On 11 January 2012, the new double tax treaty between Spain and Singapore was published in the Spanish Official Gazette. Under the treaty, Singapore will no longer be regarded as a tax haven from a Spanish tax perspective. The treaty also establishes lower tax rates depending on the kind of income received.
The long-awaited Spain-Singapore double tax treaty was recently published in the Spanish Official Gazette and will enter into force on 2 February 2012. However the majority of its provisions will become effective as of 1 January 2013 for Spain and as of 1 January 2014 for Singapore. The Treaty will enhance relations between the two countries, and in particular will put Spain in a strong position for structuring investments into Asian markets. Undoubtedly, the treaty opens up a wide range of opportunities for investors in both countries.
The treaty is applicable to income derived from Spain by residents of Singapore, with the Spanish tax available as a credit against their Singapore tax liability. This results in a lower overall tax rate as rates that apply to taxes within the scope of the treaty are lower than those in the Non-Residents Income Tax Act.
The structure of the treaty follows that of the OECD Model Tax Convention on Income and on Capital. The most interesting aspects of the Treaty are the following:
- Dividends: where a company resident in one Contracting State receives dividends from a company resident in the other Contracting State and the recipient company owns 10% or more of the paying company the dividend, the rate of withholding tax is 0%. In other cases, the withholding tax will amount to 5%.
- Interest: The maximum withholding tax amounts to 5%.
- Royalties: The maximum withholding tax amounts to 5%.
- Capital gains: As a general rule, taxation will arise where the alienator is resident. One exception to this rule is the transfer of immovable property, whether it is held directly or through a company. In this case taxation will arise where the property is located, with some exceptions e.g. gains from the sale of shares in a public company listed on a Stock Exchange recognised by one or both Contracting States.
Lastly, Singapore will no longer be regarded as a tax haven by the Spanish Tax Authorities and so certain limitations applicable to income from tax haven jurisdictions will no longer apply to Singapore.