The Inland Revenue Authority of Singapore has announced the signing of an income tax treaty with Serbia. The treaty was signed on 26 February 2021 in Singapore and on 5 April 2021 in Serbia. It is the first of its kind between the two countries.

Taxes Covered

The treaty covers Serbian corporate income tax and personal income tax and covers Singapore income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes through an employee or other person (other than an agent of an independent status) where the activities continue within a Contracting State for a period or periods aggregating more than 270 days within a 12-month period.

Withholding Tax Rates

• Dividends - 5% if the beneficial owner is a company that directly owns at least 25% of the paying company's capital; otherwise, 10%
• Interest - 10%
• Royalties -
  • 5% for royalties paid for the use of, or the right to use, any copyright of literary, artistic or scientific work including software, cinematograph films, or films, tapes or recordings used for radio or television broadcasting; and
  • 10% for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or comparable interests of any kind (including interests in a partnership or trust) deriving at least 50% of their value from immovable property situated in the other State, with an exemption for shares or comparable interests traded on any recognized stock exchange.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. Singapore also provides a credit for the Serbian tax paid on the profits out of which dividends are paid by a company resident in Serbia to a company resident in Singapore, provided that the Singapore company directly or indirectly owns at least 10% of the paying company's share capital.

Entitlement to Benefits

Article 27 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Serbia from 1 January of the year following its entry into force and will apply in Singapore in respect of withholding taxes from 1 January of the year following its entry into force and in respect of other taxes from 1 January of the second year following its entry into force.