Tax Forum 2016 | Double Tax Agreement (Cambodia-Singapore)
Speaker: Mr. Jack Sheehan, Tax Partner at DFDL
Mr. Jack Sheehan [JS], Tax Partner at DFDL, talked through the content and consequences of Cambodia and Singapore’s recent Double Tax Agreement. This type of bilateral treaty seeks to set guidelines for situations where a resident person of Country A with business activities in Country B could be liable under both the source principle (for business activity conducted in Country B) and the residence principle (due to their resident status within Country A).
DTAs are quite common globally though is the first of its kind for Cambodia. In practice they held to reduce the need for withholding taxes in transactions involving companies from each State, to define thresholds determining the types of income that can be taxed by each State, and to provide a framework for information-sharing amongst the tax authorities of the two countries.
Providing specific information relating to the most important articles within the DTA, Mr. Sheehan emphasized the following points:
According to Article 1, the DTA applies to residents of either State. This is an important distinction to make as some companies have businesses registered in Singapore but would not be considered resident for tax purposes.
As per Article 2, the DTA applies to Tax on Profit under the Cambodian system (including Withholding Tax, tax on dividends and capital gains tax), and Income Tax under the Singaporean system. It does not cover VAT, Specific Tax, and Customs Duties.
According to Article 3, unless a term is specifically defined within the DTA, then the meaning shall be determined under the domestic law of the participating State (for example, how to determine the definition of ‘profits’).
According to Article 7, the profits of an enterprise of a Contracting State shall be taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. So a Cambodian company would only incur Tax on Profit within Cambodia unless they have a fixed place of business within Singapore.
In terms of the rates applied on Withholding Tax, the Double Tax Agreement imposes a limit of 10% that either State can charge on royalties, dividends, interest, and technical fees. This is less than Cambodia’s normal rate of 14% of Withholding Tax due to non-resident taxpayers, so represents an improvement of the Withholding Tax rate for transactions from Cambodia to Singapore by residents of either State.
In terms of capital gains, the DTA is quite relevant as Singapore under its domestic tax regime doesn’t apply any capital gains tax. So in the case of the sale of shares, tax would only apply within the State to which the seller is resident for tax purposes (0% in Singapore). Likewise there are mechanisms in place to ensure that Tax on Salary can only apply in one Contracting State.
Mr. Sheehan highlighted in particular how resident taxpayers within Cambodia may benefit from the treaty by registering a holding company in Singapore to control subsidiaries across ASEAN countries, and likewise how European investors interested in Cambodia could reduce their tax burden by investing via a Singaporean subsidiary. Singapore has DTAs with every ASEAN country and is generally able to negotiate the most favorable terms on its DTAs.
[Question from the audience]: Is Cambodia likely to sign any more DTAs with other countries in the near future?
[A from Te Jeudi, Deputy Director of Enterprise Audit Department]: Indeed we are negotiating DTAs with ASEAN countries particularly Thailand, Malaysia and Indonesia, as well as other Asian partners such as China and Korea.
[Question from the audience]: Do the terms of the DTA apply to independent consultants?
[A from JS]: This would be dependent upon their resident status and whether their activity qualified as having a permanent establishment within one of the Contracting States.