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Withholding Tax

A tax on certain payments made to non-residents, such as royalties, interest, and service fees.

Sections

1. Overview of Withholding Tax in Singapore

Withholding Tax (WHT) in Singapore is a tax obligation imposed on payments made to non-residents for services or income derived from Singapore. The payer (a Singapore-based entity or individual) is required to withhold a portion of the payment and remit it to the Inland Revenue Authority of Singapore (IRAS). This ensures that non-residents fulfill their tax obligations in Singapore.

2. Key Regulations Governing Withholding Tax

The legal framework for Withholding Tax in Singapore is outlined in the Income Tax Act 1947. Key points include:

  • Applicability: Withholding Tax applies to payments made to non-residents, including individuals, companies, and other entities, for income sourced in Singapore.
  • Non-Residents: Non-residents include:
    • Non-resident individuals: Foreign professionals, public entertainers, or other individuals who do not reside in Singapore.
    • Non-resident companies: Foreign companies that do not have a permanent establishment in Singapore.
  • Taxable Payments: Payments subject to Withholding Tax include:
    • Interest, commission, or fees in connection with loans or indebtedness.
    • Royalties or payments for the use of intellectual property.
    • Payments for technical, management, or consultancy services.
    • Rent or payments for the use of movable property.
    • Proceeds from the sale of real property by a non-resident property trader.
    • Payments to non-resident public entertainers or professionals.

3. Withholding Tax Rates

The applicable Withholding Tax rates depend on the type of payment and the recipient's residency status. Below are the standard rates:

| Type of Payment | Withholding Tax Rate | |----------------------------------------------|-----------------------------------------------------------------------------------------| | Interest, commission, or fees | 15% (final tax) | | Royalties | 10% (final tax) | | Technical, management, or consultancy fees | 17% (non-resident corporate tax rate) or 22% (non-resident individual tax rate) | | Rent for movable property | 15% | | Payments to non-resident public entertainers | 10% | | Payments to non-resident professionals | 15% |

Note: These rates may be reduced under Singapore’s Double Taxation Agreements (DTAs) with other countries. DTAs prevent double taxation and may provide preferential rates or exemptions.

4. Procedures for Withholding Tax

The process for complying with Withholding Tax obligations involves the following steps:

Step 1: Determine Applicability

  • Assess whether the payment is subject to Withholding Tax based on the recipient's residency status and the nature of the payment.

Step 2: Calculate the Withholding Tax

  • Compute the tax based on the gross payment amount and the applicable rate.

Step 3: File and Pay Withholding Tax

  • File the Withholding Tax return and make payment to IRAS by the 15th of the second month following the date of payment to the non-resident.
    • Example: If payment is made on 1st January, the Withholding Tax must be filed and paid by 15th March.

Step 4: Submit the Form IR37

  • File the Form IR37 (Withholding Tax Form) electronically via the IRAS myTax Portal.

Step 5: Issue a Certificate (if applicable)

  • Provide the non-resident with a certificate of tax withheld, if required.

Late Payment Penalties

  • A 5% penalty is imposed for late payment of Withholding Tax. Additional penalties may apply if the tax remains unpaid.

5. Country-Specific Considerations

Singapore’s Withholding Tax system has unique features and considerations:

Double Taxation Agreements (DTAs)

  • Singapore has an extensive network of DTAs with over 80 countries. These agreements may reduce or eliminate Withholding Tax on certain types of payments. To claim DTA benefits:
    • The non-resident must provide a Certificate of Residence (COR) from their home country’s tax authority.
    • The payer must submit the COR to IRAS.

Exemptions and Reliefs

  • Certain payments are exempt from Withholding Tax, such as:
    • Payments for services performed outside Singapore.
    • Payments to Singapore branches of foreign companies (as they are considered tax residents).
    • Specific exemptions under the Income Tax Act or DTAs.

Gross-Up Clause

  • If the contract specifies that the non-resident is to receive the full payment amount without deductions, the payer must "gross up" the payment to account for the Withholding Tax. This increases the effective cost to the payer.

Currency of Payment

  • Withholding Tax must be calculated in Singapore Dollars (SGD). If the payment is made in a foreign currency, it must be converted to SGD using the prevailing exchange rate on the date of payment.

E-Filing Requirement

  • All Withholding Tax filings must be done electronically via the myTax Portal. Paper submissions are no longer accepted.

6. Practical Example

Scenario: A Singapore company pays SGD 100,000 in royalties to a non-resident company in the UK.

  1. Determine the Withholding Tax Rate:

    • Under Singapore’s DTA with the UK, the Withholding Tax rate on royalties is reduced to 8% (instead of the standard 10%).

  2. Calculate the Withholding Tax:

    • Withholding Tax = SGD 100,000 × 8% = SGD 8,000.

  3. File and Pay:

    • The Singapore company must file the Withholding Tax return and pay SGD 8,000 to IRAS by the 15th of the second month following the payment date.

  4. Submit COR:

    • The non-resident company provides a Certificate of Residence (COR) from the UK tax authority to claim the reduced DTA rate.

7. Key Resources

8. Summary Checklist

  • ✅ Confirm if the payment is subject to Withholding Tax.
  • ✅ Determine the applicable tax rate (standard or DTA rate).
  • ✅ File and pay Withholding Tax by the due date.
  • ✅ Submit supporting documents (e.g., COR) if claiming DTA benefits.
  • ✅ Avoid late payment penalties by adhering to deadlines.

If you have further questions or need clarification on specific scenarios, feel free to ask!