Series on Singapore tax laws – Part 12

Other relevant aspects –

Permanent Establishment

The definition in the domestic law closely follows that in the OECD Model Convention. It defines a ‘permanent establishment’ as a fixed place at, or through which, a person wholly or partly carries on a business. It specifically includes the following –

  • a place of management;
  • a branch;
  • an office;
  • a factory, a warehouse or a workshop;
  • a farm or a plantation;
  • a mine, an oil well, a quarry or other place of extraction of natural resources; and
  • a building or work site or a construction, installation or assembly project.

Further, a person will be deemed to have a permanent establishment in Singapore if:

  • he carries on supervisory activities in connection with a building or a work site or a construction, installation or assembly project; or
  • he has another person acting on his behalf in Singapore who: – has and habitually exercises an authority to conclude contracts; or – maintains a stock of goods or merchandise for the purpose of delivery on his behalf; or – habitually secures orders wholly or almost wholly for him or for such other enterprises as are controlled by him

For the treaty purposes, mostly definition as per OECD Model Convention are followed

Relief mechanism

A taxpayer may opt for either unilateral or bilateral relief.

  • Unilateral reliefThis are granted in the form of a tax credit to a company resident in Singapore in respect of foreign taxes paid in any country with which Singapore has no tax treaty arrangements, on specified items of foreign income.
  • Bilateral relief This are granted on foreign income derived from a foreign jurisdiction with which Singapore has a tax treaty.

However, the amount of allowable foreign tax credit is limited to the lower of Singapore tax or foreign tax payable on the foreign income, after permissible deductions under the Singapore domestic laws

SETR is determined based basis the below mentioned formula –

SETR = Singapore tax payable before any tax credit or rebates/ chargeable income   before deducting exempt amounts

(Pertinent to note that foreign tax credit is to be made on source-to-source and country-to-country basis)

Foreign tax credit pooling

Taxpayers may elect to pool the foreign taxes paid on any item of foreign income if following conditions are met –

  • income tax was paid in the foreign jurisdiction from which the foreign income is derived;
  • the headline tax rate of the foreign jurisdiction is at least 15% at the time the foreign income was received in Singapore;
  • Singapore tax is payable on the foreign income; and
  • the taxpayer is entitled to claim the foreign tax credit under the tax law

The amount of foreign tax credit granted is the lower of total Singapore tax payable on the foreign income and the pooled foreign taxes paid on the foreign income.

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