The provisions of the new agreement, which formally entered into force on February 13, cover income derived on or after 1st January 2007, the same date that the former double tax agreement between the two states expires.

According to the government of Singapore, the new agreement will help investors avoid the burden of double taxation of income between Singapore and Malaysia, whilst facilitating the cross-border flow of trade, investment, financial activities and technical know-how between the two countries.

Under the terms of the revised agreement: rates of withholding tax on interest and royalties will be reduced to 10% and 8% respectively (from 10% and 15%); tax treatment of technical fees is clarified and a 5% withholding tax rate will apply; and mutual tax sparing relief applies during the first ten years of the new agreement.

Furthermore, 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% of the voting shares in the Singapore resident company.