Singapore-UAE Tax Treaty Improved
The second Protocol to the double tax agreement between Singapore and the United Arab Emirates entered into force March 16, 2016, and will become effective from January 1, 2017, lowering withholding tax rates and amending permanent establishment rules.
The protocol, which was signed in October 2014, revises the terms to include longer threshold periods to ascertain the presence of a permanent establishment (PE). For instance, the protocol states that a PE arises where a building site; a construction, assembly, or installation project; or supervisory activities in connection therewith continue for a period of more than twelve months, as opposed to the current nine-month threshold. Moreover, under the revised protocol, furnishing of services, including consultancy services, would only constitute a PE if such activities continue for a period aggregating 300 days within any twelve months, up from six months. It is hoped that the revisions will enhance trade and investment flows. The agreement also modernizes tax information exchange provisions.
The Protocol removes withholding tax on interest at source, by providing that interest income may be taxed only in the country of the recipient. Provisions setting a five percent rate of withholding tax on income from dividends have been replaced with taxation solely in the country of the recipient on certain conditions. However, this does not affect the taxation of a company in respect of the profits out of which the dividends are paid. With respect to income from royalties, income from “the use of, or the right to use, industrial, commercial, or scientific equipment” has been removed from the scope of the double tax agreement and therefore the concessionary five percent withholding tax rate at source, which remains.
