SINGAPORE, Feb 13 (Bernama) -- A new double taxation avoidance and income tax evasion prevention agreement between Singapore and Malaysia came into force Monday following the completion of ratification formalities.
The provisions of the new agreement, called the "Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income", would cover income derived on or after Jan 1, 2007, the Finance Ministry said.
The revised terms under the new agreement include the reduction of the rates of withholding tax on interest and royalties to 10 per cent and eight per cent respectively.
Under the old agreement, interest and royalties are taxed at the prevailing domestic tax rates ranging from 10 per cent to 15 per cent.
"The tax treatment of technical fees is also made clear under the new agreement," the ministry said, adding that the rate of withholding tax of five per cent will apply to such payment.
Other revisions include mutual tax sparing relief which will apply to the first 10 years for which the agreement is effective.
In the case of dividends received from a Malaysian resident company, Singapore will allow a tax credit for the Malaysian tax on that portion of the profits, out of which the dividends is paid.
"Malaysia will allow a similar tax credit on dividends received from Singapore if the Malaysian resident company holds at least 10 per cent of the voting shares in the Singapore resident company," the ministry said.
The ministry added that the new agreement would continue to help investors avoid the burden of double taxation of income between Singapore and Malaysia and further facilitate the cross-flow of trade, investment, financial activities and technical know-how between the two countries.
The full text of the new agreement was published in the Government Gazette today and is also available on the website of Singapore's Inland Revenue Authority at www.iras.gov.sg.