are sold i.e. a sale of IP rights, such income is taxable also only in the country of the person’s residency.

The general rule is that gains from selling property are taxed in the state where the seller is a resident. However, there are certain exemptions:

• Gains from selling immovable property are taxed in the state in which such property is situated.
• Gains from selling movable property of the PE or the PE itself that resides in one state are taxed in the other state.
• Gains from selling ships and aircraft operated in international traffic, and movable property for the operation of such ships and aircraft, are taxable only in the state of which the person carrying on the enterprise is a resident.

Salaries, wages, and other similar payments, as well as income from independent activities, are taxed in the worker’s state of residency.

The only exception is where a worker who is a resident of state A performs his or her activities abroad in state B. The rule is that the income is taxed in state A, if:

• The recipient is present in state B for a total period of less than 183 days during the year; and
• The income is paid by a person who is not a resident of state B; and
• The person does not receive the income from a permanent establishment he or she has in state B usually used for the purpose of carrying out the activities.

Income received from employment aboard a ship or aircraft in international traffic is taxable only in the state where the worker is resident.

Students, researchers, scientists, and similar individuals are taxed on their income in the state where they reside. However, they may be taxed in the state of education, if their situation does not meet certain exemptions.

Students are exempt from tax in the state of their education for:

• All money received abroad for the purposes of maintenance, education, or training; and
• Any payments for personal services in the state of education up to S$3,000 or equivalent during a year.

Researchers or scientists who are recipients of a grant or award for a period of up to three years are exempt from tax in the state of their scientific activity on:

• The amount of such grant; and
• Payments for personal services performed in the state of scientific activity in connection with the study, research, or training up to S$3,000 or equivalent for a year.

A person who is a resident of state A and is present in state B for up to 1 year as an employee of state A for acquiring technical, professional, or business experience is exempt from tax in state B on:

• All payments from state A for the purpose of his or her maintenance, education, or training; and
• Any payments for personal services in connection with his or her study performed in state B up to S$12,500 or equivalent for a year.

Note that the above does not apply if the business experience is from a company that is 50% or more owned by state A.