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Withholding tax (for payment to non-residents or non-resident companies)

A) 15% Withholding Tax Treatment

The payer has to withhold tax at a final tax rate of 15% on the Gross income/fee derived by the non-resident professional from services performed in Singapore.

Under the 15% withholding tax treatment:

  • Gross income refers to both cash and non-cash payments and includes:

- accommodation provided/reimbursed by payer
- airfare provided/reimbursed by payer
- allowance
- per diem
- transport (e.g. airport transfers) and meals provided/reimbursed by payer

  • No deduction is allowed against the Gross income/fees for any expenses incurred;
  • The administrative concession of not taxing accommodation provided for not more than 60 days in any calendar year, and cost of airfare, does not apply to the non-resident professional;
  • We will not send tax bill to the non-resident professional as you have accounted for the withholding tax; and
  • The tax exemption for short-term employment of 60 days or less in a calendar year does not apply to non-resident professionals.

Example 1

The non-resident professional is engaged by you to render his services in Singapore for 7 days. Besides fees payable of $5,000, he is also provided with hotel accommodation @ $200 a day and airfare of $2,000.

Gross Fees $ 5,000
Accommodation ($200 x 7 days) $ 1,400
Airfare $ 2,000
Total Gross Income/Fees $ 8,400
Final Withholding Tax @ 15% $ 1,260

Example 2

Computation of Withholding Tax Where Tax Is Borne By The Payer

Where the non-resident professional is to receive the payment 'free of withholding tax', the payment actually received by him is regarded as the net amount after the deduction of withholding tax.  The payer therefore remains responsible for the payment of the withholding tax which will be calculated at the rate of 15% of the regrossed amount (known as the Tax allowance).


Under the terms of engagement, the non-resident professional is to receive the fees of $8,400 free of Singapore withholding tax. Since the $8,400 received by him is treated as net of Singapore withholding tax, it is to be regrossed at the rate of 15%:

$8,400 x100% = $9,882.35
  85%

The payer is required to account for the withholding tax at the rate of 15% on the regrossed amount: $9,882.35 x15% = $1,482.35.

(B) Option to be taxed at net income

The non-resident professional can opt to be taxed on the net income (i.e. gross income less allowable expenses) at the non-resident rate of 20% instead of 15% of the gross income.

Under the option:

  • The cost of accommodation (excluding value of food) provided for up to 60 days in a calendar year and cost of airfare, borne by the payer, are not taxable as an administrative concession. For example, where the cost of accommodation is borne for 70 days in a calendar year, the cost of the entire stay of 70 days is taxable.
  • Only expenses which are wholly and exclusively incurred by the non-resident professional in the production of the Singapore-sourced income, and which are not reimbursed by the payer, are tax deductible. As a concession, cost of accommodation (excluding value of food) for up to 60 days in a calendar year and cost of airfare incurred by the professional are deductible. For example, where the cost of accommodation is incurred for 70 days in a calendar year, the cost of the entire stay of 70 days is not deductible.
  • Private expenses (e.g. value of food and ground transfers from & to airport) and expenses incurred to enable the non-resident professional to earn the income (e.g. transport expenses incurred from hotel to venue of service and back) are not deductible   
  • We will not send tax bill to the non-resident professional as the payer have accounted for the withholding tax.

 

How to exercise the option to be taxed at 20% of net income

The option is irrevocable and must be exercised on a per engagement basis. This means that all income and benefits derived from the same engagement are subject to withholding tax at 20%.

It must be exercised:

  • by the payer/the non-resident professional by completing and endorsing on section 3 of the Form IR37C (72KB) 
  • up-front, that is, before or at the same time as when the tax is withheld, and remitted to IRAS; or 
  • if tax at 15% has been remitted to IRAS,
    • within 45 days from the date of payment to the professional, if date of payment is prior to 28 Nov 2013; or
    • by 15th of the second month from the date of payment to the professional, if date of payment is from 28 Nov 2013 NEW!

Example 1

Computation of withholding tax where tax is borne by the non-resident professional

The non-resident professional is engaged by you to render his services in Singapore for 7 days. Besides fees payable of $5,000, he is also provided with hotel accommodation @ $200 a day and airfare of $2,000.

Gross Fees $ 5,000
Accommodation ($200 x 7 days) $ 1,400
Airfare $ 2,000
Net Income/Fees (cost of accommodation provided for up to 60 days in a calendar year and cost of airfare, are not taxable as an administrative concession $ 5,000
Final Withholding Tax @ 20% $ 1,000

Example 2

Computation of Withholding Tax Where Tax Is Borne By The Payer

Where the non-resident professional is to receive the payment 'free of withholding tax', the payment actually received by him is regarded as the net amount after the deduction of withholding tax.  The payer therefore remains responsible for the payment of the withholding tax which will be calculated at the rate of 20% of the regrossed amount (known as the Tax allowance).

Under the terms of engagement, the non-resident professional is to receive the fees of $5,000 free of Singapore withholding tax. Since the $5,000 received by him is treated as net of Singapore withholding tax, it is to be regrossed at the rate of 20%:

$5,000 x100% = $6,250.00
  80%

The payer is required to account for the withholding tax at the rate of 20% on the regrossed amount: $6,250.00 x 20% = $1,250.00.


 

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Last Updated on 25 June 2014


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