Agreement Between Singapore and India for Avoidance of Double Taxation

The Government of Singapore and the Republic of India, the Contracting States, signed an agreement on 20 April 1981, and the purpose was to avoid double taxation and also avoid fiscal evasion. Amendments have been made to the original agreement, with the full scope able to be found here.

The original agreement, also known as Annex D, is as follows:

Understanding the Scope of the Agreement -Contracting States

Contracting States, in this case Singapore and India, have come to an agreement which applies to any persons that are residents of one or both States. That is, the person must be a resident of Singapore and/or India to fall within the scope of the agreement

The agreement clearly defines which taxes will be covered in each State.

India’s Taxes Which Apply to the Agreement

India’s taxes, which are defined in Article 2, titled “Taxes Covered,” will include:

  • Income-tax and any surcharge on income-tax under Income-tax Act, 1961
  • Surtax imposed under the Companies (Profits) Surtax Act, 1964

When looking over the agreement, “Indian tax” refers to the definitions above. Taxes that fall outside of this scope will not be subject to the agreement in its original state.

Singapore's Taxes Which Apply to the Agreement

Singapore’s definition of what is covered is far more general, called, in this case “the income tax.” When overviewing the rest of this document, “Singapore tax” will be considered “the income tax.”

The agreement will apply to similar or identical taxes for both States.

Contracting States will also be required, as per the agreement, to notify the other State when taxation laws are significantly changed. Relevant enactment copies must also be given to the Contracting State so that all competent authorities can understand the new laws.

Understanding Fiscal Domicile

Fiscal domicile is a resident of a Contracting State. Residency is formed in accordance with each State’s tax laws. For the purpose of avoiding double taxation, the definition of a resident must provide a clear residence if the individual is a resident of both India and Singapore.

The agreement outlines how to determine residency in this case, and a person may be considered a resident if:

  • A permanent home is available to him. When a permanent home exists in both States, authorities will determine which state the person’s economic and personal relations are closer.
  • In the event that relations cannot be determined, or if a permanent residence does not exist, then a person is considered a resident in the state in which they have a habitual abode. What this means is the majority of time a person spends in a State. For example, if a person spent 7 months in Singapore and 5 months in India, habitual abode would declare that the person is a resident of Singapore for the purpose of the agreement.
  • If no habitual abode exists or it exists in both States, the authorities of both States will work to determine the question of residency together.

Understanding Taxation of Income

The taxation of income is a major section of the agreement, and it encompasses all of the income which may be subject to the agreement.

Immovable property may produce an income, and this income may be taxed in the Contracting State where the property exists. Contracting States definite “immovable property” under their own law, and this may include “accessory property” which applies to the immovable property.

Accessory may include:

  • Equipment used for the purpose of land management
  • Livestock used to produce income

Natural resources and mineral deposits may also be included. Income can come from direct working of the land, or it may come from letting the land or other uses of immovable property which results in income.

Property in which an enterprise exists or professional services are performed will be governed by income from immovable property.

The law does not regard aircrafts or ships as immovable property.

Business Profits

Business profits may be subject to double taxation, but there are limits in place. The agreement is such that income or profits of a business of a Contracting State are only taxable if the income is derived in the Contracting State.

When income is derived in the opposing Contracting State through a permanent establishment, the income may be taxed in the other Contracting State for income or profits that are attributable to the permanent establishment.

That is, if the permanent establishment made up 30% of the enterprise's income, then taxation can only be applied to this amount in the opposing Contracting State.

Laws allow for the deduction of expenses, when determining income or profits, to keep the permanent establishment. These expenses may include:

  • General administrative expenses
  • Executive expenses

A section of the agreement, under Article 7, paragraph 2, exists which claims that when an enterprise of a Contracting State conducts business in the opposing State through a permanent establishment, taxation is such that the income and profits will be determined as if the enterprise were an independent enterprise.

That is, the income and profits, may be treated as if they were made by an independent enterprise, under the same conditions, attributable to each Contracting State. Estimates, based on a reasonable basis, may also be made in the event that attributing profits and income accurately for each State is not possible.

“Income or profits” does not income from:

  • Dividends
  • Interest
  • Rents
  • Technical service fees
  • Royalties
  • Capital gains fees
  • Remuneration

The conduct of trade or business is what would constitute “income or profits.”

Air Transport and Shipping Profits

Air transport and shipping income or profits have their own classification under the agreement. Aircraft may fly into international zones, and in this case, operations may have income from both States.

When the aircraft operates in places only within the Contracting State, taxes will not be exempt. But, if this is not the case, income from operating the aircraft in international traffic shall be exempt from taxes in other Contracting States.

Profits from joint businesses, international operating agencies and pools will also fall under this definition.

Income derived from the other Contracting State may include income from a variety of sources, including:

  • Goods loaded into the aircraft
  • Passenger carry
  • Livestock
  • Mail

Shipping also has its own definition, and unlike air transport, taxation will occur on the other Contracting State. Income from a business that is operating in the other Contracting State may be taxed by the other Contracting State.

The taxation can only occur after 50% of the tax is reduced on the tax chargeable income.

Income may also be derived from:

  • Goods
  • Mail
  • Livestock
  • Passenger carry

Dividend and Interest Profits

Dividend and interest income or profit are also taxed differently. When dividends or interest is paid by a company, consider a resident of a Contracting state, to a resident of another Contracting State, taxation may occur in the original Contracting state.

If a resident company derives income or profits from the other State, taxes may not be imposed by the other State on dividends paid by the company to non-residents of the other State. This rule applies even if part or all of the profit arises in the other State.

Interest is considered to arise in a Contracting State when the payer is:

  • The Contracting State
  • A local authority
  • A statutory authority
  • Resident of the Contracting States
  • A political subdivision

But if the person paying the interest has a permanent establishment in a Contracting State which is connected to the debt in which the interest payment occurs, and the interest is derived from the permanent establishment, interest will have arisen in the Contracting States in which the permanent establishment exists.

When interest is given due to a special relationship, wherein the recipient and payer have some form of relationships, special cases will apply. That is, if the agreement is such that the interest paid exceeds the amount of interest paid if such a relationship didn’t exist, the excess of such payments will be taxable in accordance to the laws of the Contracting States.

Royalties

Royalty income is also complex, and like with dividend and interest income, royalties paid to a resident of another Contracting State, taxation may occur in the original Contracting state. Royalties are said to originate in the Contracting State when the payer is:

  • The Contracting State
  • A local authority
  • A statutory authority
  • Resident of the Contracting States
  • A political subdivision

If a permanent establishment exists and the payer’s liability to pay the royalties occurred in the State in which the establishment exists, royalties will be considered as derived from the Contracting State where the permanent establishment exists.

Special relationships for royalties follow the same guidelines as with interest.

Dependent Personal Services Income

Salaries, wages and renumeration are considered derived in the Contracting State where the employment occurs. Employment exercised in the other Contracting State may be taxed in the other Contracting state.

Singapore’s laws are such that income earned in India will not be taxed in India if the following is met:

  • The resident of Singapore was not in India for a period exceeding 183 days in the past year
  • Wages or salaries are paid by an employer that is a resident of Singapore
  • Remuneration is not derived from an employer’s permanent establishment in India

India has the same rules as Singapore in this respect.

Directors’ Fees

Directors’ fees of a resident of a Contracting State, which have arisen from the directors’ role as a member of a board of directors in a company that is a resident of the other Contracting State, may have to pay taxes in the other Contracting State.

Apprentices, Students and Trainees

Students who are a resident of a Contracting State but are in the other Contracting state to expand their education, are exempt from paying taxes in the other Contracting State so long as they do not reside in the contracting State for a period exceeding six years. Exemptions are for:

  • Remittance relating to the person’s training, education and maintenance
  • Remuneration per annum is 7,500 Indian rupees or less, or equivalent in Singapore currency and the remuneration was for personal services to supplement the resources available to the person

An individual that is in the other Contracting State for the purpose of the following may be exempt from taxes on the items listed below if they do not exceed three years of residency in the other State since their arrival. Individuals covered by these rules may be in the other State for:

  • Training (grant)
  • Research (grant)
  • Student (grant)

Award from the government or from one of the following may also be included:

  • Religious organizations
  • Charitable organizations
  • Scientific organizations
  • Education organizations

Exemptions for the following exist:

  • Grants
  • Allowances
  • Rewards
  • Remittance for the purpose of education or training
  • Remuneration of up to 7,500 Indian rupees or equivalent in Singapore in connection to the individual's study, training or research

Individuals that are considered an employee or are under contract with the other State for the sole purposes of gaining experience from a person that is not an enterprise for a period no longer than 12 months may also be exempt from:

  • Remittance
  • Remuneration of 12,500 Indian rupees or equivalent

Income that is not mentioned within the Agreement will be taxed based on the laws of the respective Contracting States.

Provisions to agreements are allowed, under the avoidance of double taxation. When income is subject to tax in each of the Contracting States, relief from double taxation may be given under:

  • Credits against tax payable
  • Deduction allowances

The provisions follow the Income-tax Act, 1961 as pertains to credits.

Discrimination cannot occur, meaning the other Contracting State may not impose higher taxes on nationals or citizens of a Contracting State. Reliefs, allowances or reductions, for the sole purpose of tax purposes, which are granted only to citizens are not required to be given to non-residents.

There is a mutual agreement procedure in place that allows for remedies if a resident of one of the Contracting States believes that the actions of either state are in contradiction of the Agreement. Cases must be presented within a three-year period.

Competent authorities of each of the Contracting States are allowed to exchange information if it helps to carry out the provisions in the Agreement. Information is to be treated as “secret.”

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