UK-Singapore DTAA: Double Tax Avoidance Agreement

The UK-Singapore DTAA eliminates double taxation in both countries by providing tax relief to residents of Singapore and UK. This article will discuss the key provisions of the DTAA between Singapore and UK. It will highlight the scope of the agreement, the advantages of the DTAA and where specific income arising in Singapore and UK will be taxed according to this DTAA.

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This article covers the following topics:

Overview of the DTAA between the UK and Singapore
Agreement Scope
Key Provisions
DTAA at a Glance
Advantages of the DTAA to Singapore and UK
FAQs

scope of UK-Singapore Avoidance of Double Taxation Agreement (DTAA)

What Is the DTAA between the UK and Singapore?

The Avoidance of Double Taxation Agreement (DTAA) is an agreement between two countries which aims to eliminate the double taxation of the same income in the two countries.

The DTAA between Singapore and United Kingdom (UK) came into force in 1998 for income and corporate taxes; and in 1999 for capital gains taxes. Certain amendments were made to the treaty in 2009 for the exchange of tax information, and in 2012 for capital gains and corporate tax rates related provision, and in 2018 for prevention of treaty abuse and arbitration procedure between states.

taxes under UK-Singaapore Double Tax Treaty

The two main aspects of the UK-Singapore DTAA are the taxability of business profits and income from sources such as interest, royalties, dividends, and other income.

For businesses, the DTAA provides tax relief on circumstances where the enterprise is taxed on the business profits arising in both the contracting states. With respect to the other common types of income such as interest, royalty, dividend etc, the DTAA provides a reduced tax rate in comparison to the prevailing tax rates in the contracting state.

Scope of UK-Singapore DTA

The UK-Singapore DTA is applicable to all residents of either one or both of the contracting states of the agreement (Singapore and the UK).

The DTAA states the kinds of income that may arise and the tax rates applicable. For example, in the case of a person who resides in the UK and receives interest from Singapore, the tax on the interest is levied according to the rates in the treaty and is usually lower than the tax that would be applicable in the absence of the DTAA. This tax rate is applicable only to residents of the UK and Singapore. These rates will not be applicable to a person residing in another country. See this table for more information.

What Taxes Will I Owe Under the UK-Singapore Double Tax Treaty?

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, and the maximum rate specified (if any) in the DTAA for that type of income. The key provisions of the UK-Singapore DTAA are described in the following sections.

The profits of an enterprise are taxable in the state where it carries on the business. However, if the enterprise carries on the business through a permanent establishment in the other state, the income attributable to the permanent establishment will be taxed in that state. If a Singapore-based enterprise carries on business through a permanent establishment in the UK, the portion of profits attributable to the permanent establishment in the UK will be taxable according to the tax rates in the UK. In such a situation, since the entire profits of the enterprise will be taxable in Singapore, the profits that the enterprise generates in the UK through its permanent establishment will be taxable twice. This will give rise to double taxation. Since Singapore and the UK have a DTAA in force, the agreement will provide tax relief in respect of the income that is subject to tax in both Singapore and the UK.

In circumstances where two states do not have any such agreement in force, their companies will be liable to bear the tax that both the countries levy.

The DTAA has specific provisions pertaining to income arising from interest, royalties, and dividends. It also specifies the tax rates for these sources of income. Usually, the DTAA provides for lesser tax rates in the treaty than the prevailing tax rates in both Singapore and the UK.

Interest

Without the treaty, the withholding tax rate in Singapore for any interest paid to non-residents is 15%, whereas in the UK the rate is 20%. However, according to the DTAA, the tax rate is reduced to 10%. For example, if a UK company has to make a payment of royalty to a person residing in Singapore, the withholding tax rate on this payment will be 10% (according to treaty rules) instead of the prevailing 20% rate in the UK.

Royalties

Without the treaty, the withholding tax rate in Singapore for any royalties paid to non-residents is 10% whereas in the UK the withholding tax rate for any royalty paid to non-residents is 20%. Under the DTAA, the tax rate for all royalties is 10%. Thus, the DTAA provides a benefit to taxpayers who may otherwise be subject to the 20% UK tax.

Dividends

The UK-Singapore DTAA states that dividends paid by a company which is a resident of a State A to a resident of the State B may be taxed in both countries. Taking into account the current tax regulations in both jurisdictions, we have the following situation. Dividends paid by a Singapore or UK company to a person being resident of the other state are not subject to tax when distributed, as neither of the two countries currently impose a withholding tax.

In case the dividend recipient is a corporate shareholder, both Singapore and UK have a provision for the exemption of taxes on dividends from subsidiaries. This exemption shall apply, so the dividends will not have any tax implications for a holding company subject to the condition that the subsidiary’s corporate income was taxed appropriately in country A.

In the case of an individual shareholder, the dividends received by a UK resident individual will be subject to a personal income tax rate. And foreign dividends received in Singapore by resident individuals are not taxable.

To compare which one of these two countries is more favorable for launching a startup, check out our guide on Launching a Startup in the UK vs Singapore.

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Singapore-UK Double Tax Avoidance Treaty at a Glance

The DTAA specifically states where the different types of income of a resident of either Singapore or the UK will be subject to tax. The following table states the types of income or payments made and the contracting state where the income is taxed. This is important since the place of taxation will determine the rate of tax applicable to that type of income under the DTAA.

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 carries out its business

Profits from shipping and air transport

Taxed in the state where a company carries out its operations

Dividends

Taxed in the recipient's state

Interest

Taxed in the recipient's state

Royalties

Taxed in the recipient's state

Capital gains

Taxed in the state where the property is located

Independent personal services

Taxed in the state where the recipient resides

Dependent personal services

The salary, wage, and remuneration is taxed in the state where the recipient resides unless the employment is carried out in the other state

Directors’ fees

Taxed in the state of which the company is a resident

Income of artists and sports persons

Taxed in the state where activities are exercised

Pensions

Taxed in the state where the recipient is a resident

Government payments

Taxed in the state where the services are carried out

Payments to students and trainees

Taxed in the state where they reside

In the case of certain types of income, such as interest and royalties, the tax may be levied in the state where it arises in spite of the treaty rules stating otherwise. This income will then be taxable according to the prevailing laws of that state.

Advantages of the UK-Singapore DTAA

The DTAA provides tax relief to residents of countries that enter into an agreement with each other. The tax relief arises in circumstances where income would otherwise be subject to tax in both the contracting states.

Any tax payable according to the laws of Singapore on the profits, income or gain a person derives from sources within Singapore is allowed as a credit against the tax that the UK may levy on the same profit, income, or gain. Similarly, the tax payable in the UK on such profits, income, or gains will also be allowed as a credit against the Singapore tax that Singapore levies on the same profit, income, or gain.

Here is an example of claiming the tax credit relief in the UK:

Sally receives £100 as foreign interest from a Singapore-based bank. The tax deducted on the interest is £15. In the UK, the tax on foreign interest is £20. The amount of Foreign Tax Credit Relief (FTCR) that a person can claim is £15. In the UK, when a person claims FTCR, the amount a person can claim will be the lesser of the following:

The foreign tax amount or tax rate according to the treaty and
The amount of tax according to the UK tax laws.

In the same situation, if there was no DTAA between Singapore and UK, the tax amount that Sally would have to pay on the foreign interest would be £15+ £20 = £35.

Thus, the DTAA is beneficial as it avoids the double taxation of the same income that arises in both the contracting states. In the absence of a DTAA, the tax-payer would end up paying tax twice – once in Singapore and once in the UK. Not only does a DTAA eliminate this double taxation, but often the DTAA’s provide for reduced tax rates in order to promote trade and commerce between the contracting countries.

Protect Your Income From Excessive Taxation

To effectively grow your business and maximize profits, it’s essential to understand the tax benefits available to you and your business. If you’re considering incorporating your company in Singapore, CorporateServices.com can help you navigate the process by helping select the correct corporate structure that will minimize your taxes while fully complying with all government laws, regulations, and DTAAs.

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