The new income tax treaty between Singapore and South Korea entered into force on 31 December 2019. The treaty, signed 13 May 2019, replaces the 1979 tax treaty between the two countries.
The treaty covers Korean income tax, corporation tax, the special tax for rural development, and local income tax. It covers Singapore income tax.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation. In addition, both countries provide a credit for tax paid on profits out of which dividends are paid if the company receiving the dividends holds at least 25% of the paying company's voting shares or capital stock where the paying company is a Singapore company, or at least 25% of the paying company's share capital where the paying company is a Korean company.
Provisions are also included for a tax sparing credit for tax that would have been payable under paragraph 2 of Article 10 (Dividends) or paragraph 2 of Article 12 (Royalties) but has been reduced or exempted by a Contracting State in order to promote its economic development. The tax sparing credit may not exceed the rates of tax provided for by those Articles (see above).
Article 26 (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.
The treaty applies in South Korea from 1 January 2020 and applies in Singapore in respect of withholding taxes from 1 January 2020 and in respect of other taxes from 1 January 2021.
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