Q1. Is payment for the installation of equipment, technical support services and training services provided by a non-resident company subject to withholding tax?
A: Withholding tax is applicable on the service fees attributable to work done in Singapore. The withholding tax is at the prevailing corporate tax rate on the gross fees. This is not the final tax. If the company wishes to claim for the expenses incurred, they may forward the certified accounts and tax computation for IRAS' examination. When the net income and tax have been determined, any tax withheld in excess of the tax on the net income will be refunded.
If the company is a resident of country with which Singapore has concluded an Avoidance of Double Taxation Agreement (DTA), the tax treaty may provide for relief from double taxation, depending on the provisions of the treaty.
Q2. What if the installation of equipment, technical support services and training services are performed in Singapore by employees of a company which is a resident of a DTA country, is the payment subject to withholding tax?
A: Generally, the payments would be subject to withholding tax only if the non-resident company has a permanent establishment (PE) in Singapore. Each DTA would have its own definition of PE.
In some of our DTAs, specifically those with Australia, Pakistan, South Korea, Sweden and Taiwan, payments for labour or personal services are excluded from the Business Profits Article because the definition of 'profits of an enterprise' does not include such payments. In such a case, the fees attributable to the services performed in Singapore would be subject to withholding tax regardless whether the non-resident has a PE in Singapore.
In the case of the Singapore-Malaysia DTA, fees derived by a company resident in Malaysia on technical services performed in Singapore are subject to withholding tax. This is regardless of whether the company has a PE in Singapore as such fees are covered under Article 13 – Technical Fees of the Singapore-Malaysia DTA.
Q3. If in addition to the installation and training service fees paid to the non-resident company, monthly allowance is paid to the personnel sent here, is the monthly allowance subject to withholding tax?
A: As the personnel are the employees of the non-resident company, the monthly allowance is actually additional service fees paid to the non-resident company. Withholding tax is applicable to the allowance.
Q4. Is reimbursement of accommodation, meals and transportation expenses subject to withholding tax?
A: If these expenses are reimbursed at the actual cost incurred, withholding tax is not applicable.
Q5. A Singapore company engaged the services of a consultancy company from Hong Kong. As the gross fees paid to the non-resident have been subjected to withholding tax, how can the Hong Kong company make a claim for the expenses incurred? If the Singapore company bears the tax for the Hong Kong company, what are the tax implications?
A: The tax withheld at the prevailing corporate tax rate is not the final tax. If the Hong Kong company wishes to claim for the expenses incurred, they may forward the certified accounts and tax computation for our examination. Any tax withheld in excess of the tax on the net income will be refunded when the assessment is finalised.
If the tax is borne by the Singapore company, tax-on-tax is applicable and the computation of withholding tax is as follows:
Example:
| Gross fees paid to HK company |
$10,000 |
| Tax borne by Singapore company |
$1,700 (10,000 @ 17%*) |
| Tax allowance (tax-on-tax) |
$1,700 X 17/(100-17)
= $348.19 |
Singapore company is required to remit the total tax of $2,048.19 ($1,700 + $348.19) to IRAS.
*Corporate tax rate of 17% is applicable to payments made on or after 1 Jan 2009.
Q6. A Singapore company purchased a software system which was developed outside Singapore from a Canadian company. The Canadian company sent its personnel to Singapore to oversee system installation and onsite testing of the system for a period of less than 183 days. Is withholding tax applicable?
A: Based on Article 5 of the Singapore-Canada DTA, the mere installation and onsite testing services performed in Singapore would not be construed as a PE if the Canadian company has no fixed place of business in Singapore. Hence, income attributable to such services are not subject to withholding tax.
Q7. Is withholding tax applicable to consultancy fees for services provided by a non-resident via Internet presentation, email and telephone?
A: Services provided by a non-resident company via electronic means overseas without sending staff to Singapore are considered as services rendered outside Singapore. As such, withholding tax is not applicable.
Q8. The professional services are rendered in Singapore by a non-resident individual who is a resident of a DTA country. Do I have to withhold tax since the individual does not have a PE in Singapore?
A: Professional services provided by a non-resident individual does not fall under the Business Profits Article but is covered under the Independent Personal Services Article. Please click here for more details of the tax treatment.
Q9. Sing Co A (Singapore tax resident) makes payment for technical services rendered in India, to an Indian Branch of Sing Co B (Singapore tax resident). Is the income subject to tax in Singapore?
A: Section 12(6A) and 12(7A) will not apply to any payment made by a person resident in Singapore or permanent establishment in Singapore to a foreign branch of a Singapore resident company in respect of specified services, notwithstanding that such services are performed outside Singapore.
The technical service fee received by the foreign branch (India branch) of a Singapore resident company (Sing Co B) is deemed to be Singapore sourced income derived by a Singapore tax resident under Section 12(7). Hence, it will be assessed to tax in Singapore on an arising basis whether or not the income is remitted. However, withholding tax is not applicable since the payments is made to a Singapore resident company.