Protocol to DTA signed between Singapore and India: Phasing out of capital gains tax exemption on share-market investments originating from Singapore

On By taxsgIn Corporate Tax, Latest Tax News, Tax Treaties

13 January 2017

On 30 December 2016, Singapore and India signed a Protocol to amend the existing Singapore – India Avoidance of Double Taxation Agreement (DTA) to gradually phase out the capital gains tax exemption on shares from 1 April 2017.

As the India-Mauritius DTA will phase out capital gains tax exemption, the Singapore-India DTA which is pegged to the India-Mauritius DTA, has to be similarly amended.

Hence, the tax treatment for gains on shares acquired on or after 1 April 2017 is as follows:

A. For gains that arise during 1 April 2017 to 31 March 2019:

  • Tax rate imposed on such gains will be limited to 50% of the tax rate applicable on such gains in the State in which the company whose shares are alienated is resident.
  • Subject to specified conditions including expenditure on operations of the alienator in its residence State of at least S$200,000 in Singapore or Indian Rs5,000,000 in India, as the case may be, for the immediately preceding period of 12 months from the date on which the gains arise.

B. Gains that arise after 31 March 2019 will be taxable in the State in which the company whose shares are alienated is resident.

For shares acquired before 1 April 2017, there is no change to the existing tax treatment on gains arising from the alienation of such shares, i.e.

  • Remain taxable only in the residence State of the alienator.
  • Subject to specified conditions including expenditure on operations of the alienator in its residence State of at least S$200,000 in Singapore or Indian Rs5,000,000 in India, as the case may be, for each of the 12-month periods in the immediately preceding period of 24 months from the date on which the gains arise.

The Protocol also updates Article 9 on Associated Enterprises to provide for both countries to enter into bilateral discussions for elimination of double taxation arising from transfer pricing or pricing of related party transactions.

The DTA has yet to be ratified and therefore does not have the force of law.

The full text of the DTA is available on the IRAS website.

The original DTA was signed on 24 January 1994.

Source: IRAS and Ministry of Finance