The double tax agreement between New Zealand and Singapore, signed in August last year has became effective, according to a statement released on Sunday.

The new agreement replaces the 1973 agreement between the two countries.

The new agreement will bring withholding tax rates on dividends, interest and royalties more into line with New Zealand’s new standard treaty rates, meaning reductions in tax rates in some instances, New Zealand Revenue Minister Peter Dunne said in the statement.

Under the new agreement, withholding tax on dividends, set at 15 percent under the 1973 treaty, is reduced to 5 percent where an investor holds direct investment in a company. The withholding tax on interest will be reduced from 15 percent to 10 percent, and the withholding tax on royalties reduces from 15 percent to 5 percent.

The new withholding rates will apply in New Zealand from Oct. 1 this year, and in Singapore from Jan. 1, 2011.

The double tax agreements are treaties to facilitate cross- border trade and investment between two countries by removing or minimizing tax obstacles and preventing businesses being taxed twice on the resulting income.

They also give greater certainty about how cross-border income will be taxed, reduce compliance costs for businesses and lower tax on some income.

New Zealand has 35 double tax agreements, covering most of its important trade and investment partners.