When a Singapore company or individual pays a non-resident for services, a percentage of that payment must be withheld and handed over to the Inland Revenue Authority of Singapore (IRAS), hence the term withholding tax. Withholding tax does not apply to Singapore resident individuals and Singapore resident companies.
Withholding tax at a glance
In general, the following factors determine the applicability of withholding tax in Singapore:
Was the income derived from a Singapore source? Withholding tax applies to income from a Singapore source only.
Is the payment receiving party non-resident in Singapore? Withholding tax applies only to non-resident entities or individuals.
Was the service / work done in Singapore? Withholding tax applies only to cases where service provided or work done was in Singapore.
What was the nature of payment? Only specific types of payments attract withholding tax.
Further details are provided below.
Withholding tax for non-resident companies
A non-resident company for Singapore tax purpose is the one that is either incorporated in a foreign country or a Singapore-incorporated company but is treated as non-resident for tax purpose. A Singapore-registered company is considered tax resident in Singapore if the control and management of its business activities is conducted inside Singapore. If the company is managed outside Singapore, it is deemed to be non-resident. An example offered by IRAS is that of a Singapore branch of a foreign company, which is treated as non-resident because the business is essentially managed by the overseas-based parent company. Only certain types of payments attract withholding tax for non-resident companies.
Specifically: Interest, commission, fee in connection with any loan or indebtedness – If your company is charged interest on overdue trade accounts and interest on credit terms paid to a non-resident supplier, then withholding tax applies. Payment of withholding tax is also required for any fees as a result of a commission or loan that is paid to a non-resident. When determining withholding tax under these instances, it is only relevant for transactions where the business is deemed to have taken place in Singapore. Withholding tax rate for this type of payment is 15%. Royalty or other payments for the use of or the right to use any movable property – Any royalties due to a non-resident company is subject to withholding tax, either a certain percentage or at the prevailing corporate rates. It is also due on payments for exploiting commercial, scientific, technical or industrial knowledge for business activities or hiring a foreign expert to render these skills on your behalf. Withholding tax rate for this type of payment is 10%.
Management fees – Under certain conditions, taking into account factors such as Double Taxation Agreements and whether or not a company is permanently established in Singapore, withholding tax may apply for payment due to foreign entities that provide management services or help you manage your business. Withholding tax rate for this type of payment is as per the prevailing corporate tax rate. Services rendered – If you hire a non-resident company to provide services, such as installing equipment, technical support, training, consultancy and other work that takes place in Singapore, then withholding tax will be charged. This also applies to any monthly allowances paid to employees of the non-resident company.
Again, the payment of withholding tax is only for work done in Singapore. If services are provided remotely, such as via the Internet, then you do not have to withhold payment for tax purposes as it is considered outside Singapore. Withholding tax rate for this type of payment is as per the prevailing corporate tax rate. Rent – The rent paid to a non-resident company that leases movable property in Singapore is subject to withholding tax. Withholding tax rate for this type of payment is 15%. For tax based on prevailing corporate rates, non-resident companies are able to claim a refund for any expenses incurred by providing certified accounts to the IRAS for consideration.
Withholding tax for non-resident professionals
A non-resident professional (NRP) is defined as someone who has spent fewer than 183 days a year in Singapore during the course of providing services in the country. Non-resident professionals are subject to withholding tax for any type of service, consultancy or other work provided for a fee within Singapore. NRPs include the following:
Foreign professionals, experts and specialists invited by government bodies, statutory boards or private organisations to provide technical expertise in Singapore.
Foreign speakers or academics conducting seminars or workshops in Singapore.
Consultants, trainers and coaches.
Under the Singapore law enacted on May 3, 2002, income is defined as all wages, expenses and fees that are paid to the individual. This includes accommodation, airfare and other expenses on top of the actual fee for services. If the NRP is informed that his or her services are to be withholding tax-free, then the amount received is considered as a net payment. The Singapore payer must still pay withholding tax and must work out how much is to given to the tax authorities on top of the amount paid to the NRP. For individuals, the general withholding tax rate is a flat 15% of gross income except the following cases: Payment to non-resident company directors is subject to withholding tax rate of 22%. It applies to all forms of income, be it salary, bonus, director’s fees, accommodation, gains from stocks and shares and other payments. The withholding tax rate for non-resident public entertainers is 10% until 31 March 2020.
Avoidance of double tax
Singapore has signed double tax agreements (DTA) with many countries in order to prevent companies and individuals being taxed by both jurisdictions. If a company operates out of a country that has a tax treaty with Singapore, the DTA may provide relief from double taxation, depending on the particular service provided and the provisions of the DTA.