DTAA between Philippines and Singapore
The Phillippines and Singapore are two of the most prosperous nations in Southeast Asia that attract several investors to invest in the country. As such the Phillippines and Singaporean government has ratified a Double Taxation Avoidance Agreement (DTAA) to promote cross-border commerce and investment throughout the nation.
These agreements assist in advancing economic cooperation, avoiding double taxes, and providing greater certainty for businesses and individuals engaged in transactions across borders.
We will be discussing the various aspects relating to the Philippines-Singapore DTAA. We will be covering the taxes covered under the DTAA between Philippines and Singapore as well as foreign tax credits.
About the Philippines and Singapore double taxation avoidance agreement
The Philippines and Singapore double taxation avoidance agreement is a treaty for avoiding double taxation and preventing tax evasion with regard to income taxes. The DTAA between Philippines and Singapore, which has been signed on 1 August 1977, promotes cross-border business ventures and facilitates the flow of capital, technology, and knowledge between the two nations.
The Philippines and Singapore double taxation avoidance agreement became effective on 1 January 1977 and offers a vital framework for advancing cross-border trade and investment, encouraging economic collaboration, and bringing more transparency and confidence for taxpayers active in both jurisdictions. Organizations established in Singapore and Phillipines and people with residences in the contractual nations can be subject to the terms of the Philippines-Singapore DTAA.
Taxes included under the Philippines and Singapore DTAA
All income taxes imposed on behalf of the signing states must be covered under this agreement regardless of how they are collected. All taxes levied on the entire revenue or on components of earnings, such as taxes on gains from the sale of personal or real estate and taxes on the total sums of salary and wage payments provided by businesses, shall be treated as income taxes.
Taxes covered under the Philippines and Singapore DTAA:
A. Philippines
- Income taxes levied by the Philippine government
B. Singapore
- Income tax
Any income taxes that are levied after the date of signing of this treaty, either in addition to or in lieu of the current taxes and are identical or substantially comparable, shall likewise be subject to the provisions of the treaty.
Tax Residency as per the Philippines-Singapore DTAA
Tax residency for individuals
If a person resides in both signing nations, the following criteria must be used for determining his status:
- He will be regarded as residing in the signing jurisdiction where he has access to a permanent residence. If the individual has a permanent residence in both contractual nations, he will be regarded as a resident of the one with which he has the closest personal and professional ties.
- If the aforementioned criteria cannot be met, an individual is a resident of the jurisdiction in which they have a habitual habitation.
- If he resides regularly in either one of the two jurisdictions or neither of them, the issue will be resolved by consensus between the two jurisdictions governing bodies.
Tax residency for businesses
An organization is regarded to be a resident of the jurisdiction in which its center of effective management is located. If its location for effective management is difficult to be established, the issue will be resolved by mutual agreement between the appropriate officials of the contractual jurisdictions.
Permanent establishment under the DTAA between Philippines and Singapore
For the purposes of this agreement, a “permanent establishment” refers to a stable location for business where the firm conducts its operations entirely or in part. The notion of a permanent establishment (PE) refers to a place of business, a branch office, a retail location or other commercial outlets, a warehouse, etc. it also includes a place of construction, an endeavor in construction, assembly, installation, or supervision related thereto, so long as the location, endeavor, or supervision lasts for longer than 183 days.
Taxes contributed on different forms of income in accordance with the Philippines-Singapore DTAA
The jurisdiction in which you must pay the tax and the particular type of income involved both have an impact on the amount of tax you pay.
Revenue generated from immovable property
The jurisdiction where the property is located levied taxes on the earning generated from the immovable property which includes revenue from forestry or agriculture. Such gains include revenues from the sale of immovable assets as well as revenue from the direct use, letting, as well as usage of such assets in any other way.
Profits of an organization
The profits of an organization are exclusively taxable in the jurisdiction in which the entity resides until the organization operates in the other jurisdiction via a Permanent Establishment based in that location. If the organization operates or has operated via a PE, only the portion of its income that can be attributed to that PE can be taxable in the other jurisdiction.
Royalties
Royalties derived from one jurisdiction (Singapore) and given to a citizen of another jurisdiction (Philippines) could be liable for taxation in that other jurisdiction (Philippines). Nevertheless, they might be taxable in the jurisdiction where they originate (Singapore).
In such a scenario:
- The rate of taxation must not be higher than 15% in the case of the Philippines when royalties are distributed by a company recognized with the Philippine Board of Investments and involved in favored areas of activity, as well as royalties related to cinematographic films or broadcasting.
- In Singapore, while the Economic Expansion Incentives (Relief from Income Tax) Act of Singapore is in effect, the royalties authorized as per this Act are exempted.
- The rate of taxation must not surpass 25% of the royalties’ total gross value in all other circumstances.
Interests
Interest earned in one jurisdiction (Singapore) and given to a citizen of another jurisdiction (Philippines) could be liable for taxation in that other jurisdiction (Philippines). Although, such interest could also be taxable in the nation from where it is derived and in accordance with its legislation if the receiver is the interest’s beneficial owner, the tax so levied cannot be higher than 15% of the total worth of the interest.
Dividends
A corporation that is a resident of one contractual nation (Singapore) that pays dividends to a resident of another contractual nation (Phillippines) can be taxable in that other nation (Phillippines). Such dividends might also incur taxes in the nation where the dividend-paying corporation is based (Singapore) and in accordance with its laws.
In this situation, the tax rate may not be higher than:
- 15%, provided that the recipient organization possesses a minimum of 15% of the shares of the paying organization.
- In all other circumstances, 25% of the dividends’ actual value.
Income earned from operating ships or aircraft
Businesses operating a ship or aircraft transport business are taxed in the nation where they are based. Nevertheless, the other contractual nation (Phillippines) may impose taxes on earnings made by businesses based in the contractual nation (Singapore) from the use of ships or aircraft in other contractual nations (Phillippines).
In these circumstances, the other contractual nation’s tax cannot be greater than the lesser of the following:
- 1.5% of the total gross income from sources within that nation.
- The smallest percentage of Philippine tax that can be applied to revenue of the same kind obtained by residents of another nation under similar conditions.
Profits resulting from the alienation of property
Gains from the sale of real estate could be subject to taxation in the contractual nation where the property is located. Gains from the sale of movable assets that is a component of the commercial assets of a PE are subject to taxation in the nation where the PE is located. Gains from the sale of shares of a corporation whose assets are mostly made up of immovable property are taxed in the state where that property is located.
Elimination of Double Taxation via Foreign Tax Credit
One of the main objectives of the Philippines-Singapore DTAA is to lessen the tax burden for people by preventing double taxation of their earnings. The foreign tax credit is the fundamental method that can be used to prevent double taxation. According to the DTAA, residents of Singapore and the Philippines are eligible to obtain a tax credit for taxes collected abroad.
Conclusion
The Philippines-Singapore Double Taxation Avoidance Agreement serves as a significant catalyst for economic cooperation and investment between the two nations. The agreement increases the attractiveness of international business transactions and promotes economic growth by preventing double taxation and offering lower withholding tax rates.
At Odint we can assist you in understanding every aspect related to the DTAA between the Philippines and Singapore which will further help you lower your tax obligations and prevent double taxes. Our team of professionals is knowledgeable about the intricacies of this agreement, and we are committed to making sure that you are aware of all of its terms. To learn how our experience can help you reduce your tax responsibilities and guarantee seamless adherence to the Philippines and Singapore DTAA, get in touch with us right away.
FAQ’s
The Philippines and Singapore double taxation avoidance agreement is a treaty for avoiding double taxation and preventing tax evasion with regard to income taxes.
Yes, the DTAA applies to a wide range of income sources, including corporate profits, dividends, interest, and royalties.
The Philippines and Singapore double taxation avoidance agreement became effective on 1 January 1977.
The Philippines and Singapore DTAA offer a vital framework for advancing cross-border trade and investment, encouraging economic collaboration, and bringing more transparency and confidence for taxpayers active in both jurisdictions.
By guaranteeing that income taxed in one nation is either free from taxes or entitled to a tax credit in the other nation, the DTAA prevents double taxation.
The nation of residency permits a tax credit for the taxes paid in the source country where the same income is taxed in both Phillippines and Singapore. Usually, this credit is only good for the amount of tax that would have been owed in the resident’s country.
