Withholding Tax Singapore
5 minute read
In Singapore, non-resident companies or individuals are taxed for certain types of payments and income. This tax is also known as withholding tax – as a percentage of that payment must be withheld and be paid to IRAS. Examples of payments would be royalty, interest, technical service fee, and etc. The percentage of withholding tax rate would depend on the nature of payment. Read on to learn more about this topic.
Overview:
- How does withholding tax work?
- Who are regarded as non-resident companies or individuals?
- Nature of payments that are subject to withholding tax
- Withholding tax rates for non-resident directors, professionals and public entertainers
- Types of payments that do not attract withholding tax
- When to pay Singapore withholding tax?
- How to determine the date of payment to the non-resident?
- What if you miss the tax deadline?
How does withholding tax work?
Withholding tax happens when taxes have to be deducted before making certain payments from a Singapore company to a non-resident individual or company. These taxes that are withheld are then declared and paid to IRAS by the Singapore company that is making the payment to the non-resident individual or company.
Who are regarded as non-resident companies or individuals?
a. Non-resident company
A Singapore-incorporated company can be regarded as either a tax resident or non-tax resident in Singapore. The tax residency of a Singapore company is determined where the business is being controlled and managed.
“Control and management” is the making of decisions on strategic matters, which is typically determined based on the location where the Board of Directors meetings, during which strategic decisions are made. If the control and management are based overseas (i.e. the Board of Directors hold their strategic meetings outside of Singapore), the company will then be regarded as a non-tax resident company, even though it is incorporated in Singapore.
b. Non-resident individual
b (i). Foreign professionals (non-resident professionals)
Foreign professionals are individuals exercising any profession or vocation (i.e. persons other than employees) of an independent nature under a contract for service and includes:
- a foreign expert who is either invited by government bodies, statutory boards, or private organisations to impart their technical know-how or expertise in Singapore;
- a foreign speaker/academic conducting seminars or workshops;
- Queen’s Counsels;
- Consultants, trainers, coaches; and
- an individual who operates through a foreign firm
b (ii). Non-resident public entertainer
Public entertainers are individuals who are physically present in Singapore for less than 183 days. These includes:
- Stage, radio or television artistes (e.g. singers, dancers, actors) and musicians; and
- Athletes (all sportsmen in any sporting events or tournaments e.g. golfers, tennis players, horse jockeys, racing drivers, runners).
Those who work behind the scenes such as crew, choreographers, directors in the entertainment scene or horse trainers, coaches, personal trainers for sporting events will not be treated as public entertainers.
b (iii). Foreign board director (non-resident director)
For tax purposes, a board director is a member of the board of directors of a company and whether withholding tax is applicable depends on the residency status of the board director.
Nature of payments that are subject to withholding tax:
Not all payments made to non-resident individuals or companies are subject to withholding tax. Only specific payments that fall within the scope of the Singapore Withholding Tax Act will attract withholding taxes when a payment of the following natures are paid from a Singapore company to a non-resident individual or company:
- Interest, commission, fee in connection with any loan or indebtedness: 15%
- Royalty or other payments for the use of or the right to use any movable property: 10%
- Royalty and other payment made to author, composer or choreographer: 22%
- Payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information: 10%
- Payments of management fees: 17%
- Rent or other payments for the use of any movable property: 15%
- Payments for the purchase of real property from a non-resident property trader: 15%
- Distribution of real estate investment trust (REIT): 10%
Withholding tax rates for non-resident directors, professionals and public entertainers:
- Payment to non-resident director: 22%
- Payment to non-resident professional/foreign firms (unincorporated): 15% on gross income or prevailing non-resident individual rate on net income
- Payment to Non-Resident Public Entertainer: 10%
- Commission/Payment to Non-Resident International Market Agent: 3%
Types of payments that do not attract withholding tax
The following types of payments do not attract withholding tax when paid to a non-resident individual or company:
- Dividend payments
- Payments made to Singapore branches of non-resident companies
- Payments made by banks, finance companies and certain approved entities
- Payments for the charter of ships
When to pay Singapore withholding tax?
The Payer has to e-file and pay the withholding tax in Singapore to IRAS by the 15th of the second month from the date of payment to the non-resident.
If you are on GIRO for withholding tax payment, the GIRO deduction date is on the 25th of the month of when the tax is due. However, if the GIRO deduction date falls on a weekend or public holidays, the deduction will be on the next working day.
Additionally, as a payer, you can refer to your acknowledgment page for payment details after you have e-filed.
How to determine the date of payment to the non-resident?
The date of payment is defined as the earliest of the following dates:
- When the payment is due and payable based on the agreement or contract, or the date of the invoice in the absence of any agreement or contract (credit terms should not be taken into consideration).
- When payment is credited to the account of the non-resident or any other account(s) designated by the non-resident.
- The date of the actual payment.
- Director’s fees.
What if you miss the tax deadline?
Penalties will be imposed if the withholding tax is paid to IRAS after the payment due date or if the GIRO deduction is not successful.
If a person misses the deadline and pays their Singapore withholding tax after the stipulated date, IRAS will issue a Demand Note and include the late payment penalty (currently 5%).
Failing to pay the tax and penalty by the due date stipulated in the Demand Note will cost you an additional penalty of 1% for each outstanding month (subject to a maximum of 15%).
For a detailed guide on the various tax incentives in Singapore, check out our latest article to ensure your business takes full advantage of these opportunities.
Next steps
As you can conclude from this article, withholding tax is an important feature of and has a huge influence on the company-employe relationship as well as the company’s good standing in the eyes of the law.
Therefore, every responsible individual should acquaint themselves with the relevant Singaporean laws in this regard. Making a mistake in this area is something that aspiring companies must not do.
If you are not completely sure how to manage your tax affairs, we are here to help! Find out more about our accounting services.
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