Understanding Withholding Tax in Singapore

What is Withholding Tax?

Withholding tax in Singapore refers to the tax that must be withheld and paid to the Inland Revenue Authority of Singapore (IRAS) when a non-resident company or individual derives income from a Singaporean source. This tax is deducted at the source of the payment, meaning the payer (your business) is responsible for withholding the tax before making the payment to the non-resident.

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Who is Considered a Non-Resident?

Understanding who qualifies as a non-resident is crucial for determining whether withholding tax applies. Non-residents can be either companies or individuals:

• Non-Resident Companies: These include companies incorporated outside Singapore with operations in Singapore, or Singapore-incorporated companies managed and controlled from outside Singapore.
• Non-Resident Individuals: This category includes foreign professionals, public entertainers, and foreign board directors who spend fewer than 183 days in Singapore in a calendar year.

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Types of Payments Subject to Withholding Tax

Not all payments to non-residents are subject to withholding tax. Here are some common types of payments that do attract withholding tax:

• Interest, Commission, and Loan Fees: 15%
• Royalties and Payments for Intellectual Property: 10% or 24% for payments to authors, composers, or choreographers
• Management Fees: 17%
• Rent for Movable Property: 15%
• Payments for Technical Services: 10%
• Payments to Non-Resident Directors: 24%
• Payments to Non-Resident Public Entertainers: 10%
• Payments to Non-Resident Professionals: 15% on gross income or the prevailing non-resident individual rate on net income

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Payments Exempt from Withholding Tax

Certain payments do not attract withholding tax, including:

• Dividend payments
• Payments to Singapore branches of non-resident companies
• Payments by banks, finance companies, and certain approved entities
• Payments for the charter of ships

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When and How to Pay Withholding Tax

The deadline for paying withholding tax is the 15th of the second month following the date of payment to the non-resident. For example, if the payment is made in January, the withholding tax must be paid by March 15th. If you are on GIRO for withholding tax payments, the deduction date is the 25th of the month when the tax is due.

The date of payment is the earliest of the following:

• When the payment is due and payable based on the agreement or contract, or the date of the invoice in the absence of any agreement or contract.
• When the payment is credited to the account of the non-resident.
• The date of the actual payment.

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Penalties for Missing the Tax Deadline

Failing to pay withholding tax on time can result in penalties. IRAS will issue a Demand Note with a 5% late payment penalty. If the tax and penalty are not paid by the due date stipulated in the Demand Note, an additional penalty of 1% per month (up to a maximum of 15%) will be imposed.

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Avoiding Double Taxation

Singapore has Double Tax Agreements (DTAs) with many countries to prevent double taxation. If your company operates in a country with a tax treaty with Singapore, you may be eligible for relief from double taxation. The specific provisions of the DTA and the nature of your services will determine the extent of this relief.

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Conclusion

Withholding tax is a critical aspect of tax compliance for businesses dealing with non-residents. Understanding the rules and ensuring timely payments can save your business from hefty penalties and maintain good standing with IRAS.

If you find the complexities of withholding tax overwhelming, Harvest Accounting is here to help. Our team of experts can guide you through the process, ensuring your business remains compliant with all tax regulations. Contact us today to learn more about our accounting services and how we can assist you in managing your tax affairs.