Double Taxation Agreement Between the Republic of Singapore and the People’s Republic of China
Singapore and China have a double taxation agreement that has been effective since 1 January 2008. The governments saw the benefit in allowing persons who are residents of both or one of the Contracting States (Singapore or China) to avoid double taxation.
The agreement covers specific taxes under specific circumstances.
Starting with Article 2 of the agreement, titled Taxes Covered, the agreement states:
- The following agreement will apply to taxes on all income, on elements of income or taxes on gains from immovable or movable property
Existing taxes which the agreement applies fall under the name of:
- Individual Income Tax
- Enterprise Income Tax
- Income Tax
Both Contracting States must notify the other when significant changes to taxation laws have been made. Identical or similar taxes are covered under the agreement. It's important to know the general definitions under the agreement when reading through the law.
Brief Definitions of the Agreement
Several definitions are provided within the agreement to help the reader better understand the law. These definitions are used for clarification purposes, and they include the following:
- China: Any area of the People’s Republic of China wherein taxation applies.
- Singapore: Any area of the Republic of Singapore wherein taxation applies.
Under these definitions, this would include areas where sovereign rights of exploration exist for China and areas, which under international law agrees, that Singapore encompasses.
Additional definitions that are of importance include:
- Person: A body of persons which may include a business or individual.
- Company: An entity that is, for tax purposes, treated as a body corporate.
- International Traffic: Any aircraft or ship operated by an enterprise of a Contracting State with the exception of an aircraft or ship operated only in places of the other Contracting State.
- National: An individual that is a national of a Contracting State, or any legal person, association or partnership that has its status from the laws of either Contracting State.
- Competent Authority: Authorized representatives of either Contracting State or the State Administration of Taxation (China) or Minister of Finance (Singapore).
A resident of a Contracting State will be a person that is liable to tax within one of the Contracting States under one of the following reasons:
- Place of management
- Head of office
- Place of incorporation
If, by definition, a person is a resident of both Contracting States, then the status of the resident will be determined based off of the following:
State where the person has a permanent home
- If a permanent home exists in both Contracting States, the person will be considered as resident of the state where his economic relations are closer.
- In the event that a person’s economic relations, or vital interests cannot be determined, residency will be determined where the person has a “habitual abode.”
- If the person has or doesn’t have a habitual abode in either of the Contracting States, the person will be considered a resident of the state where he is a national.
- If residency still cannot be determined, the Competent Authorities will settle the question of residence together.
If a person, under the previous definition (not an individual), is a resident of both Contracting States, the place where effective management is located will be the “person’s” residence. Competent Authorities will settle any disputes where effective management cannot be determined.
What this means is that a “person,” which in this case would likely be a business, has operations in both Contracting States and could be considered a resident of either Contracting State, the State where effective management exists will be considered the resident State.
It's not possible, for tax purposes, to be a resident of both states. It's also not beneficial to be a resident of both states because double taxation can occur in this case.
The appropriate Competent Authority will work to determine if a person is a resident of a State to settle the dispute.
Income Sources and Information Under Article 6 – 17
Double taxation can occur on several forms of income. Article 6 of the agreement starts with income from immovable property. The income from immovable property in a Contracting State may include:
- Income from forestry
- Income from agriculture
Immovable property income by a resident of a Contracting State may have the income taxed in the other State if the property is situated in the other State. The term “immovable property” also encompasses accessories for the property, which may include:
Income from the property may be from:
- Use of the property
- Direct use of the property
- Letting of the property
Business profits are mentioned in Article 7, and the Article states that profits of an enterprise will be taxable only in the Contracting State where the business is carried out. Exceptions to this rule include business that is carried out in a permanent establishment in the State.
For example, if a business has an entity in Singapore and opens a subsidiary in China, the profits derived from the subsidiary in China will be taxable in China. Only the profits attributed to the permanent establishment in China may be taxed in the State.
Deductions are allowed, allowing the enterprise to deduct expenses which have been incurred for the purpose of the permanent establishment. Profits of an establishment cannot be from the purchase of goods or merchandise for the enterprise as a whole.
The same method, year by year, will be used to attribute the income of a permanent establishment unless a reason to the contrary is found.
Income from Shipping and Transport
Shipping and transport income are clearly outlined, allowing for income derived in international waters to only be taxable by the enterprise’s Contracting State. Profits from a joint business or international operating agency will follow the same guidelines.
Interest derived from the operation will be considered from the operation of ships and aircraft.
Profits that will fall under this definition will also include:
- Rental of the ships or aircraft
- Profit from the rental of shipping containers or equipment used for transport
Income from Dividends and Interest
Dividends that are paid by a company of a Contracting State to another resident of the other Contracting State may be taxed in the other State. The dividends may also be taxed in the Contracting State where the company is a resident.
But there is an exception for the owner of the dividends of the other State. In this case, the taxation cannot:
- Exceed 5% of the dividend gross amount if the beneficial owner holds 25% of the company paying the dividends (companies other than partnerships apply).
- In all other cases, the amount may not exceed 10% of the gross dividend amount.
Interest that is paid to a resident of the other Contracting State may be taxed in the other State if it is arrived in a Contracting State. The income may also be taxed in the Contracting State where the interest is derived. If the beneficial owner is a resident of the other Contracting State, taxes cannot exceed:
- 7% if received by a financial institution or bank
- 10% of the gross amount in all other cases
Exemptions do exist if the interest is derived from government bodies and agencies, including:
- China’s Development Bank, Government of the People’s Republic of China, Export-Import Bank of China, Agricultural Development Bank of China, National Council for Social Security Fund, or any institution that is owned wholly by the Government of China.
- Government of the Republic of Singapore, Monetary Authority of Singapore, Singapore statutory body, Government of Singapore Investment Corporation Pte Ltd., or any institution that is wholly owned by the Government of Singapore.
Income from debt-claims of every kind will be considered interest.
Income from Royalties, Capital Gains, Independent Personal Services, Director Fees, Artists, Sportsmen
Royalties that arise in a Contracting State and are paid to a resident of the other Contracting State will be taxed in the other State. Royalties include payments received for the consideration of artistic work, scientific work or copyright of literary works.
If the beneficial owner of the royalties is also a resident of the other Contracting state, taxes may not exceed:
- 10% of the gross amount of royalties
Royalties are derived from a Contracting State when the payer is a resident of the State.
Capital gains fall under numerous rules, and these rules depend on how the capital gains are earned. The follow will apply:
- Capital gains that are derived from immovable property may be taxed if it is situated in the other Contracting State.
- Gains may be taxable in the other State when the gains are derived from the alienation of shares that include 50% or more of their value from immovable property in the other Contracting State.
- Gains from the alienation of shares that represent a 25% participation in a company in which the owner is a resident of a Contracting State may be taxed in the resident’s Contracting State.
Independent personal services will include income from personal service performance or other activity. “Professional services,” by definition, will include services that may fall under the following, but are not limited to these services:
- Independent artistic, teaching, scientific and educational activities
Taxation for independent personal services for a resident of a Contracting State will be taxable in the Contracting State unless the resident has a fixed base in the other Contracting State for performing professional services, or if the resident is present in the other Contracting State for a period of 183 days in a calendar year.
Income will be taxable in the other Contracting State in the example above, yet only the amount that is attributable to the fixed base will be taxable.
Director fees that are derived from a resident of a Contracting State, as a member of the board of directors for a company of the other Contracting State, will be taxable only in the enterprise's Contracting State.
Athletes and artists where income is derived by a resident of a Contracting State may have their income taxed in the other Contracting State where the resident’s activities are exercised in the other Contracting State. This would include, but may not be limited to:
- Television actors
- Radio personalities
- Motion picture performers
- Theatre persons
When public funds of the Government of either Contracting State or local authority are used to support activities, either wholly or substantially, of an entertainer or athlete, the income derived by a resident of a Contracting State in the other Contracting State shall be exempt from taxes in the other Contracting State.
As such, if Singapore was funding a performance for entertainers in China, the income from the event will be taxable in Singapore and not China.
Income from dependent personal services, which includes wages and salaries, derived from a resident of a Contracting State for employment will be taxable only in that Contracting State. If the employment occurs from activities in the other Contracting State, income from such activities may be taxed in the other State.
Income from activities carried out in the other State will only be taxable in the resident’s State under the following conditions:
- The recipient is present in the other Contracting State for no more than 183 days in a calendar year.
- Remuneration is paid by an employer that is not a resident of the other State.
- Income is not derived from a permanent or fixed based in the other Contracting State owned by the employer.
Income from Government Service
When income is from a government service, it will include wages, salaries or other similar remuneration. Income must be paid by the local authority or Contracting State for services rendered in that State and is only taxable in that State. This does not include pension.
Exemptions to the rule are when wages or salaries are rendered in the other State and the individual is a resident of the State who:
- Is a national
- Did not become a resident with the only purpose to render services
Forms of income that have not been covered and fall under other income will be taxed in the Contracting State where the money was derived.