Singapore and Uruguay sign income tax treaty

Transcription

1 23 January 2015 EY Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: Services/Tax/International- Tax/Tax-alert-library#date Singapore and Uruguay sign income tax treaty Executive summary On 15 January 2015, Singapore and Uruguay signed their first income tax treaty (the Treaty). This is the fifth income tax treaty that Singapore has concluded with a Latin American country. 1 The Treaty will have the force of law upon the exchange of notifications of ratification. In Singapore, the withholding tax provisions will become effective on or after 1 January of the calendar year following the year in which the Treaty enters into force and the other provisions will be effective in respect of tax chargeable for any year of assessment 2 beginning on or after 1 January in the second calendar year following the year in which the Treaty enters into force. In Uruguay, in respect of taxes due at source, the provisions of the Treaty will have effect on or after the first day of January in the first calendar year following that in which the Treaty enters into force; for other taxes, the Treaty will have effect for taxable periods beginning on or after the first day of January in the first calendar year following that in which the Treaty enters into force. This Alert summarizes the key provisions outlined in the Treaty. Detailed discussion Permanent establishment (PE) definition The Treaty provides that a building site, a construction, assembly or installation project or supervisory activities in connection therewith constitutes a PE only if such site, project or activities last more than 270 days. Further, the Treaty includes a service PE provision found in the United Nations Model Double Taxation Convention. The furnishing of services, including consultancy services, by an enterprise of a Contracting State through employees or other personnel engaged by the enterprise for such purpose, would create a PE if the service activities continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

2 Taxation of profits from the operation of ships or aircraft in international traffic The Treaty provides for the full tax exemption of profits derived from the operation of ships or aircraft in international traffic and incidental income such as: Profits from bareboat charter of ships or aircraft Profits from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers), used for the transport of goods or merchandise Interest on funds connected with the operations of ships or aircraft The full tax exemption also applies to profits from the participation in a pool, a joint business or an international operating agency. Taxation of dividends The Treaty provides a withholding tax rate of 5% on dividends if the recipient is the beneficial owner of the dividends and a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends. In other cases, a withholding tax rate of 10% applies. Taxation of interest The Treaty provides a withholding tax rate of 10% on interest if the recipient is the beneficial owner of the interest. Further, the Treaty provides full exemption from source taxation on interest under certain circumstances, including when the interest is paid by a financial institution of a Contracting State to a financial institution of the other Contracting State, or the interest is paid in respect of a loan, debt-claim or credit that is guaranteed or insured by that State, a political subdivision, local authority or statutory body thereof. Taxation of royalties The Treaty provides a withholding tax rate of 5% on royalties if the recipient is the beneficial owner and the royalties are for the use of, or the right to use, any copyright of literacy, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting. In other cases, a withholding tax rate of 10% applies. Capital gains tax (CGT) exemption The Treaty provides for a CGT exemption for disposal of certain shares or other corporate rights in a company. The CGT exemption however does not cover: Shares or other corporate rights in a company not quoted on a recognized stock exchange of one or both Contracting States, deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State. Shares or other corporate rights in a company, which entitles the owner of such shares or rights to the enjoyment of immovable property situated in a Contracting State. Elimination of double taxation Where a resident derives income from a Contracting State, the Treaty provides elimination of double taxation through a tax credit against tax payable arising in the other Contracting State on the same income that is taxed in the Contracting State. In the case of Singapore, where such income is a dividend paid by a Uruguayan resident company to a Singaporean resident which owns directly or indirectly at least 10% of the share capital of the Uruguayan resident company, the credit will take into account the underlying Uruguayan tax paid by that company on the portion of its profits out of which dividends are paid. Non-discrimination The Treaty provides provisions for non-discrimination similar to the Organisation for Economic Co-operation and Development Model Convention. In addition, it is clarified that the granting of tax incentives by a Contracting State to its nationals designed to promote economic or social development in accordance with its national policy and criteria will not be construed as discrimination. 2

3 Implications According to the website of the Ministry of Foreign Affairs Singapore, Singapore s trade with Latin America and the Caribbean has more than doubled since 2005, reaching S$36.5 billion (US$27.3 billion) in Singapore has also concluded Free Trade Agreements with several Latin American countries, namely, Costa Rica, Peru, Panama, as well as with Chile through the Trans-Pacific Strategic Economic Partnership. To date, Singapore has concluded five tax treaties with countries in Latin America as follows: Country Type of tax treaty Date of conclusion Entry into Force Brazil Limited (covering international air and shipping profits) 20 December December 2013 Chile Limited (covering international shipping profits) 24 January November 1993 Ecuador Comprehensive 27 June 2013 Not yet ratified Mexico Comprehensive 9 November September 1995 Panama Comprehensive 18 October December 2011 Uruguay Comprehensive 15 January 2015 Not yet ratified The conclusion of an income tax treaty with Uruguay signals the trend for more tax treaties to be concluded, as economic cooperation continues to expand between Singapore and both Latin America and the Caribbean. Endnotes 1. The countries include Brazil, Chile, Ecuador, Mexico, Panama, and Uruguay. 2. The term year of assessment (YA) refers to the year in which income tax is assessed on the company. The basis period for a particular YA for a company is the financial year ending in the year preceding that YA. 3

4 For additional information with respect to this Alert, please contact the following: Ernst & Young Solutions LLP, International Tax Services, Singapore Chung-Sim Siew Moon Chester Wee Desmond Teo Ernst & Young LLP, Asia Pacific Business Group, New York Chris Finnerty Kaz Parsch Bee-Khun Yap Ernst & Young LLP, Asia Pacific Business Group, Houston Trang Scott

5 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG No. CM5140 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com