Thailand, Singapore update double-tax agreement: What it means

BANGKOK - A new Double Taxation Agreement (DTA) between Thailand and Singapore ratified in February was due to come into force on February 15 2016 for taxable year January 1, 2017 onwards. The previous agreement between the two countries dates back to 1975 and had not been revised for more than 40 years.

In a Client Note, lawyers Baker & McKenzie say highlights of the new DTA include extending the time threshold for creating a construction permanent establishment (PE) from six months to a year, reducing withholding tax on dividends, interest and royalties, and the removal of the limitation of relief clause.

“Overall, the withholding taxes on dividends remain largely unchanged,” B&M says. “However, the new DTA extends the reduction rate on interest paid on debt arising as a consequence of a sale on credit of any equipment, merchandise or services, except where the sale was between persons not dealing with each other at arm’s length, to 10 percent withholding tax.

“The new DTA significantly reduces taxes on income from royalties, giving Singapore, which has strong Intellectual Property (IP) protection laws, an advantage as a Global IP Hub in Asia.

“The changes reflect OECD attempts to counter Base Erosion and Profit Shifting (BEPS), which recommend that profits should be taxed where the substantive economic activities generating the profits are performed, and where value is created.

“As part of this DTA, Singapore also adopts the internationally-agreed arm's length principle for the determination of prices for transactions between related parties.” Inquiries - Prof Kitipong Urapeepatanapong, Partner, kitipong.urapeepatanapong@bakermckenzie.com  (ATI).