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.

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

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

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.	Payout	Purpose of Payout	Tax Treatment of Payout
1	Temporary Housing Support for employers affected by Malaysia’s Movement Control Order	To 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.
2	Senior 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.
3	Assistance scheme to defray third-party professional cleaning and disinfection costs for premises with confirmed COVID-19 cases	To 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.
4	Special relief for unhired taxis	To 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.
5	Wage 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