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:
- 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.
- 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.
- Interest WHT rate reduced from 8% to 0%.
- 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.
- 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.
- 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.
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.