Double Tax Agreement Singapore Malaysia: What You Need to Know
If you are a foreign business owner or an expatriate working in Singapore or Malaysia, you may be wondering how taxes work between these two neighboring countries. Fortunately, both countries have signed a double tax agreement (DTA) to prevent double taxation and promote economic cooperation.
What is a Double Tax Agreement?
A double tax agreement is a treaty between two countries to avoid double taxation of income or gains by their residents. In other words, if you are a resident of one country and earn income in another country, you will only be taxed once in either country, according to the terms of the DTA. Without a DTA, you may be subject to double taxation, which can be burdensome and discourage cross-border investments.
The DTA between Singapore and Malaysia was signed on 11 November 1973 and has been revised several times to reflect changes in tax laws and economic developments. The latest revision came into force on 1 January 2021, covering taxes on income, including business profits, dividends, interest, royalties, and capital gains.
How Does the DTA Work?
Under the DTA, residents of Singapore and Malaysia are entitled to certain tax benefits, depending on their circumstances. For instance, if you are a resident of Singapore and earn business profits from Malaysia, you will only be taxed in Singapore if you satisfy the following conditions:
– You do not have a permanent establishment (PE) in Malaysia
– Your income from Malaysia does not exceed S$200,000 (or its equivalent in MYR) in a year
– Your business activities in Malaysia are carried out for less than 183 days in a year
If you do have a PE in Malaysia, you will be taxed on your profits derived from that PE according to Malaysian tax laws. However, you may be able to claim a credit for the tax paid in Malaysia against your Singapore tax liability under the DTA.
Similarly, if you are a resident of Malaysia and earn business profits from Singapore, you will only be taxed in Malaysia if you meet the following conditions:
– You do not have a PE in Singapore
– Your income from Singapore does not exceed RM100,000 in a year
– Your business activities in Singapore are carried out for less than 183 days in a year
If you have a PE in Singapore, you will be taxed on your profits derived from that PE according to Singaporean tax laws. However, you may be able to claim a credit for the tax paid in Singapore against your Malaysian tax liability under the DTA.
In addition, the DTA provides for reduced withholding tax rates for certain types of income, such as dividends, interest, and royalties, to encourage cross-border investments. For example, the withholding tax rate on dividends paid by a Singaporean company to a Malaysian resident is 10% if the Malaysian shareholder owns at least 25% of the Singaporean company, and 15% in other cases. Without the DTA, the withholding tax rate could be as high as 30%.
Conclusion
The double tax agreement between Singapore and Malaysia is a valuable tool for foreign business owners and expatriates who are conducting cross-border transactions between these two countries. It provides certainty and clarity on tax obligations and reduces the risk of double taxation. However, it is important to understand the conditions and limitations of the DTA to avoid unintended tax consequences. If you have any questions or need guidance on how to apply the DTA to your specific situation, you should consult a tax professional who is familiar with the DTA and local tax laws.