A double tax avoidance agreement, or DTAA, is a legal agreement between two countries aimed at preventing individuals and companies from being taxed twice on the same income. Such an agreement exists between Malaysia and Singapore, which is great news for businesses operating in the two countries.
Here’s what you need to know about the DTAA between Malaysia and Singapore.
Taxation in Malaysia and Singapore
Malaysia and Singapore both have their tax systems, and businesses operating in the two countries may be subject to taxation in one or both of the countries. In Malaysia, businesses are subject to corporate income tax on their income generated in the country. The tax rate is 24% for resident companies and 25% for non-resident companies.
In Singapore, companies are subject to a corporate tax rate of 17% on income generated in the country. The country also has a Goods and Services Tax (GST) of 7%.
Double taxation is a common problem faced by businesses operating in more than one country. This occurs when a business is taxed twice on the same income, once in the country where the income was generated and again in the country where the business is based.
Double taxation can lead to a significant increase in business costs, and it is a major barrier to cross-border trade and investment.
DTAA between Malaysia and Singapore
To prevent double taxation, Malaysia and Singapore signed a DTAA in 1968. The agreement provides relief from double taxation in the following ways:
– The agreement ensures that income taxed in one country is not taxed again in the other country.
– The agreement allows businesses to claim tax credits in one country for taxes paid in the other country.
– The agreement provides for the exchange of information between tax authorities in both countries to prevent tax evasion.
The DTAA between Malaysia and Singapore covers various types of income, including business profits, dividends, interest, royalties, and capital gains.
The agreement also addresses the issue of residency. Under the agreement, a company that is incorporated in one country but has its management and control in the other country is considered a resident of that country for tax purposes.
The DTAA between Malaysia and Singapore is an essential agreement that provides relief from double taxation and encourages cross-border trade and investment. It is crucial for businesses operating in both countries to understand the agreement’s provisions to prevent double taxation and take advantage of the benefits it offers.
As a professional, it is essential to mention that any business operating in Malaysia and Singapore must ensure compliance with the tax laws and regulations in both countries. By doing so, businesses can avoid penalties and legal issues that may arise from non-compliance.