The new agreement will take effect from 1 January 2007.

Business profits

In the previous agreement, remuneration from management, control or supervision of trade or remuneration for labour or personal services do not fall under the definition of business profits. As such, a Singapore contractor will be taxed on such fees even if it has no PE in Malaysia.

In the new agreement, technical fees are defined as any services of a technical, managerial or consultancy nature. A Singapore contractor without a PE in Malaysia and earning such fees will still be taxed, but at a reduced rate of 5% on the gross fees.

Shipping and air transport

Currently, such profits are taxed at 50%. From 1 January 2007, there will be full exemption at source under the new DTA.

Interest and royalty

Interest and royalty income currently attracts a withholding tax rate of 15% and 10% respectively. With effect from the new DTA, applicable withholding rates will be reduced to 10% and 8% respectively.

There will also be removal of the limitation of relief provision, thereby allowing Singapore residents to receive interest and royalty income from Malaysia at the reduced withholding tax rate without having to remit the income back into Singapore.

Tax sparing credits

New provisions in the DTA relates to the receipt of dividends by Singapore residents from Malaysia companies which enjoy certain Malaysia tax incentives.

As there is no specification on the minimum shareholding by the Singapore company, even a small investor can claim the tax sparing credit.

The tax full agreement can be found at http://www.iras.gov.sg/EVSPortal/resources/newsingaporemalaysiadta13feb2006.pdf

The agreement for double taxation relief and prevention of fiscal evasion encourages cross border flow of trade, investment and expertise thereby strengthening bilateral economic links between 2 countries. Singapore currently has a total of 51 such agreements. 

Countries are listed at http://www.iras.gov.sg/EVSPortal/tax_resources/treaties/index.asp  Sultanate of Oman was sanctioned on 7 April 2006 and will have effect on income on 1 January 2007.

The full tax agreement can be found respectively at http://www.iras.gov.sg/EVSPortal/resources/singaporeomandta7april2006.pdf

Updated July 2006