Guide to Singapore-UAE Double Tax Treaty

The Singapore-UAE Double Tax Treaty (DTT), initially signed in 1989 and subsequently amended, with the latest amendment taking effect on 24 July 2019, introduced changes with significant implications for tax residents of both nations engaged in cross-border transactions.

This article covers the key amendments to the DTT, how the treaty now interacts with UAE Corporate Tax, a worked example, and how to actually claim treaty benefits.

Amendments to the Singapore-UAE Tax Agreement

These amendments to the DTT reflect a collaborative effort between Singapore and the UAE to refine the tax framework governing their bilateral economic activities, providing greater clarity, reducing the risk of double taxation, and creating a more favorable environment for cross-border investment and trade.

Also check: International Tax Advisory

Threshold Expansion of Permanent Establishment (PE)

One key change concerns the definition of “permanent establishment.” The previous threshold period for determining PE presence stood at 9 months. The amendment extended this to 12 months, offering increased flexibility for UAE tax residents engaged in business activities in Singapore, and potentially reducing PE exposure and associated tax liability for shorter-duration projects.

Mitigating Double Taxation With Associated Enterprises

Another amendment addresses “associated enterprises.” Singapore and the UAE have agreed to make necessary tax adjustments where an enterprise’s profits have already been taxed in the other country, preventing instances of double taxation on the same profits.

Tax Treatment of Dividends and Interest

The amendment clarifies that dividends paid by a tax-resident company of one country to a tax-resident company of the other are taxed solely in the receiving jurisdiction. A similar framework applies to interest income, ensuring both are taxed in the respective recipient country rather than both jurisdictions.

Redefinition of Royalties

The definition of royalties has been comprehensively revised for a more precise description, addressing potential ambiguities and improving the accuracy of royalty income taxation under the treaty.

Must check: Tax Residency Certificate

Elimination of the Limitation of Relief Clause for Interest Withholding Tax

A notable change is the elimination of the Limitation of Relief clause concerning Interest Withholding Tax, with the rate now set at zero percent. This carries significant benefit for UAE tax residents investing in Singaporean companies through debt instruments, who are no longer subject to interest withholding tax on those investments.

How the Treaty Interacts With UAE Corporate Tax

Since UAE Corporate Tax came into effect under Federal Decree-Law No. 47 of 2022, treaty benefits under the Singapore-UAE DTT now interact directly with a UAE business’s own tax position, not just its exposure in Singapore. Foreign tax credit relief under the treaty reduces UAE Corporate Tax payable by the amount of Singapore tax already paid on the same income, preventing double taxation at the UAE end as well as the Singapore end. A UAE business receiving dividend or interest income from a Singaporean investment needs to account for both the treaty’s zero-rate withholding relief on the Singapore side and how that income is treated under the UAE’s own participation exemption and foreign source income rules, rather than assuming the treaty alone resolves the full picture.

Double Taxation Mitigation Mechanisms

The core principle of mitigating double taxation is fundamental to the DTT. The UAE allows a deduction of tax on a UAE tax resident’s income equivalent to the Singapore tax paid on that income, provided the income is taxed in Singapore. Singapore, in turn, permits UAE tax payable to be credited against Singapore tax on income sourced from the UAE.

Foreign Tax Credit (FTC) Scheme in Singapore

Singapore’s Foreign Tax Credit scheme allows companies to claim credit for foreign tax paid against their Singaporean tax liability on the same income, including Double Tax Relief (DTR) for treaty countries and Unilateral Tax Credit (UTC) where no treaty exists. An FTC pooling system introduced in 2011 further reduced taxes payable on foreign income for Singapore-incorporated companies.

Worked Example: Interest Income Under the Amended Treaty

A UAE-resident company provides a loan to a Singaporean subsidiary, earning AED 500,000 in annual interest income. Before the amendment eliminated the Limitation of Relief clause, this interest income could have faced withholding tax exposure in Singapore. Under the current treaty terms, the Interest Withholding Tax rate is zero percent, meaning the UAE company receives the full AED 500,000 without Singapore-side withholding. On the UAE side, this interest income still needs to be assessed against Corporate Tax rules, though the elimination of Singapore withholding tax means there’s no foreign tax paid to credit against UAE Corporate Tax for this specific income stream, simplifying the position considerably compared to the pre-amendment treatment.

How to Claim Treaty Benefits

To claim relief under the Singapore-UAE DTT, a UAE tax resident generally needs to obtain a Tax Residency Certificate (TRC) from the UAE Ministry of Finance, confirming UAE tax residency for the relevant period. This certificate is typically required by Singaporean counterparties or the Singaporean tax authority to apply the treaty’s reduced or zero withholding rates rather than domestic Singaporean rates. Businesses that don’t secure a TRC in advance of a transaction risk having standard, non-treaty withholding rates applied initially, requiring a separate refund claim process to recover the difference later.

Exchange of Information

The amendment to Article 26 emphasizes the exchange of information between competent authorities of both countries, a measure crucial for preventing fiscal evasion related to income tax and ensuring transparency and cooperation in tax matters.

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co., a trusted Tax Firm in UAE, assists businesses with Tax Residency Certificate applications, treaty benefit claims, and Corporate Tax planning for cross-border investments with Singapore.

Contact Farahat & Co. today to discuss your Singapore-UAE cross-border tax requirements.