Singapore's tax framework is known for its territorial system, where taxes are levied on income earned within the country's borders. This principle focuses on the source of income rather than the residency status of individuals or businesses.
Non-residents who get revenue from Singaporean activities or services may be required to pay withholding tax, meaning withholding a percentage of the payment and sending it to the Singapore Inland Revenue Authority (IRAS).
It's important to note that only non-resident individuals or entities are obligated to pay withholding tax in Singapore.
Understanding Withholding Tax in Singapore: An Example
Let's illustrate the concept of withholding tax through an example:
Suppose a Singapore-based marketing agency, ABC Marketing Pte Ltd, engages a non-resident web development firm, GlobalWeb Inc., to create an e-commerce platform targeting Singapore customers. GlobalWeb Inc. is based in the United States and has no physical presence in Singapore.
In Singapore's territorial tax system, income generated from services provided within the country is subject to taxation. Since the web development services were performed within Singapore's territory, when ABC Marketing Pte Ltd makes a payment to GlobalWeb Inc. for their services, they are required to withhold a portion of the payment. This withheld amount is known as withholding tax.
Types of Income Subject to Withholding Tax in Singapore:
|
Withholding Tax on Payments to Non-Resident Companies |
|
|
Nature of Income |
Tax Rate (in %) |
|
Dividends |
Exempt |
|
Interest |
15 |
|
Royalties |
10 |
|
Technical assistance and service fees |
17 |
|
Rent on moveable property |
15 |
|
Charter fees for aircraft or ship |
0-2 |
|
Withholding Tax Rates in Singapore |
|
|
Nature of income |
Tax rate (%) |
|
Interest, commission, fee, or other payment in connection with any loan or indebtedness |
15 |
|
Royalty or other lump sum payments for the use of moveable properties |
10 |
|
Royalty and other payment made to author, composer, or choreographer |
22 |
|
Payment for the use of or the right to use scientific, technical, industrial, or commercial knowledge or information |
10 |
|
Rent or other payments for the use of moveable properties |
15 |
Filing and Payment
The entity making the payment is responsible for withholding the tax and remitting it to the IRAS.
Payers subject to a withholding tax must file and pay the tax to the IRAS by the 15th of the second month following when the payment was made.
Double Taxation Agreements (DTAs)
Singapore has an extensive network of DTAs with various countries, providing for reduced withholding tax rates or exemptions. For example, its agreement with Malaysia lowers the withholding tax rate on interest from 15 percent to 10 percent, and the rate for royalties from 10 percent to 8 percent.
Conclusion
In summary, understanding withholding tax in Singapore is crucial for businesses engaged in cross-border transactions. While certain types of income may be subject to withholding tax, the presence of DTAs and Singapore's business-friendly tax environment create a favourable landscape for international trade and investments. Staying informed about relevant tax regulations and seeking professional advice can help businesses navigate their withholding tax responsibilities efficiently.
Contact us today to explore your path to tax efficiency and gain comprehensive insights into withholding tax in Singapore.