• New double tax agreement with Singapore

New double tax agreement with Singapore

Radapak Arthapridi , Senior Manager, Tax & Legal Services |

01 March 2017

A new agreement between Thailand and Singapore for the avoidance of double taxation ("DTA") came into effect on 1 January 2017. The new DTA has improved benefits for Singapore investors in a number of areas, including reduced WHT rates on interest and royalties. In general, the Thai tax breaks granted under the DTA are only available to tax residents of Singapore.  A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. At the same time, it includes language to address treaty shopping, so that only the beneficial owner of the income can access certain benefits from the DTA. 

A new agreement between Thailand and Singapore for the avoidance of double taxation ("DTA") came into effect on 1 January 2017.

The new DTA has improved benefits for Singapore investors in a number of areas, including reduced WHT rates on interest and royalties.

In general, the Thai tax breaks granted under the DTA are only available to tax residents of Singapore.  A company is a tax resident in Singapore when the control and management of the company is exercised in Singapore. At the same time, it includes language to address treaty shopping, so that only the beneficial owner of the income can access certain benefits from the DTA.

Sale of shares in real estate companies

Whilst capital gains are not taxable in Singapore, in the absence of a DTA, a liability to Thai tax on the gain could arise. For example, Thailand imposes  a 15% withholding tax on gains made by overseas corporates from the sale of shares, if the gains are paid from or within Thailand.

Thailand has agreed under the new DTA to give up its right to tax gains on share sales in many cases. A major exception though compared to the old DTA is that Thailand now retains it taxing rights when a Singapore tax resident makes a gain from the sale of shares of a company deriving at least 75 per cent of its asset value directly or indirectly from real estate situated in Thailand. This provision is aimed squarely at property rich companies and is meant to counter the tax benefit arising from selling the company’s shares rather than the property it owns.

Taxable presence in Thailand redefined

Greater clarity is provided in the new DTA regarding situations that will result in a Singapore tax resident carrying on business in Thailand being liable to Thai income tax.

The new DTA provides that a building site, a construction, assembly or installation project or supervisory activities in connection therewith will not create a taxable presence in Thailand if such site, project or activities last not more than 12 months.

With regard to the furnishing of services in Thailand, a taxable presence will not be created if the services, including consultancy services, are provided within Thailand by employees or other personnel for not more than 183 days within any 12 month period.

The act of securing orders for related enterprises is no longer deemed to create a taxable dependent agency under the new DTA.

Taxation of interest and royalty payments

The withholding tax rates applicable to interest and royalties paid to Singapore tax residents have in general been reduced. Payments for the use of or the right to use industrial, commercial, or scientific equipment are however now classed as royalties.

 

Type of Income

Withholding Tax Rates

Previous DTA rate

New DTA rate

     

Interest
- Paid to a financial institution or insurance company
- Paid with respect to indebtedness arising as a consequence of a sale on credit by a resident of Singapore of any equipment, merchandise or services, except where the sale was between persons not dealing with each other at arm’s length
- Other interest payments (excluding those paid to government bodies exempt under the DTA)

10
 

15
 

 

15

10
 

10
 

 

15

Royalties
Payments for the use of, or the right to use:
- any copyright of literary, artistic or scientific work



15



5

- any patent, trademark, design or model, plan, secret formula or process

15

8

- industrial, commercial, or scientific equipment

-

8

Payment for information concerning industrial, commercial or scientific experience

15

10

A protocol to the DTA provides in effect that if Thailand agrees lower WHT rates on interest in the future with another country, the lower rates shall also apply to this DTA.

Beneficial ownership

The provisions regarding the taxation of dividends, interest and royalties now stipulate that the Singapore tax resident must also be the beneficial owner of the income in order to access the benefits of the DTA. Singapore nominee companies are therefore no longer eligible to access the lower withholding tax rates under the DTA.