What is Withholding Tax? Singapore experience

For tax purposes in Singapore, Inland Revenue Authority of Singapore (IRAS) has categorized individuals and companies into two types of tax entity: Resident and Non-resident. A company is considered a Singapore tax resident if the employment activities and management of business operations are conducted in Singapore. A branch office of a foreign company is a non-resident tax entity because the management of the business operations comes from the parent company overseas.

Withholding Tax is a form of levy placed on payments made to non-resident tax entities including employees, business partners and overseas agents. In accordance with IRAS tax rules, a person has a legal obligation to withhold a percentage of the payment, when he makes payments of a specified nature under the Singapore Income Tax Act, to a non-resident, and hence the Withholding Tax.

Types of Payment Subject to Withholding Tax

The types of payments that are subject to Withholding Tax are any payments listed under 45 of the Singapore Income Tax Act, which include:

• Payment of commission fees to overseas agents
• Payment of director's fees to non-resident directors
• Payment of professional fees to offshore accountants

Below is a list of payments and fees subject to Withholding Tax under Singapore Income Tax Act: Section 45

45, 45A, 45B & 45D

• Interest
• Royalties
• Management fees and service fees
• Rental from use of movable properties;
• Non-resident director's remuneration;
• Gains from real property transaction

45E

• Supplementary Retirement Scheme (SRS) withdrawal made by foreigners and Singapore permanent residents.

45F

• Professional service fees for non-resident professionals.

Withholding Tax Amount

The amount of Withholding Tax to pay would depend of the type of payment is to be made and to whom. Below is a general outline for amount to withhold:

• For management fees, technical and other service fees paid to a non-resident company, the Withholding Tax rate is the same as corporate tax rates, which is 17% for 2010. However, for payments made to non-resident individuals, the Withholding Tax is 20% of the gross payment.
• For time charter fees, voyage charter fees and bareboat charter fees, the Withholding Tax rate is 1% – 3%.

For other types of payments, the Withholding Tax rate is 10% or 15%.

• Where a double tax agreement is applicable, the rates specified in the agreements of the respective countries would apply.

Withholding Tax Deadline

All Withholding Tax must be paid by the 15th of the month following the date of payment.