Summary of The Singapore and India Double Tax Treaty

A double tax treaty was first signed by Singapore and India in 1994 and it has come into force ever since. The main purpose of this Double tax agreement (DTA), as its name may suggest, is to prevent income from being tax twice when transferring from Singapore to India and vice versa.

If you are a resident of either nation and about to do business with the other one, this is the article that you should read as BBCIncorp will break down and summarize the agreement to help you get an insight on where you or your business should pay income tax to.

1. Overview of Singapore and India Double Tax Treaty

Let’s first have a look at some useful information for a better understanding:

Personal scope

The tax treaty between India and Singapore shall apply to any person who is a resident of either or both of the Contracting States (which are India and Singapore).

Tax to be covered

As for taxes, the agreement shall apply to:

• Income tax including any surcharge in India;
• Income tax in Singapore

Permanent establishment

The Singapore and India Double Tax Treaty defines a permanent establishment as a fixed place through which a company carries on partly or wholly its business. It can be a/an:

• Management place;
• Branch, office, factory or workshop;
• Natural-resource extraction place or plantation-related place;
• Warehouse or sales outlet;
• Exploration or natural-resource exploitation installation or structure that has been used for more than 120 days;
• Building site or construction, installation, or assembly project that has been carried out for more than 183 days.

2. Key Provisions of the Singapore and India Double Tax Treaty

Below is a summary of some main points of the tax treaty for specific types of income. For in-depth information on the agreement, you can check the official document here.

2.1. Immovable Property Income

A resident in a Contracting State receiving the income generated from the letting or use (in any form) of immovable property located in the other Contracting State may be taxed in that other State. This also includes the income from immovable property of an enterprise and income from immovable property used for independent personal services.

Do note that how immovable property is defined will depend on the laws of each Contracting State. Nevertheless, ships and aircraft are not considered as immovable property.

2.2. Business Profits

The profits of an enterprise of a Contracting State shall only be liable for tax in that State. However, if the enterprise carries on its business through a permanent establishment in the other Contracting State, the profits of the enterprise may be taxed in that other State but only to an extent of the profits attributed to the permanent establishment.

In deriving at profits attributable to the permanent establishment, a company is allowed to deduct expenses incurred including executive and general administrative expenses. The method for determining the apportionment shall be on a consistent basis over time.

2.3. Dividends

A resident in a Contracting State receiving dividends paid by a resident company in the other Contracting State may be taxed in the first-mentioned State (not the other Contracting State).

However, such dividends may also be taxed in the other Contracting State according to the laws of that other State but the tax shall not exceed:

• 10% of the gross dividend amount if the recipient owns at least 25% of the shares of the dividend-paying company;
• 15% of the gross dividend amount in all other cases.

Due to the fact that Singapore has not imposed any tax yet on dividends, an Indian resident who receives dividends paid by a Singapore-resident company shall be exempted from tax on dividend income in Singapore. Dividends by a Malaysian company are also deemed as raised in Singapore, and thus regulated by the same tax treatment if it is paid out of profits derived in Singapore and meets certain qualifying conditions under Double tax treaty between the two countries.

Note: The above-mentioned provisions shall not apply if the recipient (the beneficial owner) of dividends who is a resident of a Contracting State:

• Carries on business in the other Contracting State where the dividend-paying company locates through a permanent establishment or performs independent personal services in that other State from a fixed base; and
• The holding for which the dividends are paid is connected to that permanent establishment or that fixed base.

In such case, the income of dividends shall be considered as business profits of the permanent establishment or income from independent personal services and it shall be taxed accordingly.

2.4. Interest

A resident of a Contracting State receiving interest which arises in the other State may be taxed in the first-mentioned State (not the other State). Same as dividends, such interest may also be taxed in that other State where it arises according to the laws but not exceed:

• 10% of the gross interest amount if such interest is paid to a loan granted by a genuine bank or a financial institution (including insurance company).
• 15% of the gross interest amount in all other cases.

Note: The above-mentioned provision shall not apply if the recipient (the beneficial owner) of interest who is a resident of a Contracting State:

• Carries on business in the other Contracting State where the interest arises through a permanent establishment or performs independent personal services in that other State from a fixed base; and
• The debt-claim for which the interest is paid is connected to that permanent establishment or that fixed base.

In such case, the income of interest shall be considered as business profits of the permanent establishment or income from independent personal services and it shall be taxed accordingly.

2.5. Royalties

A resident of a Contracting State receiving royalties which arise in the other State may be taxed in the first-mentioned State (not the other State). However, such royalties may also be taxed in the other Contracting State according to the laws of that other State but the tax shall not exceed:

• 10% of the gross royalties amount in case of the payments for the use of (or the right to use) any industrial, commercial or scientific equipment, excluding
  • The payments for ships and aircraft incidental lease for transportation; and
  • The payment for the use, maintenance or rental of containers for transportation.
• 15% of the gross royalties amount in case of the payments for the use of (or the right to use):
  • Any copyright of a literary, artistic or scientific work;
  • Any patent, trademark, design or model, plan, secret formula or process;
  • Information concerning industrial, commercial or scientific experience.

Note: The above-mentioned provisions shall not apply if the recipient (the beneficial owner) of royalties who is a resident of a Contracting State:

• Carries on business in the other Contracting State where the royalties arise through a permanent establishment or performs independent personal services in that other State from a fixed base; and
• The right, property or contract for which the royalties are paid is connected to that permanent establishment or that fixed base.

In that case, the income of royalties shall be considered as business profits of the permanent establishment or income from independent personal services and it shall be taxed accordingly.

2.6. Fees for Technical Services

In the Singapore and India Double Tax Treaty, fees for technical services are defined as payments to any person for services relating to managerial, technical or consultancy which:

• Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a royalty payment is paid;
• Make technical knowledge, experience, skills, know-how or process available;
• Comprise technical plan or design development and transfer, excluding services not allowing acquirers to apply the technology contained therein.

A resident of a Contracting State receiving fees for technical services which arise in the other State may be taxed in the first-mentioned State (not the other State). However, such fees may also be taxed in the other Contracting State according to the laws of that other State but the tax shall not exceed:

• 10% of the gross fees in case of the fees for technical services which are ancillary and subsidiary to the enjoyment of any industrial, commercial or scientific equipment for which royalties are paid.
• 15% of the gross fees in case of all the other fees for technical services as defined above.

Note: The above-mentioned provisions shall not apply if the recipient (the beneficial owner) of fee for technical services who is a resident of a Contracting State:

• Carries on business in the other Contracting State where the fees arise through a permanent establishment or performs independent personal services in that other State from a fixed base; and
• The contract for which the fees are paid is connected to that permanent establishment or that fixed base.

In that case, the fees for technical services shall be considered as business profits of the permanent establishment or income from independent personal services and it shall be taxed accordingly.

2.7. Independent Personal Services

A resident of a Contracting State who receives income from performing professional services* or similar independent activities** shall be taxed only in that State. Nevertheless, that resident may also hold liability for tax in the other Contracting State if:

• That individual has an available fixed base in the other State for regular performances of services. Only income attributed to that fixed base is taxed.
• That individual has presence for at least 90 days in total per relevant fiscal year. Only income generated from the service performance in the other State is taxed.

*Professional services are independent scientific, literary, artistic, educational or teaching activities.

**Independent activities include activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

2.8. Dependent Personal Services

The tax treaty between India and Singapore states that salaries, wages and other remuneration generated from employment shall be taxed only in the Contracting State of which the recipient is a resident. When the employment is exercised in other Contacting State, it may be taxed in that other State.

Nevertheless, a recipient of a Contracting State shall only be taxed in that State on the received remuneration generated from the employment exercised in the other Contracting State in case:

• The recipient stays in the other State for 183 days or less in a relevant year; and
• The remuneration is paid by an employer who is not a resident of the other State; and
• The remuneration is not from a permanent establishment or fixed base of the employer in the other State.

Moreover, an enterprise of a Contracting State receiving remuneration from overseas employment in respect of ships and aircraft operation in international traffic shall also be taxed only in that State.

2.9. Directors’ Fees

A resident of a Contracting State who receives directors’ fees for being a board member of a resident company situated in the other Contracting State may be taxed in that other State.

2.10 Capital Gains

A resident of a Contracting State who receives gains from the alienation or disposition of immovable property located in the other Contracting State may be taxed in that other State.

Furthermore, gains from the alienation of movable property of a permanent establishment or a fixed base which an enterprise in a Contracting State has in the other Contracting may be taxed in that other Contracting State.

Also, gains from the alienation of ships or aircraft or other related movable property operated in international traffic shall only be taxed in the Contracting State where the alienator is a resident.

According to Article 2 of the third Protocol of amendment signed in 2016, the provision on capital gains of the Singapore and India double tax treaty was amended. Particularly, it states that that gains from the alienation of shares on or after 1 April 2017 in a resident-company of a Contracting State may be taxed in that State.

In addition to the aforementioned cases, gains from the alienation of all other properties shall be taxed only in the Contracting State where the alienator is a resident.

Please note that the gains generated from the sale of a property (capital gains) in Singapore are generally not subject to tax.

3. Key takeaways

• Income from immovable property may be taxed in where the property is situated
• Business profits shall be taxed where the enterprise is a resident, and profits arised out of a permanent establishment in other Contracting State shall be taxed in that other State.
• Income from dividends, interest, royalties and fees for technical services may be taxed in where the recipient is a resident but may also be taxed in the other country according to its laws
• Income from independent/dependant personal services shall be taxed in where the recipient is a resident and may be taxed in the source country
• Income from directors’ fees may be taxed in where the paying company is a resident
• Where to pay tax on capital gains depends on what property is being alienated

Similar to Singapore and India double tax treaty, other agreements on double taxation avoidance have been signed by Singapore and other nations such as Australia and Indonesia. Click on if you want to read more! Or should you have any further questions, feel free to contact our experts!