Aside from the occasional fight over who has the best nasi lemak, chicken rice, football team etc, Malaysia and Singapore actually share a common goal to fight the burden of double taxation of income.
The governments of the Republic of Singapore and Malaysia signed a Double Tax Treaty in 1968 and subsequently another agreement was signed in 1973 which was incorporated into the original treatment. The agreement was modified in 2004 and came into force in 2006 for both countries.
What is Double Tax Treaty?
Double Tax Treaty is essentially an agreement between two governments to avoid double taxation. Double taxation arises because incomes are taxed in different ways. Some countries tax on the source basis, some on a residence basis, while some countries mix the two.
The Objectives of the Singapore-Malaysia Double Tax Treaty
Key provisions of the Singapore-Malaysia Double Taxation Agreement
For all residents of one or both contracting states, Singapore and Malaysia, the types of taxes covered by the Singapore-Malaysia double tax treaty are
Income & Corporate Taxes in Singapore
Income & Petroleum Taxes in Malaysia
Upon fulfilling agreed requirements, these taxes can be deduced, reduced, or exempt.
Some key double taxation agreement concepts include those which are related to the residency status of the taxpayer applying for the relief of double taxation, permanent establishment, business profits, dividends, interests, royalties, technical fees, and other incomes.
What if Singapore and Malaysia remove the double tax treaty?
A very quick and simple answer to this question would be that the absence of a double tax agreement or in other words, without the arrangements to reduce double taxation, it could be very costly to earn a return.
It will end up with someone driving income from either country and subject to tax on the income in that country and again subject to tax in their home country when bringing back that income.
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