Spain-Singapore DTAA: Double Tax Avoidance Agreement

This article provides an overview of the Spain-Singapore Double Tax Treaty. It can provide useful guidance to individuals and companies who are doing business in both — Spain and Singapore — as they explore their options for minimizing their tax burden. The article describes the scope of the agreement, types of taxes covered by it, specific rules on taxation of different types of income, regulations for eliminating double taxation, and other salient features of the treaty.

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Spain-Singapore DTAA: Double Tax Avoidance Agreement

This article covers the following topics:

Spain-Singapore Relations
Why the Spain-Singapore Double Tax Treaty?
Scope of the Spain-Singapore Tax Treaty
How is Tax Residency Defined Under the Spain-Singapore DTA?
What Taxes Will I Owe Under the DTA?
How the Spain-Singapore DTA Avoids Double Taxation?
Singapore-Spain DTAA at a Glance

Spain-Singapore Relations

Singapore and Spain share robust and longstanding ties, underpinned by strong trade and flow of investment. They have come a long way since the establishment of diplomatic relations in 1968. Over the years, the countries have substantially deepened their bilateral linkages, with regular exchanges across political and economic spheres.

Today Singapore plays host to more than 200 large Spanish companies, one of the largest concentrations of Spanish businesses in the region. Spanish companies in Singapore are involved in key sectors such as info-comms and technology, energy and chemicals, as well as construction and infrastructure. They have lent their expertise and technological know-how to Singapore, and many have found success in partnering with local companies.

Spain, as a member of the European Union, shares with Singapore many international agreements such as the EU-Singapore Free Trade Agreement, EU-Singapore Investment Protection Agreement, EU-Singapore Partnership and Cooperation Agreement, etc. One of the agreements enhancing Spain-Singapore cooperation in the tax field is the Spain-Singapore Double Tax Treaty, which we will focus on in this article.

What is the Spain-Singapore Double Tax Treaty?

The Spain-Singapore Double Taxation Agreement (DTA) is an agreement between the two states designed to:

Protect the residents of both countries against double taxation where the same income may be considered taxable in both states
Provide certainty of treatment for cross-border trade and investment
Prevent excessive foreign taxation and other forms of discrimination against business interests abroad

Singapore’s DTA with Spain became effective on January 1, 2013. It was Singapore’s 69th DTA, concluded to encourage and facilitate cross-border trade and investment between Singapore and Spain by providing greater clarity on taxing rights and minimizing the scope of double taxation between the two nations. The DTA also includes the internationally agreed standard for the exchange of information for tax purposes upon request.

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Scope of the Spain-Singapore Tax Treaty

The scope of the Spain-Singapore DTAA covers the type of persons (individuals, companies) and the types of taxes to which the treaty applies as described below.

Who is covered?

The DTAA applies to residents of both contracting states, i.e. to legal entities and individuals who reside in Spain, or Singapore, or both countries.

Type of taxes covered

The DTAA covers all taxes on income levied by the relevant tax authorities. It clarifies that taxes on income include all taxes imposed on total income or on elements of income, including taxes on gains from selling movable or immovable property, taxes on total wages or salaries paid by enterprises, and taxes on capital appreciation.

In the case of Spain, the treaty applies to "Spanish tax," namely:

Income tax on individuals;
Corporation tax;
Income tax on non residents; and
Local taxes on income

For Singapore, the DTA applies to the "Singapore tax," namely:

Income tax

This agreement also applies to any taxes that may be imposed in addition to or in place of those that currently exist.

How is Tax Residency Defined Under the Spain-Singapore DTA?

Under the Spain-Singapore DTAA, individuals and corporate entities are considered residents for taxation purposes of one of the two contracting states, and taxes are charged only by the country of residence, not by the country that is the source of income.

In the case of individuals, persons are deemed to be tax residents of the country of which they are citizens. If this is not applicable, they will be considered tax residents of the country in which they carry out most of their activities, where they live or have a resident permit. It is possible for individuals to be citizens of both states, and in that case their fiscal residency will be considered the country where they have the closest ties. The individual will pay income taxes to that country and utilize the benefit from the provisions of the double tax treaty in that country.

Tax residency of corporate entities is determined by the country where the entity has its place of “effective management,” i.e., the place where the Board of Directors meets.

If none of the criteria mentioned above is able to determine residency, tax authorities in the two countries will reach mutual agreement as to how fiscal residency for a specific individual or company is to be established; however, such situations are rare.

What Taxes Will I Owe Under the Spain-Singapore Double Tax Avoidance Agreement?

The tax you owe will depend on the country where you have to pay the tax which further depends on the type of income involved. Taxes on various types of income are described in the following sections.

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 are abroad:

A place of management;
A branch;
An office;
A factory;
A workshop;
A farm or plantation;
A mine, oil well, quarry or other place of extraction of natural resources; or
A building site or construction or assembly project which exists for more than 12 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, for collecting or supply of information, advertising or for 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.

Dividends

Regular withholding tax in Spain - 19%
Regular withholding tax in Singapore - Singapore does not impose withholding tax
Treaty tax rate - 0% if the recipient is a company that owns at least 10 percent of shares of the paying company; and 5% percent in all other cases.

Royalties

Regular withholding tax in Spain - 19%
Regular withholding tax in Singapore - 10%
Treaty tax rate - 5%

Interest

Regular withholding tax in Spain - 24%
Regular withholding tax in Singapore - 15%
Treaty tax rate - 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 received by a resident of State A from selling of shares or other rights which entitle the owner of such shares to the enjoyment of immovable property situated in State B are also taxed in State B.
Gains from selling of 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 received by a resident of State A from selling of ships or aircraft operated in international traffic are taxable only in State A.
Gains received by a resident of State A from the selling of shares or comparable interests deriving more than 50% of their value from immovable property situated in State B are also taxed in State B. However, the mentioned rule does not apply to:
- Gains received from selling of shares of a company quoted on a stock exchange of Spain or Singapore;
- Gains received from selling of units of a real estate investment trust quoted on a stock exchange of of Spain or Singapore where the seller has not held more than 25 per cent of the units of such trust during the 24-month period preceding the selling; and
- Gains derived from the selling of shares of a company whose immovable property in which it carries on an industrial business is more than 50 per cent of its asset value.

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

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.

How Spain-Singapore DTAA Avoids Double Taxation?

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 Spanish 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.

In Which Country Will the Income be Taxed?

The Spain-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.

Business profits

Taxed in the state where a company is managed and controlled — typically, the country of the company's Board of Directors meetings.

Permanent Establishment profits

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

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 sports persons

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.

Protect Your Income From Excessive Taxation

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Conclusion

Today Spain is a strong economic partner to Singapore, with bilateral trade amounting to S$2 billion yearly. There are more than 200 large international Spanish companies in Singapore, and many of them use Singapore as a gateway to the ASEAN region.

A significant step forward in bilateral relations was made when the EU-Singapore FTA was signed. Another important legal instrument enhancing business relations between Spain and Singapore is a DTA that became effective in 2013. Like every other DTA Singapore has entered into, its agreement with Spain contains information on how tax residency is established, with the purpose of avoiding a levy of similar taxes on taxpayers with activities in both countries.

You can find the full text of the Singapore-Spain DTA. If you are an investor from Spain who needs information about how the DTA can influence the way your income is taxed, or if you would like to incorporate a Singapore company, please contact us in Singapore.

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