Singapore’s tax regime is renowned for its competitive rates and clarity, making it an attractive destination for international businesses. A critical aspect that foreign companies engaging with Singapore need to understand is the concept of withholding tax (WHT).
This guide offers an insightful look into withholding tax in Singapore, its applicability, rates, and compliance requirements, ensuring businesses can navigate these waters smoothly.
What is Singapore Withholding Tax?
Withholding tax in Singapore is a tax deducted at source on certain types of payments made to non-residents, including companies and individuals. It does not apply to a tax resident. The essence of WHT is to ensure that tax is collected on income generated within Singapore from foreign entities or individuals.
Applicability of Withholding Tax
As mentioned, only certain payments to non-residents are subject to withholding tax. Some examples are:
- Interest, commission, and any other borrowing fees
- Royalties or other payments for the use of or the right to use movable property
- Payments for services rendered
- Payments to non-resident employees
- Distribution of Real Estate Investment Trusts (REIT)
Understanding the nature of your payments is crucial in determining whether withholding tax applies and, if so, at what rate.
Withholding Tax Rates
Under Singapore tax law, the withholding tax rate varies depending on the type of payment and the existence of any applicable double taxation agreements (DTAs) between Singapore and the country of residence of the non-resident recipient. Here are the rates:
| Payment Type | Tax Rate (%) |
|---|---|
| Interest, commission, and other fees related to loans and debt | 15 |
| Royalties and rights to use intellectual property (IP) | 10 |
| Royalties and other payments made to an author, composer, or choreographer | 24% on net royalties or 10% of the gross royalties up to YA2026 |
| Payments for the use or the right to use scientific, industrial, commercial, and technical knowledge or information | 10 |
| Rent and other payments for using moveable property | 15 |
| Management fees | Prevailing corporate income tax rate |
| Technical assistance and service fees | |
| Time, voyage, and bareboat charter fees for chartering ships | Nil |
| Sales proceeds from any real property by a non-resident property trader | 15 |
| Distribution of taxable income made by a REIT to a unit holder who is a non-resident non-individual | 10 |
| Payment to a non-resident director | 24 |
| Payment to a non-resident professional or foreign firms (unincorporated) | 15% on gross income or prevailing non-resident individual rate on net income |
| Payment to a non-resident public entertainer | 15% on gross income |
| Commission or payment to a non-resident international public agent | 3 |
Withholding taxes are not required on dividends.
Singapore’s extensive network of DTAs may reduce these rates, making it imperative for businesses to consult these agreements or seek expert advice to navigate the specifics.
Singapore Withholding Tax Exemptions and Reductions
Certain payments may be exempt from withholding tax under specific conditions or when specific criteria are met. For example, payments for the use of or the right to use scientific, technical, industrial, or commercial knowledge or information may be exempt if certain conditions are satisfied.
How DTAs Affect Withholding Tax
DTAs are tax agreements between Singapore and foreign countries. They ensure that individuals and companies are not taxed twice on the same income, or can obtain a reduced rate.
As a result, there are certain exemptions from withholding tax for non-resident professionals. Exemptions or reduced rates are provided only if there is an article that specifies the income type in the DTA.
Compliance and Payment
How to File Withholding Tax
The withholding tax process is straightforward but requires punctuality and accuracy from the payer. Upon determining the applicability of WHT on a payment, the payer must:
- Deduct the appropriate tax amount from the payment to the non-resident.
- Report and remit the withheld amount to the Inland Revenue Authority of Singapore (IRAS) by the 15th of the second month from the payment date to the non-resident.
Defining the Payment Date
The date of payment is defined as the earliest of these dates:
- For all payments except the director’s fees
- When the payment is due and payable based on the agreement, contract, or invoice date (if the first two are absent)
- When payment is credited to the account of the non-resident
- The actual date of payment
- For director’s fees
- When the payment is due and payable under these scenarios:
- Director’s fees approved in arrears
- Director’s fees approved in advance
- When payment is credited to the account of the non-resident or other accounts designated by the non-resident
- The actual date of payment
- When the payment is due and payable under these scenarios:
Steps to File Withholding Tax
- Step 1: Authorise users for withholding tax filing if you are filing WHT for the first time
- Step 2: File your WHT on mytax.iras.gov.sg with your SingPass
- Step 3: View the acknowledgment page and make payment
- Step 4: View and download S45 notices and letters
How to Pay Withholding Tax
The preferred payment mode of withholding tax is via GIRO arrangement. You can also pay via internet banking, AXS, internet banking fund transfer, telegraphic transfer, or SingPost.
Failure to comply with withholding tax requirements can result in penalties, including fines and interest on the overdue tax.
Penalties for Late Payment or Non-Payment
IRAS can enforce these penalties if you do not pay by the due date:
- Impose late payment penalty of 5% (if the tax remains unpaid 30 days after the due date, additional penalty of 1% per month, up to 15%, may be imposed for every completed month)
- Choose agents, such as your bank or lawyer to recover the overdue tax
- Take legal action
Final Thoughts
Withholding tax in Singapore represents a critical consideration for international businesses engaging in transactions involving Singapore. Proper understanding and compliance with WHT regulations are essential to avoid penalties and to benefit from potential exemptions or reductions under DTAs.
Given the complexity of tax laws and the potential for changes, consulting with tax professionals is advisable to navigate withholding tax requirements effectively and to leverage Singapore’s tax-efficient regime to your business’s advantage.
Whether expanding operations into Singapore or engaging with Singapore-based service providers, a proactive approach to understanding and managing withholding tax can save businesses time, resources, and potential legal complications, paving the way for a smoother international business operation.
FAQs About Withholding Tax in Singapore
- Yes, Singapore imposes withholding tax on specific types of payments made to non-residents, including companies and individuals. This is a tax mechanism used to ensure that income earned by non-residents from Singaporean sources is subject to local taxation.
- IRAS can impose financial penalties or take legal action.
- Yes, if there is an overpayment of withholding tax, it will be refunded within 30 days
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