Apr. 9 – While Hong Kong has been on a double taxation agreement (DTA) signing spree in the past few years, Singapore is the Asian queen of DTAs, boasting 69 comprehensive DTAs, roughly triple that of Hong Kong.
In 2011 alone, Hong Kong’s DTAs with Austria, Ireland, Hungary, Liechtenstein, Japan, the Netherlands, New Zealand and France came into force, followed by DTAs with the Czech Republic, Indonesia and Spain in 2012.
In the same year, Singapore had five DTAs come into force, including a new DTA with Ireland and a revised DTA with Switzerland. Singapore’s 69th comprehensive DTA (with Spain) came into force in February 2012, the same month Singapore and the U.K. signed a second protocol amending their DTA, lowering withholding tax rates.
To date, there are approximately 3,000 DTAs across the globe, with 100 added each year. DTAs aim to prevent the same income from being taxed by two or more states, thereby encouraging cross-border investment. Studies have suggested that foreign direct investment in developing countries with whom a “tax sparing” agreement exists is 1.4 to 2.4 times higher than what it would have been otherwise.
While about 75 percent of the actual words of any given DTA are identical with the words of any other DTA, the applicability and specific provisions of each treaty can vary substantially.
The United Nations Conference on Trade and Development divides tax treaties into categories based on their applicability, primarily:
- Income;
- Income and capital (“Comprehensive”);
- Transport (air, water, or both, also known as “Limited Treaties”); and
- Protocol.
In many cases, two countries will have several DTA agreements with different scopes signed at separate times.
Beyond the scope of the agreement, it is also key to differentiate between signed agreements and those that have been ratified. Singapore, for example, has signed but not ratified agreements with Belgium, Canada, Switzerland, Italy, Turkey, South Korea, and the U.K., among others.
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This article was taken from the May 2012 issue of China Briefing Magazine, titled “Hong Kong and Singapore Holding Companies.” This issue compares Hong Kong and Singapore to enable foreign investors to make the best choice for their holding company location when reaching out to China and Asia.
