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Singapore-China Avoidance Of Double Taxation Agreement

Parts of this article came from the September issue of China Briefing Magazine entitled “Double Taxation Avoidance Agreements.” In this issue, we look at the evolution of the legal framework for double taxation agreements in China, including the basics of anti-fraud, offshore reporting obligations, how to qualify as an economic beneficiary and how to benefit from contractual benefits. We will also describe the interpretations of DBA Circular 75 between China and Singapore, which was the first time that the Chinese tax authorities actually talked about the interpretations of the DBA. The DBA avoids double taxation by calculating the tax paid in one country with taxes payable in the other country and/or by granting exemptions or reduced rates for certain types of income such as interest, royalties and dividends. In addition to a 25% corporate tax (CIT), China imposes a 10% dividend tax on the return of profits abroad. However, many Chinese bilateral DBAs (such as Hong Kong) have a clause that reduces the dividend tax rate by 50%. This potential reduction, which will allow businesses to make significant savings, will not be brought to the attention of taxpayers by the tax authorities. To guarantee this savings, it is important for investors to plan well in advance, as the demand for DBA benefits is only one step in the broader process of reporting and repatriating dividends (as has been demonstrated). One of the first chapters of the Singapore-China double taxation convention concerns the status of stable establishments of companies registered in one contracting state and operating in the other. Although all Singapore double taxation conventions contain such provisions, it is important to note that each agreement is different and includes specific provisions on the status of foreign companies operating in Singapore. In this way, the same income is taxed twice. The DBA imposes this double taxation by allowing the Singapore company to charge a tax credit of foreign tax on the same income. The Singapore-China Double Taxation Convention was an important step in the development of bilateral relations between Singapore and China. The first DBA was signed in 1986.

The current version of this agreement was concluded in 2007. It aims to reduce the double taxation of income collected in one jurisdiction by a resident of the other jurisdiction. The main provisions of the current DBA will be discussed in detail in this section. DBAs apply to residents (individuals or companies) of countries or jurisdictions that are parties to the agreement. Some DBAs are complete and cover all types of income, while others are more specific. The United Nations Conference on Trade and Development subdivides tax treaties into categories that are based on their applicability, in particular: double taxation can be avoided when foreign income is exempt from national tax.

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