On December 16, 2016 the Singaporean Ministry of Finance issued a press release announcing that the new Agreement between the Government of the Republic of South Africa and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which was signed on November 30, 2015, (Hereafter: the new DTA) entered into force on December 16, 2016.
The fact that the new DTA entered into force on December 16, 2016 means that based on Article 26, Paragraph 2 of the new DTA (“ENTRY INTO FORCE”) the provisions of the new DTA shall have effect:
(a) in Singapore:
(i) with regard to taxes withheld at source, in respect of amounts paid, deemed to be paid or liable to be paid (whichever is the earliest) on or after January 1, 2017;
(ii) with regard to taxes chargeable (other than taxes withheld at source), in respect of income for any year of assessment beginning on or after January 1,2018; and
(iii) in respect of Article 24 (Exchange of Information), for requests made on or after the date of entry into force concerning information for taxes relating to taxable periods beginning on or after January 1, 2017; or where there is no taxable period, for all charges to tax arising on or after January 1, 2017.
(b) in South Africa:
(i) with regard to taxes withheld at source, in respect of amounts paid or credited on or after January 1, 2017;
(ii) with regard to other taxes, in respect of taxable years beginning on or after January 1, 2017; and
(iii) in respect of Article 24 (Exchange of Information), for requests made on or after the date of entry into force concerning information for taxes relating to taxable periods beginning on or after January 1, 2017; or where there is no taxable period, for all charges to tax arising on or after January 1, 2017.
Article 26, Paragraph 3 of the new DTA subsequently arranges that the Agreement between the Government of the Republic of Singapore and the Government of the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed on 23rd December 1996 shall cease to have effect with regard to each of the matters specified in paragraph 2 from the date upon which this Agreement has effect with regard to such matter in accordance with the provisions of Article 26, Paragraph 2.
Below we will discuss a selection of provisions included in the new DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the new DTA (“TAXES COVERED”), the existing taxes to which the new DTA shall apply are in particular:
(a) in Singapore:
the income tax; and
(b) in South Africa:
(i) the normal tax;
(ii) the dividends tax;
(iii) the withholding tax on interest;
(iv) the withholding tax on royalties; and
(v) the tax on foreign entertainers and sportspersons.
Article 2, Paragraph 4 subsequently arranges that the new DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Residency
With respect to the residency of a person other than an individual, Article 4, Paragraph 3 of the new DTA (“RESIDENT”) arranges that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and determine the mode of application of the Agreement to such person. In the absence of such agreement such person shall be considered to be outside the scope of the Agreement except for the provisions of Article 24 (“EXCHANGE OF INFORMATION”).
Permanent establishment
Article 5, Paragraph 3 of the new DTA (“PERMANENT ESTABLISHMENT”) arranges that the term “permanent establishment” also encompasses:
(a) a building site, a construction, assembly or installation project or supervisory activities in connection with such site or project, but only where such site, project or activities continue for a period of more than 12 months;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned;
(c) the performance of professional services or other activities of an independent character by an individual, but only where those services or activities continue within a Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned; and
(d) the carrying on of activities by an enterprise that consist of, or that are connected with, the exploration for or exploitation of natural resources situated in a Contracting State, but only where such activities continue for more than 6 months.
Immovable property
Article 6, Paragraph 1 of the new DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the new DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the new DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the new DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the new DTA (“DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividends to:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds at least 10 per cent of the capital of the company paying the dividends; or
(b) 10 per cent of the gross amount of the dividends in all other cases.
Article 10, Paragraph 8 of the new DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the new DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 7.5 per cent of the gross amount of the interest.
Article 11, Paragraph 3 of the new DTA subsequently arranges that notwithstanding the provisions of Article 11, Paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if:
(a) the interest is paid by the Government of that State; or
(b) the interest is paid to the Government of the other State; or
(c) the interest arises in respect of any debt instrument listed on a recognised stock exchange.
Article 11, Paragraph 5 of the new DTA subsequently arranges that for the purposes of Article 11, paragraph 3(c), the term “recognised stock exchange” means:
(a) in Singapore, the Singapore Exchange (SGX);
(b) in South Africa, the Johannesburg Stock Exchange;
(c) any other stock exchange as may be agreed from time to time between the competent authorities of the Contracting States.
Article 11, Paragraph 10 of the new DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debtclaim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment”
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the new DTA (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to 5 per cent of the gross amount of the royalties.
Article 12, Paragraph 7 of the new DTA contains an anti-abuse clause which reads as follows:
“The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”
Other
Furthermore the new DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 23) and regarding the Exchange of Information (Article 24).
Click here to be forwarded to the text of the DTA as available on the website of the South African Revenue Service, which will open in a new window.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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