The revised tax treaty between Singapore and Thailand came into effect on 1 January 2017, replacing the previous treaty signed in 1975. Areas that may be affected include intellectual property, construction, real property, services, leasing, airlines and shipping and certain debt funding arrangements. The major changes in the revised tax treaty are:
Withholding Taxes
These include royalties, interest and dividends. The definition of “royalty” now includes the “use of, or the right to use, industrial, commercial, or scientific equipment”. Accordingly, previously exempt rental or leasing arrangements may now be subject to royalty withholding tax. The revised treaty limits the royalty withholding tax to a maximum rate of 10% from 15%, with further reductions to 8% or 5% depending on the nature of the royalty.
The general interest withholding rate is reduced from 25% to 15% and there may be further relief provided for funding by financial institutions, insurance companies and government bodies. The amendments in the dividend article does not reduce dividend withholding tax as the local laws of Singapore and Thailand do not impose higher withholding tax rates on dividends.
Permanent Establishment
Permanent establishment applies to construction, services and agencies. The revised treaty extends the timeframe from 6 to 12 months before a taxable presence arises for a “Construction Permanent Establishment”. However, supervisory activities are now included in the scope of testing. The revised treaty provides the services sector with a clearer indication of when the furnishing of services or presence of employees may create a taxable presence. Finally, there are changes as to what could constitute an agency permanent establishment depending on the circumstances.
Capital Gains Tax
The revised treaty allows gains derived from the sale of shares which derive, directly or indirectly, at least 75% of their value from immovable property, to be taxable in the contracting state. This does not apply if the shares are listed on a recognised exchange.
Airlines and Shipping
The taxing rights of aircraft operation in international traffic remain with the contracting state of the enterprise: 50% of the income and profits derived by an enterprise of a contracting state from the operation of ships in international traffic remain taxable in the other contracting state.
Beneficial Ownership
Beneficial ownership requirements have been introduced for reliefs to apply, most notably in the dividends, interest and royalties articles.
Limitation of Benefits
This article, which was in the previous treaty has been removed. Treaty reliefs are now applicable, regardless of whether or how much of the subject income is remitted to or received in the other contracting state.
Conclusion
The update to the Singapore-Thailand tax treaty provides generally improved conditions for investment between the two countries but extends source taxation in certain scenarios. Well overdue, the changes bring the treaty’s articles closer towards the OECD Model Tax Convention. In addition, a three-year time limit on Mutual Agreement Procedures and the agreement of Most Favoured Nation amendments reflects mutual recognition of the importance of bilateral investment.
If you are expecting to receive or pay any amounts that might be impacted by the above changes, please contact your tax consultant with Baker Tilly TFW in Singapore or Baker Tilly Thailand.
DISCLAIMER: All opinions, conclusions, or recommendations in this article are reasonably held by Baker Tilly at the time of compilation but are subject to change without notice to you. Whilst every effort has been made to ensure the accuracy of the contents in this article, the information in this article is not designed to address any particular circumstance, individual or entity. Users should not act upon it without seeking professional advice relevant to the particular situation. We will not accept liability for any loss or damage suffered by any person directly or indirectly through reliance upon the information contained in this article.
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