You will be able to explain how Singapore's tax treaties stop the same income being taxed twice.
Before she met the tax adviser about the Jakarta posting, Shu Ting wanted to understand one thing herself. If Indonesia taxed her salary and Singapore also had a claim on it, would she end up paying tax twice on the same money? A friend who had worked in Hong Kong said no, "because of the treaty", but couldn't explain what the treaty actually did.
This lesson explains what Singapore's tax treaties do, how a foreign tax credit works when Singapore taxes income that has already been taxed abroad, and why most individuals rarely need one.
When two countries could both tax the same income, they can agree between themselves who gets to tax it. Singapore has signed double taxation agreements, often shortened to DTAs, with a large number of countries. IRAS keeps the list of treaties in force on its website, with the full text of each.
A treaty doesn't create new taxes and doesn't usually remove tax altogether. It sets rules for each kind of income. For employment income, the usual rule is that the country where the work is done can tax it, with an exception for short visits that meet the treaty's conditions. For dividends, interest and royalties, a treaty often caps the tax the source country can withhold from a resident of the other country. And for people who could count as resident in both countries under their own laws, most treaties include tie-breaker rules that decide which country treats them as resident for the treaty.
Each treaty is different, and the details are in its articles. So the first question for any cross-border situation is simply whether a treaty exists between the two countries, and the second is what its article on your kind of income says.
Not every country has one. Singapore has no general income tax treaty with the United States, for example, which is one reason the US withholding on dividends paid to Singapore investors stays at its full rate. Investing in US and global markets from Singapore, lesson 3.1, Why 30% of a US dividend never reaches you, covers what that means for your portfolio.
Sometimes Singapore taxes income that has already been taxed in another country. A foreign tax credit lets you set the foreign tax against the Singapore tax on the same income, so you don't pay full tax twice. The credit can come under a treaty or, for some countries without one, under Singapore's own rules for unilateral tax credits.
The credit is limited. It is generally the lower of the foreign tax you paid on the income and the Singapore tax on that same income. You can't use a large foreign tax bill to reduce the Singapore tax on other income.
Take example figures. Suppose Singapore's tax on a slice of income comes to S$1,000, and the other country has already taxed the same slice at S$700. The credit would be S$700, and you'd pay S$300 more in Singapore. If the other country had taxed it at S$1,400, the credit would stop at S$1,000, and the extra S$400 wouldn't come back.
To claim, you need proof that the foreign tax was actually paid, such as a foreign tax assessment, a payment receipt or a statement from the payer showing the tax withheld. IRAS explains what it accepts.
Lesson 6.1, Foreign income received in Singapore, showed that foreign-sourced income received by an individual is generally exempt in Singapore. If Singapore doesn't tax the income, there is no Singapore tax to set a credit against, and the foreign tax is simply a cost.
So for most individuals, credits come up only in narrower cases: income received through a partnership in Singapore, or Singapore-sourced income that another country also taxes. A Singapore employee whose work trips abroad are long enough for the other country to tax that part of the salary is one example. If that happens to you, the treaty and the credit rules are where to look, and a tax adviser is worth paying for if the sums are large.
Treaties also matter in the other direction. If you're a Singapore tax resident receiving income from a treaty country, that country may let you pay a lower treaty rate of withholding, but usually only if you prove you're resident here. IRAS can issue a certificate of residence for that purpose. Shu Ting's friend had needed one to stop Hong Kong taxing a payment at the full rate.
Shu Ting looked up the IRAS list and found that Singapore has a treaty with Indonesia. She read its article on employment income and its tie-breaker rules, and wrote two questions for the adviser: which country she'd be resident in for the treaty during the posting, and whether any part of her salary could be taxed in both. She also noted that her US dividends would gain nothing from any treaty, because there isn't one.
For the activity, pick one country you earn from or might move to, find out whether Singapore has a tax treaty with it, and write what the treaty says about that income.
Find whether Singapore has a tax treaty with one country you earn from or might move to, and write what it covers.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).