Singaporeans and permanent residents must pay withholding tax to the Inland Revenue Authority of Singapore (IRAS) on specific services. What is this tax, and when does it apply?
What is Withholding Tax?
Withholding tax is an amount that someone living in Singapore has to remit to the IRAS each time they pay for services rendered by a non-resident company or individual. In another way, it’s like a commission that a payer pays for contracting a non-Singaporean or resident.
A business may be physically operating in Singapore, but if its managerial and policy decisions come from abroad, they are still, in the eyes of IRAS, a non-resident business. So, let’s say the headquarters of a company is in Finland, for instance, but it has one of its branches in Singapore; the Singapore branch is not considered a resident company. Also, someone must have been in Singapore for at least 183 days to qualify as a resident as per IRAS standard.
Who is Applicable to Pay a Withholding Tax?
Based on section 45 of the Income Tax Law of Singapore, anyone in Singapore who make payments for certain services they got from a non-resident company or individual is legally required to pay withholding tax. In other words, the person seeking the services of non-residents are the direct payers of this tax. That also applies to a company hiring non-resident employees; they have to pay withholding tax on such employees’ remuneration.
Types of Payments Subject to Withholding Tax
It’s relieving that not all payments a person makes to a non-resident company or person qualify for WHT. Section 45 of the Income Tax Law states payment types subject to withholding tax. These include:
Payment for the use of Information or Knowledge
When someone purchases the intellectual property of a non-resident person or company, they must pay 10% of such payment as withholding tax. This payment applies when such information attracts some commercial benefits to the buyer. But if it is for personal, educational, or operational use, WHT does not hold for such purchase.
Payments on interests accruing from a loan collected from a non-resident personality or company in Singapore attract a 15% charge as withholding tax. However, under the conditions below, this requirement does not apply:
- If the interest payment goes to the Singapore branch of the authorised non-resident bank
- If the interest payment is to the Singapore branch of the non-resident company
- If the loan was obtained abroad and is used to buy immovable properties overseas
- If the payer is an approved entity in Singapore and is for the running of their businesses.
Service Payments to Non-Resident Companies
All technical or office assistance payments to a non-Singapore resident or company attract a 17% charge as withholding tax. The services under this category are those that take place in Singapore. If such a non-resident company only renders virtual help, which doesn’t involve sending any of their staff members to Singapore, this provision does not apply.
Payments for Using Movable Property
If someone pays to rent a movable property from a non-resident company or individual, the withholding tax on such payment is 15%. The property can be a truck, machine, or gadgets. However, this tax will not apply if the property is used for business purposes abroad or by the foreign office of that company.
Payments for Real Estate Purchase
The purchase of a real estate property from a non-resident trader in Singapore attracts a 15% withholding tax on the price of that property. If the buyer does not know the seller’s status – whether registered as a resident trader or not – they can request a letter from the latter to prove their status as a property trader in the country.
Individual Professional Service Payments
Payments for services received from individual professionals such as consultants, lawyers, private practitioners, etc., who are non-residents in Singapore attract a withholding tax of 15% of such costs. If that professional acts as a company’s director based in Singapore, the withholding tax rises to 22% on pay or salary.
Real Estate Investment Trust (REIT) Distributions
Distributions by REIT to a non-resident unit-holder attract a 15% withholding tax paid by the distributor.
How To File And Pay Withholding Tax
The IRAS is the government agency that legally collects and enforces this tax law. They operate a website called MyTaxPortal, where anyone can file their withholding tax. Access to this portal is usually through the payer’s CorpPass account. Once successful, they would have to file the S45 forms and indicate the exact amount they want to pay.
The confirmation page will show the amount and the due date if everything goes well. The payer can then choose whatever paying means most convenient for them. For some, it is a bank transfer; others can choose GIRO deduction or DBS PayLah!
Penalties For Non-Compliance
Non-compliance with the remission of withholding tax can come as late payment or refusal to pay at all. If a payer misses their due date, a 5% penalty fee will be added to the amount payable, and with each month that the payer defaults comes an additional 1% fee.
The IRAS can be lenient for up to 15 months or less to allow the payer to pay the tax. However, they can act anytime by requesting an auto-debit from the defaulter’s bank. Alternatively, IRAS can institute legal action against the person.
Depending on the payer’s cooperation, the IRAS can grant some waivers on penalties imposed, especially when there is an error in tax information submission. It is always best to pay on or before the due date to keep things going well.
Withholding tax is undoubtedly Singapore’s way of protecting local industries and professionals. The filing and paying of this tax are straightforward and do not cause any inconvenience.
It is best always to honour the due date agreement. There may be genuine reasons why a payer may be unable to pay on their due dates. In that case, they should contact IRAS to seek help on such challenges.