Tax Agreements with France and Uruguay will benefit Singapore companies looking to Expand, says

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With the city-state revising its earlier avoidance of double taxation agreement with France and signing a new one with Uruguay recently, a boost in cross-border trade is inevitable.

Singapore-based companies will benefit a lot from these two new cross-border trade agreements

In what can be termed as two important milestones in Singapore's trade relations with Europe and Latin America, the city-state recently signed a revised Agreement for the Avoidance of Double Taxation (DTA) with France, and a new DTA with Uruguay. This according to two (1,2) press releases issued by the Singapore Government on January 16, 2015. With these agreements in place – though they will enter into force only after ratification by Singapore and these two countries involved – businesses can look forward to lower barriers to cross-border investment, which eventually will boost trade between these regions, noted (SCI), a popular website for company incorporation and work visas services in Singapore.

By its very definition, and also as noted by the Inland Revenue Authority of Singapore (IRAS) – the national tax regulator – in the press release, a DTA is aimed at clarifying “the taxing rights of both countries on all forms of income flows arising from cross-border business activities, and minimises the double taxation of such income.”

“Thus, Singapore-based companies, which are looking forward to expand their presence in Europe and South America, or in France and Uruguay particularly, will benefit a lot from these two new cross-border trade agreements,” said Cheryl Lee, manager at SCI.

Moreover, in case of the revised agreement with France, companies in Singapore will enjoy improved terms of businesses.

“These include anti-abuse provisions and lower withholding tax rates for businesses. Also, it is noteworthy that both, Singapore and France, have reiterated their commitment to implement the new global standard on automatic exchange of information by 2018, while signing the DTA,” added Lee. This will build on the excellent history of exchange of tax-related information between the two countries.    

It must be noted here that Sections 13 (7A) to 13 (11) of the Income Tax Act (ITA) of Singapore already gives Singapore-based companies tax exemptions on certain qualifying foreign-sourced incomes such as dividends, foreign branch profits and service-income.

Alongside, the IRAS also has a a foreign tax credit (FTC) scheme, which allows companies claim credit for taxes paid in a foreign country against the Singapore tax that is payable on the same income.

If there's a DTA in place between Singapore and a country, the credit is called Double Tax Relief. In cases, where there isn't a DTA involved, the relief is known as Unilateral Tax Credit.

“But importantly, the eligibility condition for Singapore companies to enjoy FTC benefits is that the headline corporate tax rate in the foreign country from which the income is received is at least 15 percent, and the income had already been subjected to tax in that particular country,” concluded Lee.

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