What is Withholding Tax and When to Pay It in Singapore
When a Singapore resident or permanent establishment makes certain payments (detailed below) to a non-resident company or individual, a portion of this payment must be “withheld” and paid to the Inland Revenue Authority of Singapore (IRAS). This is known as withholding tax.
A company is considered non-resident if its control and management (largely determined by the location of the Board of Directors meeting) is not exercised in Singapore, while an individual is considered non-resident if he is physically in Singapore for less than 183 days in a calendar year.
What are the Types of Payments Subject to Withholding Tax and their Tax Rate?
Withholding tax is chargeable for the following types of payments:
1. Interest payments
When a person pays interest or fees in connection with a loan (such as interest on late payments), a withholding tax of 15% is chargeable on the payment. However, this tax does not apply in the following situations:
- Where the interest payment is made to the Singapore branch of an approved non-resident bank.
- Where the interest payment is made to the Singapore branch of a non-resident company.
- Where the interest payment is made by approved entities such as banks and finance companies for their trade or business.
- Where the loan in question was obtained outside Singapore and was for the acquisition of an overseas immovable property (e.g. land or housing).
2. Payments for use of movable property
When a person pays rent or other payments for use of movable property (such as heavy machinery or vehicles), a withholding tax of 15% is chargeable on the payment.
However, in order to support businesses with expansion into overseas markets, this withholding tax does not apply in situations where the movable property was paid for or rented for:
- Use outside Singapore for an overseas business trip (including for overseas trade fairs or exhibitions); or
- Use by an overseas representative office.
3. Payment for use of knowledge or information
When a person makes a payment for the use of or right to use knowledge, information or other digital goods (such as subscriptions to online databases or downloadable software), a withholding tax of 10% is chargeable on this payment if there is a partial or total transfer of intellectual property rights in the information concerned.
For example, the withholding tax would apply where the payer is allowed to commercially exploit the information such as by distributing it for profit or preparing derivative works based on it.
In contrast, there is no transfer of intellectual property rights where the payer merely purchases software for use in his business operations or for personal use. Withholding tax would thus not be chargeable on such transactions.
4. Payment for services rendered by a company
When a person makes a payment to a non-resident company for technical or management services rendered in Singapore, a withholding tax at the prevailing corporate tax rate of 17% is chargeable on that payment.
Services will be considered to be rendered in Singapore where they are attributable to work performed in Singapore. For example, a non-resident company which provides online services from overseas without sending staff to Singapore would not be rendering services in Singapore and would thus not be subject to withholding tax.
5. Payment for services rendered by an individual
When a person makes a payment to a non-resident professional (such as a lawyer, financial consultant or other advisor) for services rendered in Singapore, a withholding tax of 15% is chargeable on that payment.
In cases of payment for services by a public entertainer, a lower withholding tax of 10% is chargeable on the payment if such payment is due during the period between 22 February 2010 and 31 March 2020.
In cases of remuneration of services rendered in the capacity of a Board director, a higher withholding tax of 22% is chargeable on the director’s remuneration. This is regardless of whether the director had been physically working in Singapore.
6. Payment for purchase of real property
If a person purchases a real property (e.g. land or housing) from a non-resident property trader, a withholding tax of 15% is chargeable on the purchase price of that property.
Where a buyer is unsure whether the seller is considered a property trader, he may wish to request a letter of confirmation from the seller stating that the seller (and the seller’s company) has not been treated as a property trader for Singapore income tax purposes.
The buyer will then not be required to withhold tax on the purchase price of the real property. However, the letter must be provided to IRAS upon its request to substantiate any claim.
7. Real Estate Investment Trust (REIT) distributions
Any distributions by a REIT to a non-resident unit-holder, who is not an individual, is subject to a withholding tax of 10%.
A non-individual person is one who does not have a permanent establishment in Singapore, or if it does, whose funds used to acquire the units in REIT are not obtained from the operation carried on in the permanent establishment in Singapore.
Reduction in or Waiver of Withholding Tax
Singapore has also signed Avoidance of Double Taxation Agreements (DTAs) allowing for reduced or waived withholding taxes with a number of major jurisdictions including China, Japan and Australia.
To be eligible for the reduced/waived withholding tax, it is necessary to obtain an official Certificate of Residence (COR) certifying that the payee is a resident of the DTA partner for the applicable year and to submit a scan of the COR to IRAS through a separate online form: by either of the following deadlines:
- If the claim is for the current year: by 31 March of the following year; or
- If the claim is for the preceding years: Within 3 months from the date of e-filing the withholding tax.
Filing and Payment of Withholding Tax
Filing and payment of withholding tax may be made online through the myTaxPortal managed by IRAS. The person paying the withholding tax must first log in with his CorpPass account and file an S45 Form indicating the exact nature of the payment.
Once a submission is successful, an acknowledgement page will be displayed indicating the due date for tax payment.
The payer can then make payment through a number of methods (including GIRO deduction, bank transfer or even through mobile banking services such as the DBS PayLah! app).
Deadline for Tax Payment
Generally, the payment of withholding tax is due on the 15th of the second month from the day of payment to the non-resident, or on the 25th of the same month after the day of payment if you opt to pay by GIRO deduction. This day of payment is determined as the earliest of:
- The date on which the payment is due according to the contract, or the invoice date (without considering credit terms) if there is no written contract or agreement
- The date of payment to the non-resident (i.e. where the payment is credited into the non-resident’s designated account)
- The date of actual payment
- In the case of directors’ remuneration, the date when the remuneration was voted and approved by shareholders
Penalty for Late or Non-Tax Payment
A penalty of 5% will be imposed where the tax payment is not made by the due date, with an additional 1% for each month that the tax remains outstanding (up to a maximum of 15 months for a maximum of 15%, amounting to a total penalty of 20%).
IRAS may also take other recovery actions in particularly serious cases of late payment including directly instructing your bank to pay monies held in your bank account, as well as commencing legal action.
That said, IRAS is also prepared to reduce or completely waive penalties under certain conditions (such as errors made in tax submission) and/or where the taxpayer voluntarily discloses and cooperates with IRAS in rectifying the issue.
It is therefore important to strictly observe the due date for tax payment and to notify IRAS where you discover any errors delaying your tax submission.
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