The Singapore and Japan double taxation agreement (DTA) is used to establish a single point of taxation for income earned in one of the two jurisdictions when the recipient is resident of the other jurisdiction. The agreement sets the taxation rights of each of the two treaty partners.
Investors from Japan who need detailed information about how the DTA can influence the manner in which their income is taxed can talk to one of our accountants in Singapore.
Table of Contents
Taxes covered by the Japan – Singapore DTA
This convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income was signed by Singapore and Japan in 1994 and entered into force in 1995. A Protocol to this Agreement was signed in 2010.
The DTA applies to residents of both contracting states and it covers all of the taxes on income levied by the relevant tax authorities. In the case of Japan, the treaty applies to the income tax, the corporation tax, and the local inhabitant taxes. For Singapore, the DTA applies to the income tax. This Agreement also applies to any taxes that may be imposed in addition to or in place of the defined ones.
You can read about the double tax treaty between Singapore and Japan from the infographic below:
Treaty rates between Singapore and Japan
The Singapore-Japan DTA provides for reduced withholding taxes on dividends, interest, and royalties. The table below illustrates this:
|Regular withholding tax in Japan
|Regular withholding tax in Singapore
|Treaty tax rate
One of our experts in accounting in Singapore can provide investors from Japan with more details on how these reductions apply.
Some of the top definitions that investors in Singapore need to understand in relation to these treaties are the following:
- Residency: a resident of a contracting state is a corporation or individual liable for taxation in that jurisdiction (based on domicile, residence, main office, etc.)
- Permanent establishment (PE): it is a fixed business place from where the business is carried out in its entirety or partially.
- Business profits: they are not taxable if they are not derived through a PE; when they are derived in this way, the company can deduct a certain amount of expenses.
- Income from immovable property: rental income from real estate, the DTA allowing the country of residence to allow for a tax credit for the tax paid on this income in the source country.
Other types of income that can be derived by individuals from one of the contracting states and to which the provisions of the treaty apply to include pensions, director’s fees, dividend income, income from wages or income from any other type of employment.
An accountant in Singapore from our team can help investors with detailed information about the manner in which the agreement applies to different types of income, most notably on the taxation of dividends.
Tax residency under the Singapore – Japan double tax treaty
Just as any other double tax treaty Singapore has entered, the one with Japan contains valuable information on how tax residency is established with the purpose of avoiding the levy of similar taxes on taxpayers with activities in both countries.
Under the Singapore – Japan agreement both individuals and companies are considered residents for taxation purposes of one of the two contracting states.
In the case of natural persons, individuals are deemed as tax residents of the country they are citizens of. If this is not the case, these will be considered tax residents of the country in which they carry out most of their activities, they live in or they have resident permits in. It is also possible for natural persons to be citizens of both states, case in which their fiscal residencies will be considered the one in the country they have the closest ties with. This is also where the respective persons will pay their income taxes and benefit from the provisions of the double tax treaty.
If none of the criteria mentioned above applies, the tax authorities in the two countries will reach an agreement on how fiscal residency is established, however, this is rarely the case. If you have any questions related to the taxation of foreign citizens in the city-state, our accountants in Singapore can advise you on a case-to-case basis.
When it comes to companies, tax residency is easier to establish, as a business is considered a tax resident of the country in which it is incorporated, has a management place is or a fixed place of business. There is also the matter of permanent establishments and associated enterprises which are treated separately under the Singapore – Japan double tax agreement.
If you have any questions related to the taxation of foreign enterprises in Singapore, we recommend you direct your questions to our accounting firm. Planning is of key importance when it comes an audit in Singapore. A dedicated program will be used once the aim of the audit is established. This will smooth out the entire procedure, no matter the type of audit to be conducted. If you need more information on our services, you can contact our accounting firm.
Permanent establishments under the Singapore – Japan DTT
Japanese and Singapore companies can operate in the other state through branch offices and subsidiaries. If in the latter case, the subsidiary will be treated as a domestic company and thus have a clear tax status, in the case of branch offices, these will be automatically considered permanent establishments.
There are also other cases in which certain operations can be considered as permanent establishments. These must meet the following conditions:
- they can be considered as fixed places of business through which the foreign company completes its activities partially or wholly;
- they can be considered as places of management;
- offices also enter the category of permanent establishments;
- factories, workshops, mines, gas wells, quarries and mines can also be considered permanent establishments for taxation purposes.
An essential condition for such facilities to be considered permanent establishments is for these to be set up and maintained for a minimum period of 6 months.
Under the provisions of the double tax treaty between Singapore and Japan, these will be taxed only in the country they complete their activities in.
Our accountants in Singapore can offer more information on the taxation of companies in the city-state. We can also help those who want to register for taxation with the Singapore Inland Revenue Authority.
Taxation of international operations in Singapore and Japan
Singapore and Japan are countries that have economic connections all over the world, and when it comes to the operations between businesses registered in the two states, the double tax treaty agreement sets several aspects out. Among these, the agreement stipulates that the profits generated by aircraft and ships in international traffic will be taxed in the country of residence of the company operating the vessels. This means that a company registered in Singapore will be exempt from taxation in Japan and the other way around. This principle also applies to other types of operations completed the same way and among these are joint ventures and international agencies.
Taxation of dividends, interests and royalties under the Singapore – Japan DTT
Both Singapore and Japan impose withholding taxes on dividend, interest and royalties payments under specific circumstances. These levies are covered by the double tax convention between the two states, as they are quite important.
Article 10 in the Singapore – Japan double tax treaty covers the payment of dividends from a company resident in one of the two states to a resident of the other country and it provides that the taxation can occur in the country in which the dividends are sent. However, the dividends can also be paid in the country the company issuing them resides only if the recipient is a beneficial owner and the tax is levied as follows:
- at a 5% rate on the gross amount resulting from the dividend payments if the beneficial owner holds at least 25% of the voting shares for a minimum period of 6 months;
- at a 15% rate on the gross amount of the dividend payments in all other cases.
These dividends can cover income resulted from shares or other rights that are not deemed as debts or profit participation.
The particularity in the case of Singapore is that it does not impose a dividend tax which means that a Singapore business paying dividends to a Japanese resident will not by subject to taxation in the city-state, however, the latter can be subject to taxation in their home country.
When it comes to interest payments falling under the Singapore – Japan double tax treaty, Article 11 specifies that interest arising in Singapore and paid to another in Japan may be taxed in Japan. The reverse also applies.
Just like in the case of dividend payments, there are also exceptions to this rule which specify that such interests can also be taxed in the country they resulted in if the recipient is a beneficial owner, however, the rate under which it will be imposed will be set at 10% of the gross amount of the respective interest.
The same article also provides for certain government institutions to be exempt from the payment of withholding taxes on interest. In the case of Japan, the following fall under this exception:
- the National Bank;
- the Export-Import Bank of Japan;
- other companies that are entirely owned by the State.
In the case of Singapore, the following institutions are exempt from interest withholding taxes:
- the Monetary Authority of Singapore (MAS);
- the Board of Commissioners of Currency;
- the Government of Singapore;
- other State-owned enterprises.
The term interest covers income from debts, government securities, debentures, or bonds.
Royalties payments obtained in Singapore or Japan by a person or entity falling under the double tax treaty’s provisions can be taxed in the country of residence of the recipient. By royalties, the following sources of income are considered taxable:
- the use of copyrights, trademarks, patents, designs and models;
- the use of software;
- films and other artistic work;
- the use of equipment;
- receipts from bareboat charters, aircraft and ships.
Our accounting firm in Singapore can offer more information on the withholding taxes applicable in the city-state.
Taxation of professional service providers under the Singapore – Japan double tax treaty
Natural persons residing in one state and providing his or her professional services in the other country will be taxed in his/her resident country unless:
- one has an office from which he or she operates in the other state;
- one lives in the other state for 183 days in a calendar year.
In these two cases, the professional will be taxed in the country he or she performs. Such activities include the offices of independent scientists, artists, dentists, accountants, lawyers, architects, physicians, and engineers, among others.
If you need tax consultancy with respect to the taxation of professional services in Singapore, our accountants are at your service.
Taxation of immovable property under the Singapore – Japan DTA
Japanese and Singapore residents have the right to own real estate under the form of residential and commercial buildings in the other state provided that they pay the taxes imposed in the respective states. Under the double taxation convention between Singapore and Japan, income derived from the ownership of real estate will be taxed in the country the property is located.
When it comes to the income derived from ownership of real estate, it can take the form of direct use, rental, letting and leasing. The same treatment will be applied to natural persons and corporations owning real estate in the other contracting country.
Taxation of other types of incomes under Singapore – Japan DTT
The operations of aircraft and ships are also regulated by the Singapore – Japan double taxation treaty when it comes to international traffic. Under the agreement, the income derived from such activities will be taxed in the country of origin of the taxpayer. However, tax exemptions are also available under the agreement.
The double tax treaty between Singapore and Japan provides for very advantageous conditions and if you need assistance or more information, you can rely on our accountants. You can also ask for details on the Singapore taxation system with us.
Taxation in Singapore
The corporate income tax rate in Singapore has a standard value of 17%, however, companies do benefit from an exemption from tax on 75% of the first 10,000 SGD and 50% of the next 290,000 SGD of the normal taxable income.
Apart from the corporate income tax, another tax applicable to companies in Singapore is the goods and services tax, the GST, an equivalent of the value-added tax in other countries. It is levied on the supply of certain goods and services as well as the import of goods. The standards rate of 7%. Companies are required to self-assess their registration requirements and our accounting services in Singapore also include solutions for businesses that are subject to this tax.
Accounting in Singapore
Japanese investors who open a company in Singapore will be able to benefit from the provisions of the double tax agreement under certain conditions and from the generally low taxation regime. However, another issue that they need to take into consideration includes the accounting principles applicable in this jurisdiction.
The local accounting standards are the Singapore Financial Reporting Standards which are based on the International Financial Reporting Standards. These cover issues like the manner in which financial statements are presented, how revenue is recognized, how the accounting practices are implemented in the case of inventories and others.
A separate set of standards is applicable to small legal entities. This is an advantage for small companies, which can better operate when they are subject to less stringent or difficult compliance requirements. However, in order to be able to benefit from this SME regime, a company needs to qualify for them (they can also apply to qualifying branches of foreign companies). The basic conditions are the following:
- not be a publicly accountable company;
- it is a small legal entity when it has an annual revenue below 10 million SGD, when the total gross assets are less than 10 million SGD or when it has no more than 50 employees.
At least two of these criteria are compulsory and the legal entity must have met these for the previous two consecutive years before applying for the regime.
Our accounting firm in Singapore offers complete services for local and foreign companies. Contact us for more information on how we can assist you.
Singapore double tax treaties
Japan is just one of the countries with which Singapore has signed a double tax treaty. In total, Singapore has concluded more the 80 DTAs with countries worldwide.
The actual methods for relieving double taxation can be through a tax credit or through tax exemption. In the case of the exemption method, this can be awarded entirely or partially. The treaty may also offer reduced tax rates (as seen above in the table) or through relief by deduction. The DTA will usually only allow for a tax credit in the country of residence if the income was taxed in the source country.
Investors interested in knowing more about the actual tax reduction and double tax relief methods can reach out to our accountants in Singapore for more detailed information.
Singapore and Japan have a good business and trade relationship. Apart from the agreement for the avoidance of double taxation, they have also signed other treaties, most notably an economic partnership agreement. The following data, presented by the Department of Statistics Singapore, highlights the trade relationship between the two jurisdictions:
- Japan is Singapore’s third trade partner, after the United States and China;
- in 2017, the value of exports to Japan was approximately 10,9 billion SGD;
- in 2017, the value of imports from Japan was approximately 8.0 billion SGD.
Japanese investors who are interested in starting a business in Singapore or in expanding an already existing business here can reach out to us.
Our accounting firm in Singapore offers complete services for local and foreign companies. Contact us for more information on how we can assist you.