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As a business owner, it is important to be informed of the various types of taxes applicable in Singapore, such as:
- Corporate income tax
- Withholding tax (WHT)
- Goods and Services Tax (GST)
While the other two are important, understanding withholding tax in Singapore is also crucial for several reasons, especially for businesses and individuals involved in cross-border transactions or investments.
In this bite-sized guide, we break down everything you should know about this type of tax and how our team at SCI can help.
What is Withholding Tax?
It is a tax that is levied on certain types of payments made by a Singapore-based entity to a non-resident individual or company. It is a mechanism where the Singapore government collects tax on income that is earned within the country but received by non-residents.
The withholding tax system helps ensure that non-residents pay their fair share of taxes on income derived from local sources. This tax is withheld and paid to Singapore’s tax authority, the Inland Revenue Authority of Singapore (IRAS).
Related Read: How to File Singapore Corporate Tax and Stay Compliant
When is Withholding Tax Applicable?
Withholding tax applies in various situations, primarily involving payments made by a resident entity or individual to a non-resident entity or individual.
Some examples are where it applies are:
- Work completed or services rendered in Singapore
- Income obtained from a source in Singapore
- Certain payment types
What Are Some Examples of Payments Where Singapore Withholding Tax Applies?
- Interest Payments: Interest payments made to a non-resident entity or individual are generally subject to withholding tax in Singapore. The standard withholding tax rate for interest is 15%, but it can be reduced under tax treaties.
- Royalty Payments: Royalty payments made for the use of intellectual property rights, such as patents, copyrights, trademarks, and software, to a non-resident entity or individual are subject to withholding tax. The standard withholding tax rate for royalties is 10%, subject to reductions under tax treaties.
- Management Fees: Management fees paid to a non-resident entity or individual for services related to the management of a company are subject to withholding tax. The standard withholding tax rate for management fees is 17%, subject to reductions under tax treaties.
- Director’s Fees: Fees paid to non-resident directors serving on the board of a Singapore company are subject to withholding tax. The standard withholding tax rate for director’s fees is often 22%.
- Payments to Non-Resident Professionals: Payments made to non-resident professionals, such as consultants, trainers, and artists, for their services rendered in Singapore may be subject to withholding tax, depending on the nature of the services.
- Rent and Lease Payments: In certain cases, rental or lease payments made by a resident entity or individual to a non-resident entity may be subject to withholding tax. The withholding tax rate can vary based on the nature of the rental income.
- Technical Service Fees: Payments for technical services, including consulting, advisory, and technical assistance, provided by a non-resident entity or individual to a resident entity or individual are subject to withholding tax. The standard withholding tax rate for technical service fees is 17%, but it can be reduced under tax treaties.
How to Determine the Tax Residency of a Company
What Defines a Non-Resident Company?
In general, non-resident companies or entities are:
- Incorporated overseas with operations in Singapore
- Singapore branch offices belonging to foreign companies
- Companies incorporated in Singapore that are controlled outside of the country
The location of a company’s board meetings plays a significant role in determining where it is controlled. Likewise, the location of a company’s key figures who hold important roles in its decision-making can also be a factor to determine tax residency.
Defining a Non-resident Person
The table below explains the definitions of non-resident individuals:
| Non-resident Individual | Non-resident Professional (NPR) | Non-resident Public Entertaner | Non-resident Director |
|---|---|---|---|
| A person residing in Singapore for less than 183 days in a calendar year | A person who carries out a profession or vocation independently, bound by a contract for service in Singapore for less than 183 days in a calendar year | A person who is a public entertainer and performs in Singapore for fewer than 183 days per calendar year, including:
|
A person who is a member of a company’s board of directors and who is in Singapore for fewer than 183 days in a calendar year |
Filing and Paying Withholding Tax
Businesses must file and pay withholding tax to IRAS by the 15th of the 2nd month from the payment date to the non-resident. For example, if the payment date is 20 March 2024, the filing and payment due date is 15 May 2024.
The date of payment is defined as the earliest of these dates, for all payments except for director’s fees:
- When payment is due and payable based on the contract, or, if absent, the invoice date
- The actual date of payment
- When payment is credited to the non-resident’s account, or any account as designated
For director’s fees, the payment date is defined as in these situations:
- Director’s fees approved beforehand
- Director’s approved outstanding fees
- The date of actual payment
- When payment is credited to the non-resident’s account, or any account as designated
Relief Under the Avoidance of Double Taxation Agreement (DTA)
Singapore has a robust network of Avoidance of Double Taxation Agreements (DTA). DTAs enable the reduction or exemption of tax on specific income types if it is earned in a jurisdiction by a resident of another jurisdiction.
If eligible, the claimant can claim tax relief and need only pay the rate as stated in the DTA.
Late Payment Penalty
If a business fails to make payment or does so after the deadline, IRAS may implement these penalties:
- Late payment penalty of 5%
- Legal action
- Appoint agents to recover the tax overdue
If the WTH continues to be unpaid 30 days after the payment deadline, an additional 1% penalty per month may be charged for every full month, up to 15% of the unpaid tax.
Manage Your Withholding Tax Obligations With SCI
At SCI, we have a competent and experienced corporate tax team that can help you with your withholding tax obligations. Let us manage your tax matters from start to end with ease! Contact us to find out more about how we can assist you today.
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