In Singapore, non-resident companies and individuals must pay a tax on certain types of income received from a Singapore source (company or individual). This is called a withholding tax (WHT). The purpose of the Singapore withholding tax is to improve tax collection. This is the reason why it is deducted at the payment source instead of being collected from the payment recipient.
Read this article to find out all there is to know about withholding tax in Singapore, the types of businesses and income it covers, the rates at which they are taxed, and more.
When a non-resident company or individual receives payment from a Singaporean company or individual for goods or services provided in Singapore, a percentage of that income must be paid as tax to the Inland Revenue Authority of Singapore (IRAS). The IRAS does not collect this tax from the non-resident company after it has received the payment. Instead, the Singaporean company making the payment is required to withhold a percentage of the payment amount and remit this amount to the IRAS. This explains why this tax is called a withholding tax. Singapore’s withholding tax is, therefore, an advance payment on the recipient’s tax liability.
This withholding tax does not apply to Singapore-resident companies and individuals. Furthermore, the withholding tax rate in Singapore may be lowered under the country’s numerous tax treaties.
A company is considered a tax resident of Singapore if its control and management remains in the country. The IRAS defines control and management as “the making of decisions on strategic matters, such as those concerning the company’s policy and strategy”. One way of determining if a company fulfils this tax residency condition is if its board of directors meets and takes strategic decisions in Singapore. A company’s Singapore residency status typically lasts for one year of assessment and can, therefore, change from year to year.
That explains what a Singapore-resident company is. But what is a non-resident company?
Applying the same IRAS rule, a non-resident company is one whose control and management lies outside Singapore. This could mean:
Whether a company is incorporated in Singapore or not has no bearing on its tax residency. As we mentioned in our previous blog, Singapore Corporate Tax Rate and System, incorporation is the legal process of setting up a company. Based on incorporation, a non-resident company in Singapore can be:
Similarly, a non-resident individual is one who has been in Singapore for less than 183 days in the year when they provided goods or services to a Singapore entity. They include:
The following categories of payments made to Singapore non-residents are subject to withholding tax at the mentioned rates:
Certain types of payments to non-residents are exempt from withholding tax in Singapore. These include:
The main points to remember about Singapore withholding tax:
The withholding tax must be filed and paid by the 15th of the second month from the date of payment to the non-resident. For example, if the payment was made on August 20, 2022, then the withholding tax must be filed and paid by October 15, 2022.
The date of payment is the earliest of the following:
The conditions for determining date of payment differ slightly for remunerations to non-resident directors. Here, the date of payment is the earliest of the following:
In the event of failure to pay withholding tax, the IRAS may initiate the following actions:
The IRAS may waive the late payment penalty under certain circumstances:
Keep in kind though that meeting any or all of the above conditions does not guarantee a penalty waiver, and that the IRAS will make a decision on a case-by-case basis.
Withholding tax must be filed electronically on the IRAS website on Form S45. However, if the taxpayer has multiple payment records that they wish to submit in bulk, they may opt for the Excel-based S45 Offline Data Entry (ODE) form. Important filing details to keep in mind include:
Once the form is successfully filed, an acknowledgement page will open up detailing how the withholding tax can be paid. After payment, the taxpayer may view and download the payment confirmation from the website.
Withholding tax can be paid via internet banking, telegraphic transfer, various other e-payment services, and on the GIRO platform.
The IRAS allows the correction of errors made during filing (such as entering the wrong date of payment). Simply go to the IRAS website, click on ‘View/Amend S45 Form’, and edit the form. Once submitted, the fresh form will replace the previous one.
It is possible to reduce your Singapore withholding tax burden – through a reduced tax rate or exemption – under an Avoidance of Double Taxation Agreement (DTA). The purpose of such an agreement is to avoid double taxation in international trade – when the same income source is taxed in two different countries. Singapore has an extensive network of DTAs with multiple countries. Here’s how you can claim relief on your Singapore withholding tax under a DTA if the agreement has such a provision:
For an example of how tax relief under a DTA works, let’s take the tax treaty between Singapore and Indonesia. Under this agreement, withholding tax on royalty payments has been lowered from the prevailing 15% in Singapore and 20% in Indonesia. Instead, royalty payments for the use of or the right to use copyright of literary, artistic, or scientific work (radio or television films or tapes, etc), patents, trade marks, secret formulas or processes will be taxed at 10%. Similarly, royalty payments for the use of or the right to use industrial, commercial, or scientific equipment will be taxed at 8%. For more examples of withholding tax relief under DTAs, see the table below:
The countries listed above are Singapore’s top trade partners with which it has a provision for withholding tax relief.
A full and deep understanding of the meaning of withholding tax and all it involves has numerous benefits for companies and individuals doing business in Singapore. It means a smoother tax filing experience, never missing out on fulfilling your tax compliances, and making the most of any Singapore tax deductions on offer.