Singapore is among Japan, China and Malaysia, one the key business partners of Thailand. Despite the economic problems caused by the global outbreak of covid-19 in the world, Singapore will continue playing a fundamental role in the investment presence in Thailand in the rest of 2020 and 2021. Herrera and Partners lawyers in Thailand would like to provide some initial legal comments on the Thailand & Singapore Tax Treaty.

The latest version of the tax treaty between Singapore and Thailand has been effective since 1st of January 2017. This treaty provides the exemption or special tax rate of the income tax imposing on the resident of each contracting country as following:

Immovable Property
If the resident of one contracting state receives income arising from the real estate situated in the other contracting state, such income may be taxable in the country where is the source of the income. Meanwhile, this treaty does not deprive the rights of the residence country to tax on such income even though it has been withheld by the source country.

Business Profits
In case of the business profits in which the resident of one contracting state receives from the other contracting state, the enterprise will be free from the income taxation of the other contracting state where it is the source country of such income, provided that the enterprise shall not carry on its business through the branch, office or other permanent establishment in that state. In this case, the business profit distributed to such permanent establishment will be subject to the income tax of the source country.

The characteristic of the permanent establishment under this treaty is similar to those defined in the tax treaty of most country, which is it shall be a fixed place of the enterprise in other contracting state to carry on the business.

Shipping and Air Transport Business
If the resident of one contracting state operates the aircraft business in the international traffic, the income arises from this business will be taxable only in the residence country. However, income from the operation of ships in the international traffic is not exempted by this treaty, meaning that the other contracting state may tax on such income, provided that it shall not exceed 50% of the base rate.

Dividends
The dividends are one of the incomes that is not exempted from income tax under this treaty. The source country where the paying company is incorporated could tax on such income. However, the right of the source country to impose is limited to not exceeding 10% of the gross dividends paid to the shareholder in the residence country.

Interest
Under the treaty, the interest from the debt, bonds or debentures arising in one contracting state paid to the resident of the other contracting state, may be taxable in the source country where the interest arises, but shall not exceed 10-15% depending the source of interest.

Royalties
The income arising from the use of intellectual property right such as copyrights, trademark or patent, or the use of the information concerning industrial, commercial or scientific experience, may be taxable in the other contracting state where the income arises. However, the rate in which such country may impose shall not exceed 5-10% depending on the type of the rights.

It should be noted that the issue regarding the taxation in Thailand is relatively sensitive because sometimes the tax authority may consider the similar income in different ways based on the specific characteristic of each income. For example, in case of the provisions of the service in one contracting state to the other contracting state. It seems like this income is the profit business which would be exempted from withholding tax in Thailand. However, if such services include the rights to use the intellectual property, it may be deemed the royalties which shall ultimately be subject to the income tax in Thailand. Therefore, in order to avoid tax penalty from the Revenue Department, you should get the prior advice from your Thai tax professionals with experience working for Singaporean clients.

If you need legal advice on Tax Law between Thailand and Singapore, please contact our lawyers in Thailand at [email protected]

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