A growing number of foreign businesses, entrepreneurs, and investors are either expanding their operations or making significant financial investments in the Asian continent as Asia is predicted to become the next economic powerhouse in the global economic system.
For business people and investors with an eye toward the world, selecting a low-tax, business-friendly jurisdiction with these qualities has become a top concern. Economic surveys, corporate rankings, and worldwide assessments that rank various economies according to a number of criteria are becoming more popular as a result.
| Singapore | Thailand | |
| Corporate Tax | 0% (on Foreign Profits) | 20% |
| Withholding Tax | 0% (on Dividends) | 15% |
| Time to Incorporate a Business | 3 days | 1 week |
In comparison to Thailand, the suitability of Singapore as a business jurisdiction in Asia is examined in this article. Below is a comparison of the two jurisdictions based on their results in key economic and commercial worldwide surveys.
ENVIRONMENT FOR BUSINESS
TAXES
IP PROTECTION
INTERNATIONAL COMPETITIVENESS
TRADE OPENNESS
In the 2014 Global Enabling Trade Report published by the World Economic Forum, Singapore placed first globally for trade openness, while Thailand came in at position 57 out of 138 economies. Singapore promotes free trade, and its import/export market has few restrictions. Singapore was placed third on this indicator and was praised for the utmost simplicity of its tariff structure. It ranked first in the customs services index, acing it.
Additionally, it received great marks for the standard and availability of transportation infrastructure. Singapore performed at or near the top on metrics relating to connectivity, punctuality, convenience and affordability of shipping, and logistical proficiency. Thailand, on the other hand, came up at number 75 for the operational environment, number 56 for border management, number 46 for transportation and communications infrastructure, and number 51 for both local and international market access.
BUREAUCRACY
WORKFORCE
ENVIRONMENT FOR LIVING
COUNTRY RANKINGS: SINGAPORE VS. THAILAND
| Year | Category | Singapore’s Rank | Thailand’s Rank | Source |
| 2016 | Ease of Doing Business | 1 | 49 | World Bank, 2016 Ease of Doing Business Report |
| 2015-2016 | Most Competitive Economy in the World | 2 | 32 | World Economic Forum, Global Competitiveness Report |
| 2016 | Tax payment ease | 5 | 70 | PWC, IFC, World Bank’s 2016 Paying Taxes Survey |
| 2015 | Freest Economy in the World | 2 | 75 | Heritage Foundation’s Index of Economic Freedom |
| 2015 | Best Country in the World for Expat Financial Quality of Life | 2 | 20 | HSBC’s 2015 Expat Economics Report |
| 2015 | Nation with the lowest perception of Corruption | 8 | 76 | Transparency International’s Corruption Perceptions Index |
| 2015 | Best Business Country in the World | 8 | 75 | Forbes’ Best Countries for Business Index |
| 2015 | Most Competitive Economy in the World | 1 | 30 | IMD, World Competitiveness Yearbook |
| 2014 | Country with the Most Open Trade | 1 | 57 | World Economic Forum, Global Enabling Trade Report |
| 2010 | Asia’s Most Efficient Bureaucracy | 1 | 3 | Political and Economic Risk Consultancy Survey 2010 |
| 2010 | Best Location for Asians to Live | 1 | 62 (Bangkok) | ECA International’s 2010 Location Ratings System |
| 2010 | City with the Lowest Employer Risk in the World | 3 | 54 | Aon Consulting’s People Risk Index |
| 2009 | Lowest Tax Misery Country | 11 | 14 | Forbes Tax Misery and Reform Index |
Thailand’s historically agricultural economy is quickly transitioning to an industrial economy. This Asian tiger has been converted into a regional manufacturing hub thanks to a significant inflow of foreign direct investments (FDI) into the electronics and automotive industries. Following the economic crisis of 1997–1998 Thailand adopted an open market policy and vigorously pursued export expansion.
These tactics have been successful for the nation, which is now among the top ten exporters of automobiles in the world. Thailand is considered one of the region’s economic success stories and has the second-largest economy in Southeast Asia. The nation makes for an excellent manufacturing base because to its wealth of natural resources and labour pool.
Through the Investment Promotion Act, the Thai government provides a number of tax and non-tax benefits for investors in order to encourage international investment. Thailand is one of the world’s markets that is expanding the fastest, with 67 million consumers. Despite the domestic political unrest, analysts have high hopes for the nation’s recovery and future growth.
According to a 2013 poll by the United Nations Conference on Trade and Development, Thailand is also ranked highly, in eighth place, as one of the top prospective host economies for FDI in the years 2013 to 2015. (UNCTAD).
Relationship Between Singapore and Thailand
As far back as the 19th century, Singapore and Thailand have had a strong and long-standing economic tie. Strong links between Singaporean and Thai officials, developed through extensive institutional ties like the Thailand-Singapore Civil Service Exchange Program (CSEP) and the Singapore-Thailand Enhanced Economic Relationship, serve as the foundation of bilateral relations (STEER).
Thailand ranks as Singapore’s ninth-largest commercial partner, with S$32.2 billion in trade in 2012. Manufacturing, electronics, and service industries are important trade-driving sectors between Thailand and Singapore. Electronics and telecommunications equipment, as well as refined petroleum products, are some of the main trading goods between the nations.
In 2011, Japan was the largest foreign investor in Thailand, followed by Singapore. The Board of Investments (BOI) reports that Singaporean businesses spent S$1.36 billion across 95 projects in 2011, a notable increase of 57% from the previous year.
Increased collaboration in the trade, investment, and tourism sectors is improving bilateral relations. Thailand will gain much more appeal as a place for investment after the ASEAN economic bloc is established in 2015. The aim by the Thai government to revive its economy and draw in investors gives Singapore-based businesses a boost. The 1975 Singapore-Thailand DTA guarantees investors working across both countries’ borders a favourable tax proposition. A summary of the DTA’s main clauses is provided below.
Singapore-Thailand DTA
The Agreement for Avoidance of Double Taxation was reached between the governments of the Republic of Singapore and the Royal Government of Thailand on September 15, 1975, and it became effective on January 1, 1976. It is currently being renegotiated with more lenient terms for the partner countries after more than 35 years of existence. Recent negotiations to amend the treaty took place in Singapore between representatives of the two nations. The new version won’t go into effect for some time, though.
Scope of Application
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. The provision 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 sources of income.
The provisions shall apply to the income tax and the petroleum tax in the case of Thailand. The agreement in Singapore refers to income tax.
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 or her tax residency will be determined by where his or her permanent residence is; however, if the permanent residence is located in both countries or in neither, the center of vital interest will be taken into consideration. If the individual does not have a habitual abode in both countries, then 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. Offices, factories, workshops, farms, plantations, installations like drilling rigs, and locations where natural resources are extracted, such mines, quarries, oil wells, etc., are all included in PE. Only if a building site, assembly, or installation project lasts longer than six months does it qualify as a permanent establishment. The fact that the revised version calls for a 12-month timeframe is interesting to notice.
Storage facilities used for specific functions, such as displaying, delivering, processing, etc., would not constitute a PE. Maintaining a permanent location only for the purpose of engaging in activities that are preparatory or auxiliary in nature would also not qualify as PE.
PE will not apply if a broker, general commission agent, or other agent with independent status is hired to do business in one of the contracting states. An agent is deemed to be a PE if their activities are dedicated entirely or almost entirely on behalf of the business, if they act on behalf of the business and routinely exercise their authority to conclude contracts, secure orders, or maintain and deliver stock of goods or merchandise on their behalf in a contracting state. However, if the agent’s operations are auxiliary in nature, they won’t qualify as PEs.
It is not enough for either firm to be considered a PE of the other for it to be a resident company of one contractual state that is managed or under the control of a resident company of another contracting state.
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, if the beneficiary is a corporation that directly holds at least 25% of the voting shares of the firm receiving the dividends, the tax so levied shall not exceed 20% of the gross amount of the dividends.
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.
Due to its single tier taxation system, Singapore does not tax dividends received by recipients. Without the treaty, non-residents who receive profits from resident Thai corporations are now subject to a 10% withholding tax, rendering the provision ineffective.
It is noteworthy that dividends paid by a foreign company to a Thai company after November 2005 will be exempt from Thai corporate income tax provided that the Thai company owns 25% or more equity in the foreign entity and maintains its ownership in that company for a period of six months, the paying company has a minimum corporate tax rate of 15%, and both parties have a minimum shareholding of that foreign entity of 25%. Thai companies that meet the requirements and receive dividends from Singaporean corporations are not subject to tax on that portion of their income as Singapore imposes a 17% corporate income tax.
Tax on Interest
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. Such interest may, however, also be subject to taxation in the Contracting State from whence it comes, provided that the tax does not exceed:
Regarding interest received from another Contracting State, the government of a Contracting State is exempt from tax in that State.
In the case of Singapore, it refers to the Government of Singapore and includes the Monetary Authority of Singapore and the Board of Commissioners of Currency. In the case of Thailand, it refers to the Royal Government of Thailand, which also includes the Bank of Thailand. As may occasionally be agreed upon by the Governments of the two Contracting States, it also includes an institution whose capital is owned entirely by the government of the contracting state or the local authorities.
If the receiver of the interest has a PE or fixed base in the contracting state where the payer resides and the interest paid is effectively connected with such PE or fixed base, the rules must not apply.
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 emphasized that, in the absence of the DTA, Singapore and Thailand each impose a 15% withholding tax on interest paid to non-residents and a 15% withholding tax on foreigners receiving interest from Thai residents. In the most recent edition of DTA, we can anticipate rates that are more affordable.
Royalty 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 would be considered to have arisen in that State.
Such royalties may, nonetheless, also be subject to taxation in the Contracting State from which they originate and in accordance with its legal system; however, the tax thus assessed shall not be greater than 15% of the gross amount of the royalties. 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 etc.
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.
Thailand has a general 15% withholding tax on royalties paid to non-residents, while Singapore charges a 10% withholding tax. No exceptional privileges against the overall framework are granted by the treaty.
Capital Gains Tax
Gains from the sale of real estate may be subject to taxation in the Contracting State where the property is located. Gains from the sale of moveable property connected to a PE or a fixed base in another contractual state that were obtained by a resident of one of the contracting states may be subject to taxation in the other contracting state. Gains from the sale of such a PE or the permanent basis itself may likewise be subject to taxation in the other state.
Gains made by a resident of a Contracting State from the transfer of moveable property related to the operation of such ships or aircraft, or of ships or aircraft operated in international traffic by an enterprise of that Contracting State, are taxable only in that Contracting State.
Gains from the alienation of any assets or property that are not protected by this rule are solely subject to taxation in the state where the alienator resides.
Capital gains are not taxed in Singapore. For the purposes of corporate income tax, capital gains are classified as ordinary income in Thailand and are taxed accordingly.
Accounting for Income from Property
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 payment for the working of, or the right to work, a mineral, it shall comprise accoutrements, equipment, livestock, 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 legislation of the contracting state or the competent authority’s discretion where information available to that authority is insufficient.
Treatment of Shipping and Air Transportation Income
Only the Contracting State where the enterprise’s place of effective administration is located will be able to tax income from aircraft operation in international traffic.
An enterprise with a place of effective administration in one Contracting State may impose tax on income from the operation of ships in international trade in the other Contracting State, but the tax levied will be reduced by 50%.
The rules apply to the share 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.
The way Associated Businesses are Treated
Associated enterprises are those that are directly or indirectly involved in the management, control, or capital of an enterprise of another Contracting State. This involvement can be done either directly or indirectly.
As a result, the profitability and revenue of the associated firms will be impacted. The terms and conditions of operations and transactions between associated enterprises will differ from those made between independent enterprises.
The DTA stipulates that in the case of associate enterprises, the contracting governments may presume taxable income that would have accrued otherwise if the parties were independent and tax the enterprises in accordance with that conclusion.
Individual Income Treatment
Personal Services
Unless those services are provided in another contracting state, income obtained by a resident of a Contracting State in relation to personal or professional services that are taxable is solely in that State.
However, under the following circumstances, only the state in which the resident is located may tax revenue received by a resident of a contracting state in relation to services provided in the other contracting state:
Directors’ Fees
A resident of a Contracting State who receives directors’ fees and other comparable payments while serving on the board of directors of a corporation that is based in a different Contracting State may be subject to taxation in that other State.
Entertainers, Artists & Athletes
Income earned by a resident of one State through his own activities as an entertainer, such as a musician, actor, radio or television artist, or athlete, and performed in another State may be subject to taxation in that other State.
Such income, however, is exempt from tax if it is earned for such activities performed in one of the contracting states and the visit to the contracting state is substantially supported by public funds from the other Contracting State, including any political subdivision, local authority, or statutory body thereof.
If the activities are performed in a Contracting State by an enterprise of the other Contracting State, the profits derived from providing these activities by such an enterprise may be taxed in the first-mentioned Contracting State, unless the enterprise is substantially supported from the other Contracting State’s public funds, including any political subdivision, local authority, or statutory body, in connection with the provision of such activities.
Pensions
Pensions and other comparable compensation paid to residents of another Contracting State in consideration for prior employment and arising in a Contracting State may be subject to taxation in the first-mentioned State.
Those Serving in Government
A Contracting State, a political subdivision, a local authority, or a statutory body thereof may tax salaries, wages, and other comparable payments received to an individual in exchange for services of a governmental kind provided to that State, subdivision, authority, or body, excluding pensions.
The regulations pertaining to personal services and director’s fees shall apply to payment and pensions received for services given in connection with any trade or business conducted by a Contracting State or a political subdivision, local authority, or statutory body thereof.
Students and Trainees
When receiving training or education in another contracting state while temporarily present there purely for that purpose, students and trainees who were residents of one contracting state immediately prior to their visit are excused from paying taxes in that state.
For as long as the services are carried out in connection with his study, research, training, or are required for the purposes of his maintenance, any remittances and grants received from abroad as well as any remuneration not exceeding SGD 12,000 or THB 96,000 per year in respect of services in that other State are exempt from taxation in the other state.
The clause shall not, however, apply in instances where the study, research, or training is a supplementary activity to personal services performed for which payment is received.
Teachers Professors and Researchers
An individual is exempt from tax in the other Contracting State if they are a resident of one Contracting State immediately prior to their visit to the other Contracting State and they are there on invitation for a period of time not to exceed two years solely for the purpose of teaching, research, or both at any university, college, school, or other similar educational institution that is recognized by the competent authority in that other Contracting State.
Elimination of Double Taxation
When income is taxed in both Contracting States, the DTA offers relief from double taxation.
Thailand will be allowed to apply Singapore tax paid in relation to income derived from Singapore as a credit against Thailand tax paid in relation to that same income.
The Singapore tax that is due on income derived from Singapore may be offset by the Thailand tax that is due on same 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.
Such income may be exempt from Thailand tax if it is a dividend income paid by a Singapore company to a Thailand company that holds at least 25% of the voting power in the paying company. Thailand will, however, apply the tax rate that would have been applied to the recipient’s remaining taxable income if no such exemption had been made. Accordingly, a credit equal to the Thai tax that the corporation must pay on the dividend income received shall be considered in the event of a Singapore beneficiary.
Conclusion:
Singapore is a widely desired location for setting up a holding company among foreign investors. Investments are being channelled through holding companies based in Singapore because to the country’s pro-business tax policies, extensive treaty agreements, and tight bilateral ties with the region’s major economies.
Although its importance has recently started to decline, the Singapore-Thailand DTA has continued to be a significant traction since it was established about 40 years ago, and the authorities on both sides have been quick to propose a more pertinent and modernized arrangement. When the amended version goes into force, businesses and investors on both sides should be able to take advantage of more luxurious benefits.
Send us your questions.
We will reply in less than 24h.
Thank you, we will contact you shortly!
Thank you, we will contact you shortly!
