What is Withholding Tax In Singapore?

1. What is Withholding tax?

Withholding tax is a tax collection mechanism that collects tax from non-resident individuals and businesses who earn certain types of Singapore-sourced or deemed Singapore-sourced income. Singapore companies are required to withhold a percentage of certain payments made to non-residents and remit this withheld amount to the Inland Revenue Authority of Singapore (IRAS). In simpler words, domestic corporations that pay certain types of income to non-residents must withhold tax. The goal is to collect tax from the source of the income.

llustration: A person (known as the payer) who makes payments of a specified nature (e.g. royalty, interest, technical service fee, etc.) to a non-resident company or individual (known as the payee) must withhold a percentage of the payment and pay the amount withheld to IRAS as Withholding Tax.

Thus, Withholding tax applies to

  • Payments made to non-resident companies and individuals.
  • Singapore-sourced income.
  • Only certain payments, for example interest, royalty, services, etc Services rendered in Singapore.

 

2. How is Withholding Tax Levied?

In contrast to corporation personal tax, which is collected from the person who receives the income (payments), withholding tax is deducted directly from the source, i.e. the payer. In general, the withholding tax liability is on the non-resident. However, the payer (e.g. a Singapore company) is required to withhold the correct amount and pay the withholding tax to IRAS.
The tax withheld is a percentage of the gross payment made to the non-resident. The percentage varies depending on the type of payment.

Payments to Singapore tax residents are not subject to withholding tax because generally, IRAS can enforce measures to recover any tax liabilities of Singapore tax residents whilst such measures will be very difficult to enforce on non-residents especially if they are residing overseas.

 

3. How to determine tax residency for imposing withholding tax?

Non-resident Company –
According to Singapore tax laws, the tax residency of a company is determined by the location where the company’s business is controlled and managed.

Control and management are the processes of making strategic decisions such as policy formulation and strategy development. Generally, a non-resident company is

  • A company incorporated in a foreign jurisdiction. A Singapore branch of a foreign company also comes under this definition of non-resident; OR
  • A Singapore-incorporated company that does not meet the requirements to be a tax resident eg if its control and management is exercised outside Singapore.
    For example, a Singapore branch of a foreign company is considered a non-resident because the branch is managed by a parent company in a jurisdiction outside of Singapore. It should be noted that the company’s tax residency status may be subject to change from year to year.

Non-resident Professionals (“NRP”)-

  • Non-resident professionals are self-employed personnel who work independently under “contract for service” terms.
  • A foreign individual residing in Singapore for less than 183 days in the calendar year preceding the year of assessment

All wages and non-cash payments such as accommodations, airfare, transportation, per diem allowances, and meals provided to a non-resident professional are subject to withholding tax.

 

4. What are the applicable tax rates for non-residents:

The withholding tax rates are as follows:

 

5. How to file and pay Withholding Tax?

The due date is 15th of the second month following the date of payment to a non-resident. For example, if a $2,000 payment is made on March 5, 2022, the company is required to file and pay withholding tax by April 15, 2022. The company considers the date of the contract or the date of invoice when determining the exact date of payment to a non-resident. Or when the payment was credited in the receiver’s bank account, whichever came first.

If the company fails to remit the withholding tax on time, IRAS will levy penalties.

Penalties for delayed payment of withholding tax-

Whenever a company fails to file and pay withholding tax by the due date, IRAS will issue a “demand note” and a 5% penalty. Additional penalties apply if the withholding tax is not paid within 30 days of the due date on the “demand note”.

The additional penalty will be 1% for each outstanding month (subject to a maximum of 15 per cent).

Nexia Singapore PAC can assist you in managing your withholding tax due dates and avoiding penalties.

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Frequently Asked Questions

When a non-resident corporation or individual receives revenue from a Singaporean source for services rendered or work completed in Singapore, the entity that pays the money withholds tax and remits it to IRAS. When a withholding tax is imposed in Singapore, this is the case.

Non-resident individuals are taxed at a flat rate of 22% on net income , except that Singapore employment income is taxed at a flat rate of 15%(gross income) or at resident rates with personal reliefs, whichever yields a higher tax.

The following payments are subject to withholding tax in Singapore-

  • Interests, commissions, and any other debt- or loan-related fees
  • Management fees (prevailing corporate tax rate)
  • Royalty, rights of use, and intellectual property
  • Services rendered (prevailing corporate tax rate)
    Rent

If a company fails to file and pay withholding tax by the due date, IRAS will issue a Demand Note and assess a 5 per cent penalty. Penalties apply if the withholding tax is not paid within 30 days of the due date on the Demand Note. If you do not pay the tax and penalty by the due date specified in the Demand Note, you will incur an additional penalty of 1 per cent for each month you are late (subject to a maximum of 15 per cent).

Companies in such sectors may shift their operations to countries with less stringent carbon prices, resulting in job losses without benefitting the climate. To avoid such a scenario, the Government has rolled over a transition framework wherein allowances are provided for part of companies’ emissions, based on efficiency standards and decarbonization targets.

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