Withholding Tax
The term “withholding tax” refers to a tax break made at the point of origin. It applies to certain sorts of payments made to non-resident persons and businesses in Singapore.
Generally, the tax levied on a non-resident corporation or individual who receives revenue from a Singapore supplier in exchange for offering services or performing labor in Singapore is known as Singapore withholding tax. A fixed amount of any fee paid by a Singapore corporation or person to a non-resident for operations is needed to be retained. The sum withheld must be recorded and reimbursed to IRAS (Inland Revenue Authority) of Singapore. It’s worth noting that Singapore tax withholding does not apply to persons or businesses based in Singapore.
Withholding Tax in Singapore
An individual (known as the payer) who pays a non-resident business or individual (known as the payee) payments of a specific sort (such as royalties, interest, technical service fees, etc.) is required to withhold a portion of the payment’s value and send the withheld sum to IRAS of Singapore.
In this article, we have provided you with an overview of what exactly tax withholding in Singapore is and the topics that revolve around it.
Facts About Withholding Tax in Singapore
Here are some interesting facts about tax withholding in Singapore:
- Tax withholding is only applicable to payments submitted to non-resident individuals and companies.
- Only some payments get charged with the tax withholding.
- Tax withholding is just applicable to Singapore-sourced salary.
- Withholding tax is just applicable to activities offered in Singapore.
How Singapore Levies Withholding Tax?
Withholding tax is reduced directly from a source, i.e. the provider, as opposed to regular income tax, which is received from the transaction recipient. Generally, the non-resident is responsible for tax withholding. The payer (for example, a Singapore corporation) must, however, reserve the appropriate amount and submit the tax payable to IRAS.
The withheld tax is a proportion of the non-gross resident’s contribution. Determined by the type of transaction, the percentage changes.
Contributions to Singapore tax citizens are not subject to tax withholding, as a note. The fundamental premise is that such beneficiaries interact with IRAS on a routine basis and, as a result, will pay their share, but non-resident receivers should not, and thus the tax should be retained by the provider.
How is Tax Residency Determined?
Non-Resident Firms
Generally, the non-resident firms are a part of these mentioned categories:
A corporation established in an international jurisdiction (including a Singapore subsidiary of a multinational corporation) OR a corporation established in Singapore that doesn’t satisfy the tax residency criteria.
If a firm’s “management and administration” takes place in Singapore, it is deemed a tax citizen. Management and control, as per IRAS, relates to “making judgments on development priorities, such as firm strategies and policies.”
Generally, where a corporate board meeting is held is an important component in deciding where it is governed and managed. Likewise, tax residents can be determined by the site of firm people who play a crucial part in judgment calls.
Since the subsidiary is administered through a parent organization in a state besides Singapore, a multinational business’s Singapore subsidiary, for instance, is deemed a non-resident.
Businesses formed in Singapore are likewise subject to residency status restrictions. A Singapore firm controlled by Hong Kong, for instance, will be taxed as a non-resident. It’s important to keep in mind that a firm’s tax residence permit might alter from year to year.
Non-Resident Employees
An NRE is an international national who has been employed in Singapore for less than 183 days for a company. All payments owed to an NRE are liable for tax withholding under Singapore tax rules. NREs working in Singapore for less than 2 months are not subject to tax withholding. Additionally, staff who are employed in Singapore for even more than 183 days will be charged the same personal tax rate as Singapore residents. The withheld rate of tax for earned income varies based on the owner’s level of income. It varies from 15% to 22%.
Workers who do not live in the U.S.
A non-resident professional (NRP) is a foreigner who has worked in Singapore for less than 183 days and is looking for work. NRPs are not workers of any corporation, but rather self-employed individuals who supply services under arrangement.
All salary and non-cash benefits such as hotels, travel, transportation, per diem bonuses, and meals supplied to an NRP are eligible for tax withholding.
NRPs can incorporate any of the aforementioned, as per IRAS:
- International experts, professionals, or specialists who are asked to join Singapore for the administration, a statutory body, or a private company
- Lectures or workshops are held in Singapore by international speakers or scholars.
- Queen’s Councilors are well-known attorneys in the United Kingdom who are usually appointed to defend complicated situations.
- Tutors, instructors, and advisors
- People who work for a multinational corporation
- Performers from other countries (e.g. artists, musicians, athletes, etc.)
- Directors of foreign corporations
Withholding Tax Rates for Payments Made to Non-Resident Companies
The aforementioned transactions to non-resident corporations are liable to tax withholding, as per IRAS:
- An NR firm’s compensation for services done in Singapore
- Compensation for the rights of using or the utilization of academic, technological, economic, or financial information
- About any debt or obligation, interest, fees, or expenses: This comprises interest on past-due trade accounts as well as interest on NR supplier credit period.
- Royalties or other contributions for the utilization or opportunity to utilize a moveable property
- Administrative fees are paid in the following ways: This refers to fees paid to foreign corporations that offer business management services.
- Contributions for the usage of any transportable item, such as a lease or other fees
- Payments made to a non-resident estate dealer for the real estate purchase
- Some organized finance product payments
- A property investment trust’s dividend
- Fees regarding ship & aircraft charters
| Income Type | Withholding Tax Rate |
|---|---|
| Payment for operations offered in Singapore by a firm that’s a non-resident | Tax withholding is identified by the subsequent corporate tax rate |
| Lump-sum contributions or royalty for the utilization of moveable assets | 10% |
| Commissions, fees, interest, or any other payment related to any indebtedness or loan | 15% |
| Rent or other types of payments for the use of moveable assets | 15% |
| Contribution to the utilization of or the right to the usage of technical, scientific, commercial knowledge, or industrial information | 10% |
| Management charges | Tax withholding is recognized by the subsequent corporate tax rate |
| Technical help and service charge | Withholding tax is determined by the corresponding corporate tax rate |
| Distributions made by a REIT | 10% |
| Charter charges (aircraft and ships) | 0%-2% |
| Profits from the sale of any actual asset by a non-resident asset trader | 15% |
Double Taxation Treaty Relief
Because Singapore has good connections and relations with the DTA, Double Taxation Agreements can reduce the tax rate for people or companies that are non-resident and get Singapore-sourced funds. Any firm or person that is non-resident and works under an authority that possesses a tax treaty with the nation of Singapore, will submit the charges mentioned in the DTA. Please note that the kind of relief is dependent on the activities offered and the guidelines of the double taxation agreements.
Filing and Paying Withholding Taxes With IRAS
Upon the 15th of the 2nd month, after a bill is paid to a non-resident, businesses must submit and submit tax withholding. The withheld tax liability, for instance, will be payable on September 15 if the money was paid on November 23.
The newest of the foregoing should be used to pinpoint the specific payment date:
- The deal’s expiration date
- When there is no agreement, the invoicing date will be used.
- The date on which the revenue was deposited to the non-account. resident’s
- The real payment dates
Deadline to E-File Withholding Tax
The withheld tax return could only be filed electronically using the tax filing website for withheld taxation to IRAS as of July 1, 2016.
The taxpayer should e-file and submit tax withholding to the IRAS on the 15th of the 2nd month following the payment date to the non-resident. Let’s say for instance, that if the taxable income is withdrawn by the taxpayer in August, the date for paying tax to IRAS is October 15th. It’s essential to focus on the details of “settlement date” if you wish to meet the deadlines. To find out the payment date, one must focus on these points as soon as possible:
The payer should choose the latest of the aforementioned to pinpoint the specific payment date.
Whenever the transaction is due for payment according to the contract or agreement, or the date of invoice if there is no agreement between parties.
Fees for the Director: The latest date of the payment or the date the payment was approved and accepted is the payment date for the director’s remuneration.
Penalties for late or non-payment of taxes
If you don’t make a payment by the deadline, IRAS could initiate the following measures:
- If payment is not made by the scheduled time, a 5% late payment fee will be assessed.
- Pursue legal proceedings if taxes are not paid on time or are paid late.
- Appoint representatives to reclaim the unpaid tax, such as your bank, tenant, or lawyer.
- May execute a Travel Restriction Order (TRO) for sole traders or partners to prevent them from exiting Singapore.
Conclusion
In order to guarantee that non-residents contribute the appropriate amount of taxes on earnings earned in Singapore, withholding tax is a crucial component of the Singaporean taxation structure. In accordance with the type of revenue and the individual’s residency status, Singapore’s withholding tax rates change. If a firm’s administration and operation are carried out in Singapore, that company is regarded as a Singapore tax resident otherwise the firm is regarded as a non-resident firm. Non-residents are people who spend fewer than 183 days in Singapore each year.
Tax withholding payments in Singapore must be done in accordance with the IRAS’ regulations, and they must be made on time to avoid penalties for late or missed payments. For any questions regarding the withholding tax of Singapore, consult our experts at Odint Consultancy.
FAQ’s
Yes, a penalty of 5% is imposed if you submit payment after the deadline. All the provisions provided by the IRAS must be followed.
All the entertainment services performed in Singapore are liable to submit 10% tax withholding.
For the activities performed in Singapore, the following are the tax rates, 24% or 22% for the non-resident people.
Interest, commissions, royalties, lease, management fees, technical assistance and service fees, etc. are just a few of the payments that are subject to withholding tax in Singapore.
