Protocol Amending the Singapore-Germany Agreement for Avoidance of Double Taxation Enters into Force

Background

The Protocol amending the Agreement signed on 28 June 2004 between the Republic of Singapore and the Federal Republic of Germany for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital (“Protocol”) which was signed on 9 December 2019, entered into force on 29 March 2021.

The key changes in the Protocol are as follow:

  1. Permanent establishment threshold for construction-related activities (i.e. building site, construction, installation or assembly projects) has been extended from six months to 12 months.
  2. No change to the 5% withholding tax (“WHT”) rate on dividend if the beneficial owner of the dividend income holds at least 10% of the capital of the company paying the dividend. In all other cases (except for dividend from a real estate investment company or trust), the dividend WHT rate has been reduced from 15% to 10% in the Protocol.
  3. Interest WHT rate reduced from 8% to 0%.
  4. Royalties WHT rate reduced from 8% to 5%.“Payments of any kind received as a consideration for the use of, or the right to use, industrial, commercial or scientific equipment”has been removed from the scope of royalties article.
  5. Gains derived from the alienation of shares, participations, or other rights representing more than 50 per cent of the vote, value or capital stock in a company, may now be taxed in the state where the company is a resident, if the alienator had held directly or indirectly such shares, participations, or other rights for a period of less than 12 months preceding such alienation.
  6. Arbitration provisions included to provide for a mechanism whereby a taxpayer may request for arbitration of eligible Mutual Agreement Procedure cases that have not been resolved for three years.

To do

The Protocol aims to enhance cross-border trade and investment between Singapore and Germany. Multinationals with holding companies or operations in Singapore and Germany, should take note of the changes for effective group tax planning.

Indicative Margin for Related Party Loan Not Exceeding S$15 Million is 2.75% for 2021

In determining the arm’s length interest to be charged on related party loans, taxpayers may apply the indicative margin on each related party loan not exceeding S$15 million. If taxpayers choose to apply the indicative margin, they will apply the indicative margin on the appropriate base reference rate (e.g., SGD Singapore Inter Bank Offered Rate or SGD/USD swap rate) selected for the related party loan. The interest rate shall be equal to the indicative margin plus the appropriate base rate.

The Inland Revenue Authority of Singapore updates the indicative margin at the beginning of each calendar year. The indicative margin for 2021 (related party loan not exceeding S$15 million obtained or provided during the period from 1 January 2021 to 31 December 2021) is +275 bps (2.75%).

If taxpayers choose not to apply the indicative margin or if it is not applicable to them, they will have to apply an interest rate in line with the arm’s length principle and maintain contemporaneous transfer pricing documentation.

For more information, please click here.

Source: Inland Revenue Authority of Singapore

Crowe Singapore’s Budget 2021 Newsletter Now Available

Several existing measures were enhanced or extended in the Singapore Budget Statement for the Financial Year 2021 (“Emerging Stronger Together” Budget) to provide continued support to businesses and workers to mitigate the effects of the COVID-19 pandemic. 
 
To learn more about these measures and other tax changes announced in this year’s Budget, read Crowe Singapore’s Budget 2021 Newsletter that provides a summary of select key measures and tax changes announced in this year’s Budget.

Read Newsletter

IRAS Publishes Summary of Income Tax Treatment of COVID-19-Related Payouts to Businesses and Individuals

The Inland Revenue Authority of Singapore (IRAS) has published a summary of the income tax treatment of COVID-19 payouts to businesses and individuals, outlining what is taxable and not, as follows:  

The following payouts are not taxable either because they are not income in nature or a specific exemption has been granted to exempt the payout from tax:

No.PayoutPurpose of PayoutTax Treatment of Payout
1Self-Employed Person Income Relief Scheme payoutTo help eligible self-employed persons (SEPs) tide over this period of economic uncertainty.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
2COVID-19 Support GrantTo support individuals who have lost their jobs as a result of the COVID-19 pandemic, while they find a new job or attend training.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
3Workfare Special Payment (Under Care and Support package)To provide support to Singaporeans during this period of economic uncertainty.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
4Temporary Relief Fund payoutTo support those who require immediate help to cope with basic living expenses as a result of the COVID-19 pandemic.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
5NTUC Care Fund (COVID-19) payoutTo provide one-off financial assistance to National Trades Union Congress (NTUC) union members who are in financial difficulty or retrenched due to the COVID-19 pandemic.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
6Wage support for tourist guides licensed by the Singapore Tourism BoardTo provide wage support for licensed tourist guides.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
7Payout to Singaporean seafarers funded by the Maritime and Port Authority of Singapore under the Seafarers Relief PackageTo assist Singaporean seafarers who are unable to secure shipboard employment.Not taxable as the payout is meant to support individuals through the exceptional circumstances arising from the COVID-19 pandemic.
8Jobs Support Scheme payoutTo help enterprises retain local employees (Singapore Citizens and Permanent Residents) during this period of economic uncertainty.Not taxable as the payout is to help employers retain their local employees by providing cashflow support or mitigate the financial impact of COVID-19 containment measures for employers and SEPs.
9COVID-19 Quarantine Order Allowance scheme payout

COVID-19 Leave-of-Absence (LOA) scheme payout

COVID-19 Stay-Home Notice (SHN) scheme payout
To mitigate the financial impact for those who have been served, or whose workers have been served, a Quarantine Order, LOA or SHN.Not taxable as the payout is to help employers retain their local employees by providing cashflow support or mitigate the financial impact of COVID-19 containment measures for employers and SEPs.
10Courage Fund COVID-19 Relief schemes
For more information on the schemes available, please refer to the National Council of Social Service.
To provide relief and support to low-income families, healthcare workers and other specified individuals who have supported the national response to COVID-19 and in doing so, contracted COVID-19.Not taxable as these are unconditional gifts.

The following payouts are taxable, being revenue receipts of a business, in accordance with general income tax rules:

No.PayoutPurpose of PayoutTax Treatment of Payout
1Temporary Housing Support for employers affected by Malaysia’s Movement Control OrderTo help employers defray the additional costs of providing short-term housing to affected workers.Taxable as the payout received is to defray the operating costs of a business and is revenue in nature.
2Senior Worker Support Package
• Senior Employment Credit
• CPF Transition Offset Scheme
• Senior Worker Early Adopter Grant
• Part Time Re-employment Grant
To support employment of senior workers.Taxable as the payout received is to defray the operating costs of a business and is revenue in nature.
3Assistance scheme to defray third-party professional cleaning and disinfection costs for premises with confirmed COVID-19 casesTo provide assistance to defray cleaning costs for premises with confirmed COVID-19 cases.Taxable as the payout received is to defray the operating costs of a business and is revenue in nature.
4Special relief for unhired taxisTo help taxi operators defray the costs of their unhired fleet of taxis.Taxable as the payout received is to defray the operating costs of a business and is revenue in nature.
5Wage Credit Scheme
(Including the enhancements made as part of the Stabilisation and Support Package in Budget 2020)
To support wage increases for Singaporeans.Taxable as the payout received is to defray the operating costs of a business and is revenue in nature.

Source: IRAS

Singapore-Turkmenistan DTA Agreement Enters into Force

An agreement for the Avoidance of Double Taxation (DTA), signed by Singapore and the Republic of Turkmenistan on 28 August 2019, entered into force on 30 April 2020.

The effective date of the DTA is 1 January 2021.

Some of the withholding tax rates under the DTA are as follows:

  • Dividends – 10%. 0% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly or indirectly at least 25% of the capital of the company paying the dividends.
  • Interest – 10%. Exempted from tax if paid between the specified relevant government authorities of the contracting states.
  • Royalties – 10%

The full text of the DTA is available on the Inland Revenue Authority of Singapore’s (IRAS) website.

Source: IRAS