Singapore Withholding Tax Guide
Withholding tax is generally defined as a government requirement for a payor to withhold or deduct tax from a payment, and pay that tax to the government. Governments often use withholding tax as a means to improve tax collection by deducting it at the source of the payment instead of collecting it from the recipient. Typically the withholding tax is treated as an advance payment on account of the recipient’s tax liability. Singapore government does not impose withholding tax on payments to Singapore-resident companies and individuals. However, a withholding tax may be applicable for payments to non-resident companies and individuals on their “Singapore-sourced” income.
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The Income Tax Act in Singapore and the Inland Revenue Authority of Singapore (IRAS) govern the rules pertaining to withholding tax. Withholding tax is applicable to several types of payments when the payments are made to a person or entity who is not a resident of Singapore. This article will highlight these payments, the applicable withholding tax rates, tax payment deadlines and penalties for non-payment, etc.
Withholding Tax – Meaning and Scope
When a Singapore entity or individual makes any payment to a non-resident (including companies, business partners and overseas agents) the payer is required to withhold a certain percentage of the total amount of the payment. The payer is required to remit the withheld amount to the IRAS. The amount that the payer withholds is a tax known as “Withholding Tax”; it is a tax deducted at source. The tax is applicable only when the non-resident’s income is generated or “sourced” in Singapore.
NoteWithholding tax is not applicable on the income of a Singapore resident. The government imposes this tax only on certain types of payments made to non-residents.
To determine the payment of withholding tax the following should be considered:
- The tax is applicable only on income the source of which is located in Singapore.
- The tax is applicable to payments made only to Non-residents (individuals, companies, professionals, overseas agents etc.)
- The tax will be applicable only if the non-resident works or carries out any services in Singapore.
- There are specific payment types (outlined in the Income Tax Act) that are subject to withholding tax. Payment types not on this list are not subject to withholding tax.
Who is a Non-Resident?
Any individual who is present or employed in Singapore for a period less than a total of 183 days is considered to be a non-resident.
The control and management test of a company determines its residency. A company will be a resident company if the “control and management” of its business is in Singapore.
The term control and management of a company is not specifically defined. However, according to common law principles, the control and management of a company is the place where the Board of Directors, which is the decision-making authority, decides on the important strategies and policies of the company. The company will reside in the country where its management has the maximum authority to take major decisions.
Example: A foreign company’s branch office will be a non-resident as its control and management is not in Singapore but with its parent foreign company.
A non-resident professional (NRP) is a foreign professional who is present in Singapore for a period of less than 183 days in a calendar year. These professionals are not employees of any company but work independently and provide services under contractual terms. The term NRP includes:
- Foreign experts invited by government bodies, statutory boards, private organizations so as to provide their technical knowledge in Singapore.
- Foreign speakers and academics who conduct seminars or workshops in the country.
- Queen’s counsel.
- Consultants, trainers as well as coaches.
- Any individual operating through a foreign firm.
However, if a person residing in a foreign country provides remote consulting services to a Singapore company e.g. over the internet, the person will not be liable to pay withholding tax on his income as the person is not carrying out his or her services in Singapore.
Payments Subject to Withholding Tax
The Income Tax Act states the types of payments that are subject to withholding tax. Following are the payments when made to non-residents that are subject to this tax:
- The Interest, commission, and fee for any loan or indebtedness.
- Royalty and other payments for the use of any movable property.
- Management fee which includes payment to the management or assisting the management in the execution of trade, business or profession.
- Payment for the use and the right to use any scientific, technical, commercial and industrial knowledge as well as information.
- Rent and other payments for the use of any movable property.
- Remuneration to a non-resident director.
- Payment made to non-resident professionals which include consultants, coaches, trainers and foreign speakers etc.
- Payment made to any non-resident public entertainer which includes artists, musicians etc.
- Distribution from the Real Estate Investment Trust (REIT) which is an instrument to investment in a real estate portfolio.
- Withdrawal from Supplementary Retirement Scheme (SRS) by non-citizen members. This is a government scheme which helps the people save for their old age as it offers various tax benefits.
Withholding Tax Rates
The withholding tax rates differ depending on the type of payment. However, in certain cases, where Singapore has entered into an Avoidance of Double Taxation Agreement with the country where the non-resident resides, the tax rate may be lower as specified in the treaty.
Following is a list of the payment types and the applicable rates:
|Interest, fees and payments relating to loan or indebtedness||15%|
|Royalty and payments in connection with use of movable property||10%|
|Income of non-resident professionals received for their services in Singapore||15% on gross income or
20% on net income (w.e.f. 1 Jan 2016 rate is 22%)
|Payment with respect to the use of any scientific, technical, industrial, commercial knowledge and information||10%|
|Technical assistance, service fees as well as management fees||Non-resident companies:
Prevailing corporate tax rate
20% on gross payment (w.e.f. 1 Jan 2016 rate is 22%)
|Rent and payments for use of movable property||15%|
|Charter fees (ships and aircraft)||0 - 2%
|Director's remuneration or fees in case of non-resident directors||20%|
|Income of non-resident public entertainers received for services they perform in Singapore||15% (on gross income)|
|Distribution from the real estate investment trust to a non-resident unit holder||10%|
|Withdrawal from Supplementary Retirement Scheme (SRS) by non-Singaporean members||20% (w.e.f. 1 Jan 2016 rate is 22%)|
Filing forms with IRAS
Whenever a payer has withheld and deducted this tax, the payer will have to make the payment and file a form with the IRAS. The forms differ depending on the type of payment made. The following table describes the applicable forms for the different payment types :
|Forms||Type of Payment|
|Form IR37||Interest, management fees royalty etc|
|Form IR37A||Disposal of real property, consideration paid to non-resident seller|
|Form IR37B||Withdrawals from Supplementary Retirement Scheme (SRS)|
|Form IR37C||Payment to non-resident foreign professionals or any foreign firm in Singapore|
|Form IR37D||Payment to Foreign Public Entertainers|
Withholding tax must be paid to the IRAS by the payer on the 15th of the second month from the date on which payment is made to the non-resident. For example, if the tax amount is withheld by the payer in the month of May, the deadline to pay the tax to IRAS will be the 15th of July. To comply with the deadline it is essential to understand the notion of “date of payment”.
To determine the exact date of payment, the payer should consider the earliest of the following:
- Where the payment is made according to an agreement or contract, the date as mentioned in the contract.
- In the absence of a contract of agreement, the date of the invoice.
- The actual date when the income was credited to the account of the non-resident.
- Date of actual payment.
Note that the payer must determine all of the above dates, and then chose the earliest of them as the date of payment. When calculating the date of payment in case of Director’s fee, the date will be the earlier of the following:
- The payment date or
- Date of approval of the payment by means of voting at the Annual General Meeting of the company.
When the payer makes multiple payments within a period of 60 days to the same non-resident professional or non-resident public entertainer belonging to the same engagement, the payer can consolidate the payment and file one form with the IRAS. The timeline for payment of the withheld tax amount is the 15th of the second month as calculated from the date of the last payment to the non-resident.
Notification to Comptroller
A payer has to notify the Comptroller of the amount of tax deducted. If the payer fails to give this notice to the Comptroller (by the 15th day of the second month from the date of deduction), he or she will be guilty of an offence and if convicted will have to:
- Pay a penalty amounting to 3 times the amount of tax is deducted and
- Pay a fine of a maximum of $10,000 and may also be imprisoned for a period of 3 years.
Penalty in case withholding tax is not paid within the timeline:
- First, a penalty of 5% will be levied (on the unpaid tax) and
- 1% additional penalty if the tax remains unpaid within a period of 30 days from the due date. This 1% penalty is for every period of 30 days that the tax remained unpaid; however the maximum penalty will not exceed 15%.
Applicability of Treaty Terms
Singapore has Avoidance of Double Taxation Agreements (DTAs) with various countries. If the non-resident is residing in one of the countries which have a DTA in force with Singapore, the rates as specified in the agreement will be applicable instead of the current withholding tax rates. Since Singapore has the DTA in force with most of the countries, nearly all non-residents are able to reduce their tax burden by availing themselves of the terms of a DTA.
To claim the benefits under DTA:
- The payer will require a Certificate of Residence (COR) from the non-resident payee to prove that the payee is a resident of the treaty country.
- The certificate will be valid only if certified by the tax authority of the payee’s country of residence.
- The payer must submit the COR to the Singapore tax authority.
The payment of withholding tax should be in compliance with the relevant rules of the Income Tax Act and the guidelines set by the IRAS. Since the obligation of the payment lies on the payer, he or she must always remember to pay the withholding tax amount in a timely manner.
The non-payment of this tax imposes hefty penalties. Thus, it is important for a person making the payment to understand the obligation pertaining to the payment of withholding tax and the circumstances under which the applicability of this tax arises. It is strongly advised that you should engage a professional corporate services firm to help you determine and comply with the withholding tax requirements.