Southeast Asia is one of the marketplaces with the fastest growth rates in the world, with a GDP of more than US $2.4 trillion.
In fact, if the 10 countries that make up ASEAN were combined, they would have the seventh-largest economy in the world.
| Singapore | Malaysia | |
| Corporate Tax | 0% (on Foreign Profits) | 24% |
| Withholding Tax | 0% (on Dividends) | 10% |
| Time to Incorporate a Business | 3 days | 14 days |
Financial Overview
Malaysia has possibilities and capabilities along the whole value chain, from production to distribution and technological know-how in the services industry.
The nation attracts investors because of its developed infrastructure, cost-effective labour force, and pro-investor business regulations.
The highly developed economy of Singapore enjoys stable pricing and a GDP per capita that is higher than that of the majority of developed nations. Singapore is the second-easiest country in the world to conduct business, according to the World Bank’s 2017 Ease of Doing Business Report, while Malaysia is ranked 24th.
Investors are welcomed in Singapore with a smooth conduit for their initiatives, from cutting-edge public infrastructure to practical internet platforms and open laws.
Additionally, seven mutually reinforcing policies that will advance Singapore’s economy over the next ten years have been detailed by a Committee on the Future Economy.
Environment for Business
Singapore is ranked #9 globally in Forbes’ 2017 Best Countries to Do Business Report due to its outstanding performance in trade liberalization, technology, and tax burden reduction. Malaysia, on the other hand, was ranked 35th in the world due to its strengths in innovation (#22), monetary independence (#21), and investor protection (#4).
A few quick comparisons are as follows:
Singapore’s domestic market is still among the most open in the world for trade. In actuality, 99.7% of items arrive in Singapore duty-free.
The World Economic Forum’s 2016 Global Enabling Trade Report ranked Singapore 1st, while Malaysia came in at number 37th. Efficient border procedures, along with high-quality transportation services and the nation’s overall socio-political operating environment, were major factors in Singapore’s success. Both nations’ legal systems are primarily based on the English Common Law System because they were once British colonies.
However, based on the infrastructure and incentives put in place by the government to promote innovation, the World Economic Forum has placed Singapore as having the best IP protection in Asia (Global Competitiveness Report 2017–2018).
Workforce
Compared to Singapore’s 5.7 million residents, Malaysia has a population of 32 million. Nevertheless, Singapore is aiming to create a new, leaner economy that will benefit from a quicker adoption of technology, a more rapid pace of innovation, and improved productivity.
The labour force participation rates (LFPRs) in Malaysia and Singapore were both high in 2017 at 68.0% and 67.7%, respectively. Singapore has seen an increase in the proportion of women in the labour force over the past five years, reaching its highest female LFPR of 60.4% in both 2015 and 2016. In 2017, it dipped slightly to 59.8%.
In 2017, the LFPR for Singaporean men was 76.0%, which was mostly steady. Malaysia’s LFPRs for men and women were 54.7% and 80.1%, respectively, in that year.
While 54.6% of Singapore’s workforce holds a diploma or degree, just 28.1% of Malaysia’s workforce has completed postsecondary education.
Business Language
When choosing a jurisdiction to incorporate in, the existence of any language barrier is a crucial concern. Despite having high average literacy rates (96.8% in Singapore and 94.6% in Malaysia, respectively), the majority of Singaporeans speak English as their primary language. Malay is the official language in Malaysia, however most people also know some basic English.
As a result, while Malaysia has a greater skill pool than Singapore, investors could find it simpler to communicate with Singaporeans as English is their primary language.
Business Formation & Incorporation
The same kinds of legal entities are available for business incorporation in both nations:
Both Singapore and Malaysia have two procedures for forming a company. However, Singapore can finish the process in a day whereas Malaysia needs two to three days.
In Malaysia, foreign investors who possess more than 30% of the shares of a company are required to gain clearance from a foreign investment committee, whereas 100% foreign ownership is permitted in Singapore.
Singapore only requires one resident director and one shareholder, whereas Malaysia mandates the appointment of two resident directors (citizens, permanent residents, or possessors of work permits) and two shareholders. A director and shareholder may both be the same or separate people in both situations.
Requirements for Filing
Each calendar year, AGMs are required to be held in both nations.
Within one month after their AGMs, Singapore and Malaysian entities are required to submit their annual returns and audited annual accounts to their respective company registrars.
There are a few exceptions to filing these taxes, though:
Additionally, each jurisdiction’s inland revenue agencies must receive annual tax returns and audited accounts.
Regulations for Immigration
Before beginning employment, all foreigners who plan to work in Singapore or Malaysia must have a valid work pass.
Foreign executives, managers, and professionals may be awarded Employment Passes in both jurisdictions. Owners of Employment Passes are entitled to a minimum monthly income of up to RM 5,000 in Malaysia and S$3,600 in Singapore, respectively.
In Singapore, you can apply for the EntrePass, while in Malaysia, you can apply for a professional visit pass, a short-term social visit pass, or a temporary employment permit if you wish to launch and run a new business there.
Income Tax
Both Singapore and Malaysia have a progressive tax system, which means that as income increases, so does the amount of tax that must be paid.
Earned or derived income from Singapore or Malaysia is included in chargeable income. Malaysia has higher income tax rates and a more complicated indirect taxation system than Singapore. For instance, revenue received from outside Malaysia is included in Malaysia’s chargeable income.
Singapore, on the other hand, does not tax specific foreign earnings, even if they are credited to a Singapore bank account.
According to the World Economic Forum’s Global Competitiveness Report 2017–2018, Malaysia is ranked 81 while Singapore is ranked 11 for the highest total tax rate in the world.
Corporate Tax
Singapore’s corporate income tax rate is still one of the lowest in the world, ranging from 0% to 17%.
The corporate tax rate in Malaysia is 24%. (w.e.f Year of Assessment 2016). Corporate tax rates for businesses with paid-up capital of less than RM 2.5 million are 18% for the first RM 500,000 and 24% for amounts over RM 500,000. (w.e.f Year of Assessment 2017).
Tax Exemptions and Incentives
Annual incomes under S$100,000 are tax-free for the first three years to assist Singapore’s start-ups and new businesses in lowering their overhead expenditures. Additionally, there are government programs and incentives available to assist innovative businesses.
Additionally, resident businesses in Singapore are qualified for a partial tax exemption, which corresponds to an effective tax rate of 8.5% on taxable income up to S$300,000 per year. Taxable income beyond S$300,000 will be subject to the standard 17% corporate tax rate.
Companies participating in promoted activities or creating promoted products in Malaysia are given Pioneer Status, which entitles them to a tax exemption of up to 70% of statutory revenue, for a term of five to ten years.
The Investment Tax Allowance, which is given based on the capital expenditure expended on purchasing industrial structures or plant and machinery for the purposes of the aforementioned activities and goods, is another incentive.
Withholding Tax
When a Singaporean business or individual pays a non-resident person or entity for goods or services, 10 to 17% of such income must be withheld and given to the Singapore Inland Revenue Authority (IRAS). Individuals or businesses who reside in Singapore are exempt from withholding tax.
In Malaysia, the withholding tax rate varies from 3 to 15% based on the types of income received (such as royalties and interest).
Foreign-Sourced Income
Both Malaysia and Singapore impose taxes in accordance with the territorial concept, meaning that businesses are subject to taxation on sources of income found inside each country.
Unless the income was previously subject to taxes in a jurisdiction with headline tax rates of at least 15%, foreign-sourced revenue (including branch earnings, dividends, service income, and other types of income) does not become taxable until it is transferred into Singapore.
Except for businesses in the banking, insurance, aircraft or sea transport industries, resident corporations in Malaysia are exempt from income tax on foreign-sourced income transferred into Malaysia.
| TAX | SINGAPORE | MALAYSIA |
| Corporate Tax | 17% (For the first three years, new businesses who qualify receive a full exemption on their first $100,000 in revenue) | 24% |
| Branch Tax | 17% (first $300,000 subject to a partial exemption) | 24% |
| Capital Gains Tax | – | 0-30% |
| Income Tax | 0% – 22% | 0% – 28% |
| Withholding Tax Dividends Interests Royalties | 0% 15% 10% | 0% 15% 10% |
| Double Taxation Relief | Yes | Yes |
| Foreign-Sourced Income Tax | If received or perceived received in Singapore, it can be taxable. | No (apart from earnings from banking, insurance, or maritime or air transportation) |
| GST | 7% | 6% |
A Quick Look at Country Rankings
| YEAR | CATEGORY | SINGAPORE’S RANK | MALAYSIA’S RANK | SOURCE |
| 2017 | Ease of Doing Business | 2 | 24 | World Bank, Ease of Doing Business Report |
| 2018 | Freest Economy in the World | 2 | 22 | Heritage Foundation’s Index of Economic Freedom |
| 2017-2018 | Most Competitive Economy in the World | 3 | 23 | World Economic Forum, Global Competitiveness Report |
| 2017 | Country with the lowest perception of Corruption | 6 | 62 | Transparency International’s Corruption Perceptions Index |
| 2017 | Best Business Country in the World | 9 | 35 | Forbes’ Best Countries for Business Index |
| 2018 | Most Competitive Economy in the World | 3 | 22 | IMD, World Competitiveness Yearbook |
| 2018 | Most Innovative Economy in the World | 5 | 35 | INSEAD Global Innovation Index |
| 2016 | Country with the Most Open Trade | 1 | 37 | World Economic Forum, Global Enabling Trade Report |
| 2017 | Global Talent Competitiveness | 1 | 28 | INSEAD, Global Talent Competitiveness Index |
| 2018 | Tax payment ease | 7 | 73 | PWC, IFC, World Bank’s Paying Taxes Survey |
| 2013 | Most Risk-Free City in the World to Hire and Relocate Workers | 2 | 51 (Kuala Lumpur) | Aon Consulting’s People Risk Index |
| 2017 | Expats’ Standard of Living | 4 | 22 | Forbes Tax Misery and Reform Index |
As a Final Thought
The analysis mentioned above confirms Singapore’s superior position as a commercial jurisdiction over Malaysia. Singapore has become one of Asia’s most business-friendly nations by realigning its tax policy, making it simpler to register a company, eliminating red tape, fostering an innovative economy, assembling a strong labour force, and providing a high standard of life.
The Singapore-Malaysia Double Tax Treaty
The governments of Malaysia and Singapore have signed the Avoidance of Double Taxation Agreement in order to facilitate cross-border trade, investment, financial operations, and the exchange of technical know-how between the two nations (DTA).
Despite the fact that there are a number of political hot-button issues between Singapore and Malaysia, both nations have made an effort to cultivate a friendly relationship. The two nations have been earnest in their attempts to soothe the bilateral connections that have become stronger in recent years following the short-lived forced union and the contentious issues that followed the breakup.
Despite the 1965 separation of Singapore and Malaysia, economic and social links between the two nations remain highly intertwined. Singapore imports a significant amount of its water and food from Malaysia, and a sizable portion of the workforce from the neighbouring states works there.
Many Malaysians working in Singapore are Permanent Residents, and many of them commute daily or reside in Singapore as a result of their obligations to their jobs. In a similar vein, businesses and individuals from Singapore have financial and business interests in Malaysia.
Despite a number of ongoing disagreements between the two nations, the bilateral relationship has endured successfully. Both nations are dedicated to the creation of the ASEAN Community and have a same goal for a powerful, unified regional market. The leaders of both sides are confident that such a regional alliance will provide prosperity and growth to their people, and that its prospects will be strong thanks to increased economic cooperation between the two nations.
The governments of Malaysia and Singapore have signed an Avoidance of Double Taxation Agreement in order to facilitate the cross-border flow of trade, investment, financial activity, and technical know-how between the two nations (DTA). The DTA Overview is provided below.
Singapore – Malaysia DTA
A new DTA was reached between the governments of Singapore and Malaysia on October 5, 2004, and it became operative on January 1, 2007. A DTA signed in 1968 that had previously been in effect has been replaced by the clauses in the current version signed in 2004.
Snapshot
| Nature of Income | Normal Withholding Tax Malaysia | Normal Withholding Tax Singapore | Treaty Rate |
| Dividends | Nil | Nil | 5%* or 10% |
| Interest | 15% | 15% | 10% |
| Royalties | 10% | 10% | 8% |
| Technical Fees | Current corporate tax rate is 17%. | 10% | 5% |
| Capital Gains | Nil | Nil | Not discussed |
* Applicable if the recipient is a company, which owns directly at least 25% of the capital of the company paying the dividends
Limitations of Use
Persons who reside in either one of the Contracting States or in both are subject to the DTA’s requirements. “Person” refers to any individual, business, or group of people that is regarded as an entity for tax reasons.
All taxes levied on income on behalf of a Contracting State shall be subject to the DTA’s rules. It includes taxes on gains from the alienation of movable or immovable property, taxes on the whole amount of wages or salaries, and all other taxes imposed on total income or on components of income.
The provisions shall apply to the income tax and the petroleum tax in the case of Malaysia. The agreement covers income tax in Singapore’s situation.
Residency
Any person who is a resident of a Contracting State for the purpose of that Contracting State’s taxation is referred to as a resident of a Contracting State.
If a person is a resident of both countries, his tax residency will be established by where his permanent residence is; but, if his permanent residence is not in either of the two nations, the center of vital interest will be taken into consideration. If the individual does not have a habitual abode in both countries, then the nationality will be taken into consideration. If the individual is a national of neither of the two countries, or of neither the permanent home nor the vital interest factors, then the contracting states shall determine the residency by mutual agreement.
The state where the person’s place of effective management is located will be used to determine residency if the person, other than an individual, is a resident of both contracting states. In circumstances of uncertainty, the competent authorities of the contracting States should mutually agree upon the residency by taking into account all pertinent factors.
Permanent Establishment
A “permanent establishment” (PE) is a fixed place of business where an enterprise conducts all or a portion of its operations. PE contains sites like an office, a factory, a workshop, a farm, a plantation, a drilling rig, and locations where natural resources are extracted, such a mine, a quarry, an oil well, etc. Only if a building site, assembly, or installation project lasts longer than six months does it qualify as a permanent establishment.
The supervision of a construction site or a construction, installation, or assembly project that is being done in the other State by an enterprise of a contracting state that has been operating there for more than six months shall be considered a PE.
Storage facilities used for specific functions, such as displaying, delivering, processing, etc., would not constitute a PE. Maintaining a fixed location only for the purpose of engaging in preparatory or auxiliary tasks will also not qualify as PE.
PE will not apply if a broker, general commission agent, or other agent with independent standing is hired to do business in one of the contracting states. If such an agent regularly exercises the authority to enter into contracts, secure orders, or maintain and deliver a stock of goods or merchandise on behalf of the enterprise in a contracting state, as well as if their activities are dedicated entirely or nearly entirely on behalf of the enterprise, they are considered to be PEs. However, auxiliary activities won’t qualify as PEs if they are performed by the agent.
A resident business of one contracting state that controls or is controlled by a resident business of another contractual state does not, by itself, give either business a PE of the other.
Important Requirements
Dividend Tax
A resident of one Contracting State may be taxed on dividends paid by a resident corporation to a resident of another Contracting State. However, it can be subject to taxation in the Contracting State where the company is based that is disbursing the dividends. However, in cases where the dividend receiver is also a resident of the other contracting state and the beneficial owner, the tax so levied shall not exceed-
If the beneficiary has a PE in the contracting state where the company providing the dividends is a resident and the dividend received is inextricably linked to that PE, this clause does not apply. Such dividend income associated with a PE will be regarded as a business profit and subject to the appropriate tax treatment.
Even if the undistributed earnings are entirely or partially made up of revenue or profits derived in the other Contracting State, a corporation resident in one Contracting State that receives income from the other Contracting State is not subject to taxation on such profits by the other state. Dividends paid by the corporation to individuals who do not reside in the other State may not be subject to taxation in the other State.
Due to its single tier taxation system, Singapore does not tax dividends received by recipients. Since Malaysia similarly uses a single-tier tax system, dividends received by beneficiaries are tax-free.
Interest Tax
Interest that is generated in one Contracting State and given to a citizen of another Contracting State may be subject to taxation in that other State. However, if the beneficiary is the beneficial owner of the interest, such interest may also be taxed in the Contracting State in which it arises; the tax thus imposed should not, however, exceed 10% of the gross amount.
Interest earned by a Singapore resident on loans that have been approved, as described in section 2(1) of the Malaysian Income Tax Act of 1967, is exempt from Malaysian tax.
Regarding interest received from another Contracting State, the government of a Contracting State is exempt from tax in that State.
If the beneficial owner of the interest has a PE or fixed base in the contracting state where the payer resides and the interest paid is inextricably linked to such PE or fixed base, the aforementioned restrictions must not apply. Similar to how interest arises in the state where the payer resides, interest is said to arise in the other contracting state if the payer owns a PE in the state where the beneficial owner resides and the interest is paid in connection with an obligation relating to that PE.
If the interest paid exceeds the amount that would have otherwise been paid due to the special relationship between the payer and the recipient, the treaty’s provisions will only apply to that amount, and any additional interest paid will be subject to taxation under the laws of each Contracting State.
It should be noted that Singapore and Malaysia charge 15% withholding taxes on interest paid to non-residents and foreigners receiving interest from Malaysian residents will be liable to these taxes in the absence of the DTA.
Royalties Tax
The other Contracting State may tax royalties that are generated in one Contracting State and given to a resident of another Contracting State. When the payer resides in a Contracting State, royalties are considered to have arisen in that State.
The recipient must be the beneficial owner of the royalties in order for the tax imposed to not exceed 8% of the gross amount of the royalties. However, such royalties may also be taxed in the Contracting State in which they originate and in accordance with the legislation of that State. Royalties include any payments made in exchange for the use of or the right to utilize a copyright patent, trade mark, design or model, plan, or other intellectual property.
If the amount of royalties paid exceeds what would have otherwise been paid due to the special relationship between the payer and the recipient, the treaty’s provisions will only apply to that amount, and any additional royalties will be subject to taxation under the laws of each Contracting State.
If the beneficiary of the royalty has a PE or fixed base in the contracting state in which the payer resides and the royalty paid is inextricably linked with such PE or fixed base, the rules must not apply.
Royalties given to non-residents in Malaysia are subject to a general withholding tax rate of 10%, and the same applies in Singapore.
Technical Fees Tax
Technical fees are any payments made to a person in exchange for technical, managerial, or consulting services, excluding payments made to that person’s employees.
Technical fees that are paid to a resident of one Contracting State but originate in another may be taxed in that other State. However, if the beneficiary is the fees’ beneficial owner, such technical fees may also be taxed in the contracting state in which they emerge. In this case, the tax levied cannot be greater than 5% of the gross amount.
When the payer resides in a Contracting State and the services are provided there, technical fees are considered to have arisen in that State. The fee is considered to have arisen in the other contracting state, however, if the payer has a PE in the state where the beneficiary resides and the fees were related to that PE.
If the beneficiary of the fees has a PE or fixed base in the contractual state in which the payer resides and the fees paid is inextricably linked with such PE or fixed base, the requirements must not apply.
Technical fees paid to non-residents in Malaysia are subject to a general withholding tax rate of 10%, while the similar rate in Singapore the current corporate tax rate is 17%.
Treatment of Property Income
A resident of one Contracting State who receives income from real estate located in another Contracting State may be subject to taxation in that other State. This clause shall also apply to the income from an enterprise’s movable property and the income from movable property used for the performance of independent personal services.
The agreement must include provisions for income from the direct use, letting, or use of immovable property in any other way. Properties as defined by the law of the contracting state in which the property is located shall be included as “immovable property.” As recompense for the working of, or the right to work, a mineral, it shall comprise accoutrements, equipment, animals, rights and usufruct of moveable property, and rights to variable or set payments.
Accounting for Business Profits
Unless the firm conducts business in the other Contracting State through a PE located there, the profits of a Contracting State enterprise are exclusively taxable in that State. However, the other Contracting State may only tax the fraction of the profit that can be directly attributed to the PE.
The profits of the PE shall be determined as if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE. All expenses and deductions that could reasonably be attributable to the PE and deductible if the PE were an independent enterprise shall be allowed for the purpose of determining the profits of the PE.
Profits are not due to a PE just because they purchase products for the enterprise. Unless there is a good reason to believe otherwise, profit attribution to the PE must be done using the same methodology every year.
The requirements of the agreement shall not interfere with the contracting state’s legislation or the competent authority’s discretion where the information available to them is insufficient.
Treatment of Shipping and Air Transportation Income
Profits earned by a business within a Contracting State through the use of ships and aircraft in international traffic are exclusively taxable there.
The rules apply to the portion of ship or aircraft operating profits obtained by a contracting state entity through membership in a pool, a joint venture, or an international operating agency.
Only in that State will profits made by a company operating a road vehicle in international traffic for the purpose of transporting passengers be taxed.
Associated Businesses’ Treatment
Associated enterprises are those that are directly or indirectly involved in the management, control, or capital of an enterprise of another Contracting State by an individual or individuals from that enterprise.
The operating and transactional terms and circumstances between affiliated businesses will be different from those between independent businesses, which will have an impact on the businesses’ profitability and revenue.
According to the DTA, contracting nations may consider taxable income that would have otherwise accrued if the parties were independent in the case of associate enterprises and tax the enterprises appropriately.
If a contracting state levies taxes on profits earned by a resident enterprise and those profits are already subject to taxation by another contracting state, but the first state claims that those profits would have accrued to the enterprise regardless of the associated enterprise condition, it must make an appropriate adjustment to the tax levied on those profits, provided that the other State finds the adjustment to be justified. If necessary, the competent authorities of the Contracting States shall consult one another.
Treatment of Individual Income
Independent Personal service
If a resident of a Contracting State receives income from professional services or other independent activities, only that State will tax it, unless the individual has a fixed base from which to provide the services in another Contracting State. Only the percentage of the income that may be legitimately attributable to that fixed basis may be taxed by the other state.
In particular, independent scientific, literary, artistic, educational, or teaching activities are included under the umbrella term “professional services,” as are the independent practices of doctors, lawyers, engineers, architects, dentists, and accountants.
Dependent Personal Service
Unless the employment is performed in the other Contracting State, salaries, wages, and other comparable compensation received by residents of a State for employment are solely taxable in that State. If the employment is carried out in this manner, the pay may be subject to taxation in the other State. Even though the employment is performed in a different Contracting State, the beneficiary is solely liable for taxes in the first state stated in the following situations:
Director’s Fees
A resident of a Contracting State who receives directors’ fees and other comparable payments while serving on the board of directors of a business that is based in another Contracting State may be subject to taxation in that other State.
Sportsmen & Artists
A resident of one State who works as an entertainer in another State, such as in theatre, radio, or television, or as a musician or athlete, may be subject to taxation in that other State on the income from those personal activities.
However, if these earnings were derived from activities carried out in one of the contracting states as part of some mutually agreed-upon exchange programs or were in large part supported by public funds from the Government, a political subdivision, a local authority, or a statutory body of the other Contracting State, they shall be exempt from tax.
The profits made from doing these services by an enterprise of the other Contracting State in a Contracting State may be subject to taxation in the first-mentioned Contracting State.
Pensions
Pensions and other comparable compensation and annuities arising in a Contracting State and paid to a resident of another Contracting State in consideration for prior employment by or out of funds created by a Contracting State, a political subdivision, a local authority, or a statutory body may be taxed in the first-mentioned State.
The term “annuity” refers to a predetermined amount payable regularly at predetermined intervals, throughout life or for a predetermined or determinable period of time, with a commitment to make the payments in exchange for a sufficient and complete consideration in money or money’s worth.
Those Serving in Government
Payments made by a Contracting State, a political subdivision, a local authority, or a statutory body to an individual in exchange for services performed to that State, subdivision, authority, or body—other than a pension—would be subject to taxation by that State.
However, if the services are provided in the other contracting state and the resident beneficiary is a citizen of that state and his residency is not purely for the purpose of receiving the payment, then such remunerations will only be taxable in that state.
The provisions pertaining to personal services & Director’ Fees shall apply to remuneration and pensions paid for services provided in connection with any trade or business conducted by a Contracting State or a political subdivision, municipal authority, or statutory body thereof.
Students and Trainees
Students and trainees who were citizens of one of the contractual states immediately before to traveling to another contracting state for training or education purposes and who are temporarily present in another contracting state only for those purposes are free from tax in the other state. All remittances and grants from abroad shall be exempt from taxation in the other state.
Teachers Professors and Researchers
An individual who, immediately prior to the visit, resides in a Contracting State and who, upon invitation, travels to another Contracting State for a period of time not exceeding two years solely for the purpose of teaching, conducting research, or both at any university, college, school, or other similar public institution in that other Contracting State, shall be exempt from the foregoing. If the purpose of the research or instruction is solely for personal gain, this clause shall not apply.
Earnings Not Specifically Mentioned
The contracting state where the beneficial owner resides will tax any income not covered by the DTA articles, and if that income derives from sources in another contracting state, that other state may likewise tax it.
Elimination of Double Taxation
When income is taxed in both Contracting States, the DTA offers relief from double taxation.
Malaysia will accept the Singapore tax paid in relation to income derived from Singapore as a credit against the Malaysia tax due in relation to that income.
The Singapore tax due on income received from Malaysia will be reduced by the Malaysian tax that must be paid on that income. The credit thus granted must not be greater than the tax levied by the relevant nation as determined prior to the credit being granted.
Any special waivers, exemptions, or grants offered by the respective jurisdictions shall not be taken into account in calculating the tax payable for credit purposes; instead, the tax payable shall be calculated using the tax payable in the absence of such waivers and reductions.
Malaysia shall take into account Singapore tax payable by that company in respect of its income from which the dividend is paid when it is paid to a Malaysia company or resident owning at least 10% of the voting rights in the paying company.
However, the credit shall not exceed that portion of the Malaysian tax chargeable, as computed before the credit is given. Accordingly, a credit equal to the Malaysian tax that the firm must pay in relation to the income from which the dividend is paid will be considered in the case of a Singapore beneficiary.
Conclusion
The love-hate relationship between Singapore and Malaysia is evolving into a strong bond forged by forward-thinking economic treaties as the ASEAN Community draws closer to reality.
Singapore is strong in terms of technology, infrastructure, financial agility, corporate environment, and global connection. Malaysia is wealthy in natural resources and labour.
By establishing subsidiary firms in Singapore and utilizing its DTA and other trade treaty network, international investors and businesses that are targeting the expanding South East Asian economies will greatly profit.
Please visit the IRAS website for further information on the specific provisions covered under the tax treaty between Singapore and Malaysia.
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