Singapore and India Sign Revised Bilateral Tax Agreement on Avoidance of Double Taxation Agreement(“DTA”)
Late last year, India has announced the revised bilateral DTA, which will start imposing capital gains tax on investments from Singapore. The new amendment will commence from 1 April this year and the tax exemptions will be fully withdrawn in the two years.
The amendments were expected after India re-drafted a 33-year old tax treaty with Mauritius last year. There was a provision in the tax treaty between India and Singapore, where any change in the Mauritius treaty would automatically apply to the one with Singapore. Likewise, the similar concession given to Cyprus has been withdrawn by the Indian government. With this, the amendment brought equality to all investors in Singapore, Mauritius and Cyprus.
A Singapore tax resident company that acquires shares of an Indian tax resident company will enjoy capital tax exemption benefit when it disposes the shares before 1 April 2017. The substance requirement includes the annual expenditure on operations of at least S$200,000 in Singapore or Indian Rs 5,000,000 in India, as the case may be, in the immediate preceding 24-month period from the date on which the gains arise still applies.
For shares acquired on or from 1 April 2017 to 31 March 2019, there will be a two-year transition period. Capital gains from such shares will be taxed at 50% of India’s domestic tax rate. After 31 March 2019, the capital gains will be tax at India’s full domestic rate.
Singapore has been an increasingly popular source of foreign investment into India. Foreign direct investment flows from Singapore stood at $50.6 billion between April 2000 and Sept 2016, contributing more than 16 percent to total capital inflows during that period, second only to Mauritius.
With the withdrawal of capital gains tax exemption, the battle against money laundering or round tripping of funds would assist to prevent the abuse of double tax avoidance treaty.
Both governments from Singapore and India agreed on the steps towards a new set of initiatives for joint promotion of bilateral investments with a view to concluding an agreement in the second half of 2017. Other key changes are transfer pricing and the clarity of the relationship between domestic tax law and the DTA.
Despite the amendments to the tax treaty, Singapore remains a credible and attractive holding company jurisdiction. Investors will have greater clarity and certainty in managing their tax risks.
Source: The Straits Times Singapore, Inland Revenue Authority of Singapore.
For more information, you may contact Ms Su Lee Chan, General Manager of Zetland Singapore at suleec@zetland.biz or +65 65572071
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