Poland-Singapore DTAA: Double Tax Avoidance Agreement

In this article, we delve into the Poland-Singapore Double Tax Treaty, offering a comprehensive overview tailored to individuals and businesses operating in both countries. Exploring its scope, coverage of various taxes, rules governing the taxation of different income streams, provisions for eliminating double taxation, and other notable features, this article serves as a valuable guide for optimizing tax strategies in the bilateral landscape between Poland and Singapore.

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poland-singapore dtaa: double tax avoidance agreement

This article includes the following topics:

Singapore-Poland DTA — At A Glance
Introduction to Singapore-Poland Business Relations
What is the Poland-Singapore Double Tax Treaty?
Scope of the Singapore-Poland DTA
Key Provisions of the DTAA
Conclusion

Poland-Singapore Double Taxation Avoidance Agreement

Introduction to Singapore-Poland Business Relations

Political and economic cooperation between Poland and Singapore has seen significant advancements since the establishment of diplomatic relations in 1969. Notably, the Polish Ambassador has been based in Singapore since 2004, indicating a commitment to fostering bilateral ties. The countries have strengthened their relations through high-level visits and multilateral engagements, particularly within the United Nations and its specialized agencies.

Economic cooperation between Poland and Singapore has been marked by mutual trade interests. Traditionally, vessels constituted a significant portion of Polish exports to Singapore, although recent years have seen a shift towards diversification, with potential growth areas including machinery, precision instruments, and food products. The launch of flight operations between Warsaw and Singapore by LOT Polish Airlines in 2018 further underscores the commitment to bolstering economic ties between the two nations.

Bilateral investment between Poland and Singapore holds promise for both parties. Poland's rapidly growing economy, large internal market, and skilled workforce position it as an attractive gateway for Singaporean investors seeking access to the European market. Conversely, Singapore presents opportunities for Polish companies, particularly in the IT industry, financial innovations, and e-commerce sectors. The mutual investments and establishment of regional headquarters in both countries reflect a growing trend towards deeper economic integration and collaboration. Both countries recognize the potential for further collaboration in various sectors, including manufacturing, transport, logistics, and cybersecurity, which will contribute to the continued strengthening of their partnership on multiple fronts.

The deep integration of businesses between Singapore and Poland is facilitated by relevant legal instruments that enhance cooperation. As a member of the European Union, Poland shares numerous international agreements with Singapore, including the EU-Singapore Free Trade Agreement, EU-Singapore Investment Protection Agreement, and EU-Singapore Partnership and Cooperation Agreement. Among these agreements, the Poland-Singapore Double Tax Treaty stands out as a vital mechanism for fostering cooperation in the tax domain, which will be the focus of our discussion in this article.

understanding key points of Singapore-Poland DTA

What is the Poland-Singapore Double Tax Treaty?

The Poland-Singapore Double Tax Treaty (DTA) serves to prevent double taxation and curb tax evasion between the two nations. Signed on November 4, 2012, and entering into force on February 6, 2014, this treaty provides clear guidelines for the taxation of various income streams, such as dividends, interest, royalties, and capital gains.

Its primary aim is to ensure that income is taxed in only one of the signatory countries, thus fostering fairness and efficiency in cross-border transactions. Additionally, the DTA incorporates robust anti-abuse measures to prevent its misuse for tax avoidance purposes.

Access to full text: The complete text of the Poland-Singapore DTA is available at IRAS website.

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Scope of Poland-Singapore DTAA

The DTA applies to residents of both contracting states, encompassing legal entities and individuals residing in Poland, Singapore, or both countries.

The DTA covers all taxes on income imposed by the respective tax authorities. This includes taxes on total income or specific elements of income, such as gains from the sale of movable or immovable property, wages or salaries paid by enterprises, and taxes on capital appreciation.

Specifically, for Poland, the treaty pertains to "Polish tax," which includes:

Personal income tax
Corporate income tax

In the case of Singapore, the DTA applies to "Singapore tax," specifically:

Income tax

Furthermore, the treaty extends to any additional taxes that may be imposed in the future, supplementing or replacing existing ones.

Key Provisions of the Poland-Singapore DTA

Residency-Based Taxation

Under the Poland-Singapore Double Tax Treaty, taxation is based on residency, with taxes levied only by the country of residence rather than the country from which income originates.

Under the DTA, an individual's tax residency is determined in accordance with the national legislation of each country.

In Singapore, an individual is considered a tax resident if they fall under one of the following criteria:

They are a Singapore Citizen or Singapore Permanent Resident who usually resides in Singapore, with exceptions for temporary absences.
They are a foreigner who has stayed or worked in Singapore for at least 183 days in the previous calendar year, or continuously for three consecutive years.
They are a foreigner who has worked in Singapore for a continuous period spanning two calendar years, with a total stay of at least 183 days. This excludes directors of a company, public entertainers, or professionals.

In Poland, tax residency is acquired if an individual meets either of the following conditions:

They have their center of personal or economic interests (center of vital interests) in Poland, taking into account factors such as family and social relations, occupation, place of business, political and cultural activities, and property administration. For instance, if an individual originally lived and worked in Poland, still maintains a home and family there, but now resides in Singapore, Poland may be considered their center of vital interests.
They spend more than 183 days in a fiscal year in Poland.

If an individual appears to be a resident of both countries according to national laws, the DTA provides the following provisions for determining their tax residency:

They are deemed a resident only of the country where they have a permanent home available to them. If they have a permanent home in both countries, residency is determined based on their closer personal and economic relations (center of vital interests).
If their center of vital interests cannot be determined, or if they do not have a permanent home in either country, they are considered a resident only of the country where they have an habitual abode, i.e., where they normally reside (usually the period of 6 months is taken into account).
If they have an habitual abode in both countries or in neither of them, they are considered a resident only of the country of which they are a national.

Under the DTA, a company's tax residency is determined based on the national legislation of each respective country.

In Singapore, a company is regarded as a Singapore tax resident if the control and management of its business operations are exercised within Singapore. This typically occurs where the Board of Directors convenes and where strategic decisions are made regarding the company's affairs.

In Poland, a company is considered a resident if its registered office or management is located within Polish territory. Specifically, the presence of a management board in Poland is inferred when the company conducts its current activities in an organized and continuous manner within the country. This includes activities based on agreements, decisions, court judgments, or other documents regulating the establishment or operation of the company, as well as granted powers of attorney or connections between related entities.

If a company is deemed a resident of both countries based on their respective national laws, the DTA provides that the company's residency is determined by the location of its place of effective management.

In situations where none of the aforementioned criteria definitively determine an individual's or company’s residency, tax authorities from both countries collaborate to establish residency for specific individuals or companies. However, such instances are rare in practice.

Taxation of Income

The treaty says that dividends, royalties, or interest are taxed in the country of a recipient's residency (income tax) and in the country of residency of the company that is paying the dividends (withholding tax). To avoid double taxation, residents of the contracting states may use a tax credit scheme. In addition, the DTA provides for reduced withholding taxes on dividends, interest, and royalties. The table below illustrates this:

Income	Regular withholding tax in Poland	Regular withholding tax in Singapore	Treaty tax rate
Dividends	19%	Singapore does not impose withholding tax	5% if the recipient is a company that owns at least 10 percent of shares of the paying company; and 10% in all other cases.
Royalties	20%	10%	2% of the royalties paid for the use of any industrial, commercial, or scientific equipment; and 5% in all other cases.
Interest	20%	15%	5%

As a general rule, gains from selling any property are taxable only in the state where the seller is a resident.

However, there are certain exemptions:

Gains received by a person residing in State A from selling immovable property situated in State B are also taxed in State B.
Gains from selling movable property forming part of the business property of a PE in State A of a company residing in State B, including gains from selling of such a PE, are also taxed in State A.
Gains obtained by a resident of State A from the sale of shares, where more than 75 percent of their value is derived from immovable property situated in State B, may also be subject to taxation in State B.
Gains received by a resident of State A from selling of ships or aircraft operated in international traffic are taxable only in State A.

Note that currently Singapore does not tax capital gains, so such gains are taxable only in Poland.

When an enterprise operates abroad through a Permanent Establishment (PE), the profits attributable to that PE are subject to taxation in the foreign state. A PE is regarded as a distinct entity for tax purposes and includes fixed places of business such as management offices, branches, factories, workshops, mines, or construction projects lasting more than 12 months.

However, certain activities do not constitute a PE, including:

The use of facilities solely for the storage, display, or delivery of goods belonging to the enterprise.
The maintenance of a stock of goods solely for storage, display, or delivery.
The maintenance of a stock of goods or processing by another enterprise.
The operation of a fixed place of business solely for purchasing goods, collecting or supplying information, advertising, or similar activities.

Two enterprises are considered to be Associated Enterprises where:

An enterprise residing in State A participates directly or indirectly in the management, control, or capital of an enterprise residing in State B, or
The same persons participate directly or indirectly in the management, control, or capital of enterprises of State A and State B, and
The commercial relations of such enterprises are different from the relations of independent ones. In other words, the companies do not transact business at arm’s length.

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

Salaries, wages, and other similar payments received by a resident of State A from employment exercised in State B are taxed in State B.

However payments received by a resident of State A for employment exercised in State B are taxable only in State A, if:

The recipient is present in State B for less than 183 days during the year; and
The payment is made by an employer who is not a resident of State B; and
The payment is not made by a PE which the hiring company has in State B.

In case of double taxation, the person may claim the tax credit in the state of residence.

Avoidance of Double Taxation under Singapore-Poland DTA

The main goal of any DTA is to reduce the tax burden on individuals and companies by eliminating the possibility of being taxed twice on the same income. The basic instrument established by the DTA for this purpose is the foreign tax credit. It allows for a tax credit in the country of residence if the income was taxed in the source country.

The foreign tax credit is a tax break that offsets income tax paid to the other country. For example, if you paid S$1000 of Polish taxes and you are liable to pay S$1500 on that same income in Singapore, your tax credit will be S$1000 and you will have to pay only S$500 in Singapore.

Poland-Singapore DTA - At a Glance

The Poland-Singapore double taxation avoidance agreement specifically states where different types of income are subject to tax. Essentially, the place of taxation determines the rate of tax applicable to each type of income as follows:

Type of income or payment

Where it is taxed

Income from immovable property

Taxed in the state where the property is situated

Profits from business

Taxed in the state where a company is resident.

Profits from shipping and air transport

Taxed in the state where a company is managed and controlled

Dividends

May be taxed in the state where the recipient resides and in the state where dividends arise

Interest

May be taxed in the state where the recipient resides and in the state where interest arises

Royalties

May be taxed in the state where the recipient resides and in the state where royalties arise

Capital gains

Taxed in the state where the seller is a resident

Professional services

Taxed in the state where the person is a resident and in certain cases in the state where the work is performed

Salaries and wages

Taxed in the worker’s state of residency and in certain cases in the state where the work is performed

Directors’ fees

Taxed in the state where the company (paying the directors’ fees) resides

Income of artists and sportspersons

Taxed in the state where activities are performed

Pensions

Taxed in the state where the recipient resides

Government payments

Taxed in the state that pays the remuneration

Payments to students and trainees

Tax exempted

Permanent Establishment profits

Taxed in the state where it carries on business activities, but only in the amount attributable to that PE

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Conclusion

In conclusion, the Poland-Singapore Double Tax Treaty serves as a cornerstone in fostering economic cooperation and facilitating cross-border transactions between the two nations. By providing clarity on tax obligations, eliminating double taxation, and incorporating anti-abuse measures, this treaty creates a conducive environment for individuals and businesses to engage in bilateral activities with confidence and efficiency.

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