Taxation of dividends paid by a company established in Singapore depending on the tax residence of the shareholder

Singapore is home to many French expatriates, who have made French one of the top foreign languages studied in Singapore. Among this large French community, a number of individuals are shareholders of Singaporean companies. In this Smart Alert Singapore issue of April 2024, we would like to evidence the difference in tax treatment between two individual shareholders receiving dividends from a company established in Singapore, depending on their tax residence.

Residence criteria

Tax residence of an individual is first determined according to local legislations. In case of conflict (when the two countries consider that the same individual is tax resident in the two countries), the applicable Double Taxation Agreement signed between these two countries will resolve the conflict. The Double Taxation Agreement signed between the Government of the Republic of Singapore and the Government of the French Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the “Tax Treaty between Singapore and France”) provides the following successive criteria to help resolving the conflict of residence between France and Singapore:

  • the individual shall be deemed to be a resident of the country in which he has a permanent home available to him. If he has a permanent home available to him in both countries, he shall be deemed to be a resident of the country with which his personal and economic relations are closer (centre of vital interests);
  • if the country in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either country, he shall be deemed to be a resident of the country in which he has an habitual abode;
  • if he has an habitual abode in both countries or in neither of them, the competent authorities of the countries shall settle the conflict by mutual agreement.

Determining the tax residence of an individual may be cumbersome and to avoid any issues with the authorities of either country, it is highly recommended to seek legal advice specifically for nationals who have ties and physical presence in two countries.

Distribution of dividends

  1. The French shareholder receives the dividends in Singapore as a “Singapore Tax resident”

According to domestic legislation in Singapore, dividends received from Singapore resident companies under the one-tier corporate tax system are not taxable.

The reasoning behind this is that Singapore operates as a one-tier corporate tax system, meaning that companies pay tax on their profits and, when dividends are distributed to shareholders, the dividends in question are exempt from tax in the hands of the shareholders.

Thus, the principle in Singapore is that dividends distributed by a Singapore company to a Singapore Tax resident (or a foreign tax resident) are tax-exempt.

  1. The French shareholder receives the dividends in France as a “French tax resident
  • What about the tax treaty?

Article 10 of the Tax Treaty between Singapore and France does not prevent France from taxing dividends paid by a Singapore company to a French tax resident.

  • Application in France

For some years now, dividends in France have been subject to the “Prélévement Forfaitaire Unique”, also known as “PFU”, which is a flat rate. of 30%, including 12.8% income tax and 17.2% social security contributions. This is a flat rate that does not take into account the taxpayer’s tax bracket or reference tax income.

The taxpayer may also choose to subject the dividends received to his / her progressive income tax rate (global option which will apply to all income such as dividends, capital gain, etc. qualified as “revenus de capitaux mobiliers”). Under this option, the dividends received will be classified as “revenus de capitaux mobiliers” and will be eligible for a 40% tax deduction. Dividends received will then be added to the total amount of other income to determine the taxable amount.

Note that if the applicable marginal tax band of the taxpayer (“tranche marginale d’imposition”) is 30%, it is more attractive to subject the dividends received to the PFU whose income tax rate is 12.8%.

In conclusion, as illustrated in the two scenarios presented, whether dividends are received in Singapore as a Singapore Tax resident or in France as a French Tax resident, the tax implications can vary substantially. It is therefore important to keep in mind the provisions of the bilateral agreements between France and Singapore as well as the domestic rules applicable to determine the appropriate tax treatment of such dividends. Given the potential for differing tax treatment based on residency status and jurisdiction, seeking professional tax advice is crucial to ensure compliance with regulatory requirements.

Bérengère Roig | Marie-Gabrielle du Bourblanc

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