Withholding Tax is part of Singapore’s overall tax collection mechanism and is applicable to payments made to non-residents (including employees, business partners and overseas agents). In accordance with IRAS tax rules, a person has a legal obligation to withhold a percentage of the payment when he makes payments of a specified nature under the Singapore Income Tax Act to a non-resident and pay the withheld amount to IRAS. Such amount withheld amount is called Withholding Tax.
For tax purposes in Singapore, Inland Revenue Authority of Singapore (IRAS) has categorized individuals and companies into two types of tax entity: Resident and Non-resident. A company is considered a Singapore tax resident if the control and management of its business is exercised outside Singapore. A Singapore branch office of a foreign company is treated as a non-resident tax entity of Singapore because the control and management is vested with the parent foreign company.
|Withholding Tax on Payments to Non-Residents (Selected Transactions)|
|Company director’s remuneration||20%|
|Technical assistance and services fees||17%|
|Rent on moveable property||15%|
|Charter fees for ship or aircraft||0-2%|
TYPES OF PAYMENT SUBJECT TO WITHHOLDING TAX
The types of payments that are subject to Singapore Withholding Tax are any payments listed under Section 45 of the Singapore Income Tax Act, which include:
- Payment of commission fees to overseas agents;
- Payment of director’s fees to non-resident directors; and
- Payment of professional fees to offshore accountants.
Below is a list of payments and fees subject to Withholding Tax under Singapore Income Tax Act under Section 45:
Section: 45, 45A, 45B, 45C & 45D
- Interest, Commission, Fee or other payment in connection with any loan or indebtedness;
- Royalties or other payments for use of or right to use any movable property;
- Management fees and service fees;
- Rental from use of movable properties;
- Non-resident director’s remuneration;
- Distribution by Unit Trust; and
- Payment for the purchase of real property from non-resident property trader.
- Supplementary Retirement Scheme (SRS) withdrawal made by foreigners and Singapore permanent residents.
- Professional service fees for non-resident professionals.
- Distribution from real estate investment trust (REIT); and
- Income derived as public entertainer.
- Commission or other payment of junket promoter.
Software payments are considered royalty payments for withholding tax purposes except for payment made for shrink-wrap software, site license, downloadable end-user software and software bundled with computer hardware. Such exemption applies only if the buyer do not obtain any right to commercial right for its copyright, duplicate, reverse engineer, decompile or modify the software.
WITHHOLDING TAX AMOUNT
The amount of Withholding Tax would depend of the type of payment to be made and to whom. Below is a general outline for the % of amount to withhold:
- For management fees, technical and other service fees paid to a non-resident company, the withholding tax rate is the same as corporate tax rates, which is 17%. However, for payments made to non-resident individuals, the Withholding Tax is 20% of the gross payment.
- For other types of payments, the Withholding Tax rate is 10% or 15%.
- Where a double tax agreement is applicable, the rates specified in the agreements of the respective countries would apply.
The reduced rates of 10% or 15% apply to payments made to non-residents which:
- are not derived by any trade, business, profession or vocation carried on Singapore; and
- are not effectively connected with any permanent establishment of the non-residents in Singapore.
Therefore in other cases, prevailing corporate tax rate (currently 17%) will apply for non-residents companies.
ACCOUNTING OF WITHHOLDING TAX
Withholding tax must be accounted for at the earliest of:
- when payment is due and payable (based on contract/agreement).
- when payment is credited to no-resident payee’s account or any other designated account (deemed payment).
- Date of actual payment.
In the absence of contract or agreement, date of invoice is taken as date of payment. Date of General Meeting in which Director’s Fees is declared is considered as its date of payment for withholding tax purposes.
WITHHOLDING TAX DEADLINE
If date of payment is prior to 01 July 2012, the filing of Form IR37/A/B/C/D and payment of withholding tax must be made to IRAS by the 15th of the following month from the date of payment to the non-resident.
If date of payment is from 01 July 2012 onwards, the filing of Form IR37/A/B/C/D and payment of withholding tax must be made to IRAS by the 15th of the second month from the date of payment to the non-resident.