Withholding Tax (WHT) Exemption for Payments Made by Banks, Finance Companies and Certain Approved Entities
To facilitate access to a wider range of funding sources for the lending business of specified entities and strengthen our position as a regional funding centre, the following enhancements have been made to the WHT exemption regime for these specified entities with effect from 1 Apr 2011:
- WHT exemption is granted on all section 12(6) payments made by specified entities to all non-resident persons (excluding permanent establishments in Singapore) if the payments are made for the purpose of the trade or business of the specified entities.
- Specified entities refer to:
(a) Banks licensed under the Banking Act or approved under the MAS Act;
(b) Finance companies licensed under the Finance Companies Act; and
(c) Financial institutions that are:
- licensed under the Securities and Futures Act to carry out the regulated activities of dealing in securities and advising on corporate finance;
- involved or will be involved in the underwriting of debt or equity market issuances; and
- approved by MAS for the purpose of this tax exemption.
The WHT exemption covered by the enhancements is applicable for:
- Payments liable to be made during the period from 1 Apr 2011 to 31 Mar 2021 (both dates inclusive) on contracts which take effect before 1 Apr 2011; and
- Payments liable to be made on contracts which take effect during the period from 1 Apr 2011 to 31 Mar 2021 (both dates inclusive).
As announced in Budget 2012, the WHT exemption has been enhanced. The specified entities will not need to withhold tax on all section 12(6) payments made to permanent establishments in Singapore where the payments are made for the purpose of trade or business of the specified entities. This enhanced WHT exemption will take effect for:
- Payments liable to be made during the period from 17 Feb 2012 to 31 Mar 2021 (both dates inclusive) on contracts which take effect before 17 Feb 2012; and
- Payments liable to be made on contracts which take effect during the period from 17 Feb 2012 to 31 Mar 2021 (both dates inclusive).
The permanent establishments in Singapore will still be taxed on such payments and they are required to declare such payments in their annual income tax returns.
Payments made to banks that have been granted waiver from withholding tax
When payment is made to a Singapore branch of a non-resident bank, the payer has to withhold tax. However, as an administrative concession, some Singapore branches of non-resident banks have been granted waiver by IRAS from compliance with sections 45 and/or 45A. Hence, there is no need to withhold tax for payments made to the approved Singapore branches. You may refer to the list of approved Singapore branches of non-resident banks (74KB).
Payments for the charter of ships
As announced in Budget 2012, withholding tax exemption has been granted on payments made to non-residents, excluding permanent establishments in Singapore, for bareboat, voyage and time charters of ships. The exemption applies to charter fees which are due and payable on or after 17 Feb 2012. This exemption is to further enhance Singapore’s competitiveness as an International Maritime Centre and reduce business costs for ship charterers.
Payers do not need to withhold tax on charter payments made to a permanent establishment in Singapore. The permanent establishment has to declare the charter fees received in its annual income tax return and will continue to be assessed to tax on such fees.
Charter fees which are due and payable before 17 Feb 2012 are subject to withholding tax. You may refer to the list of withholding tax rates.
Other categories of payment exempt from withholding tax:
This exemption does not apply to payments which are:
- treated as income earned by any trade or business carried on or exercised by a non-resident person in Singapore; or
- effectively connected with a permanent establishment in Singapore.
As an administrative concession, the requirement to withhold tax on such payments made to the non-resident person carrying on or exercising a trade, business, vocation or profession in Singapore is waived. This is provided that the non-resident declares or continues to declare such payments as income in his annual income tax return.
Software PaymentsRevised!
Generally, software payments are considered royalty payments for tax purposes. As such, software payments made to non-residents are subject to withholding tax at 10% or at the reduced rate as provided under an Avoidance of Double Taxation Agreement (DTA).
The following software payments are exempt from withholding tax subject to certain conditions. Hence, payers do not need to withhold tax if they make software payments to non-residents for these items:
- Shrink-wrap software
- Downloadable software for end-user
- Site licence
- Software bundled with computer hardware
To qualify for the exemption, the payer must not have obtained any right to:
- commercially exploit the copyright of the software;
- duplicate, reverse engineer, modify the software.
For more information on the details and conditions for exemption, please refer to e-Tax Guide, Exemption of Software Payments from Withholding Tax. (136KB)
With effect from 28 Feb 2013, the rights-based approach will be adopted to characterise software payments. If there is a partial transfer of rights permitting the payer to commercially exploit the rights, the payment is a royalty. Withholding tax applies if the payment is made to a non-resident. Where there is a complete alienation of copyright rights in the software, the owner transferring the rights derives business income or capital gains. Withholding tax is not applicable.
Where no such rights are transferred or licensed (for instance, if the owner allows the payee to use the copyrighted article in his business operations but did not transfer the right of the article), the owner derives business income from the transfer or license of a copyrighted article. Withholding tax is not applicable.
With the rights-based approach, the withholding tax exemption on the payments for the four categories of software listed above will no longer be necessary from 28 Feb 2013.
Payments for the use of or the right to use information and digitised goods by end-usersRevised!
Payments made to non-residents for the use of or the right to use scientific, technical, industrial or commercial knowledge or information, and digitised goods are subject to withholding tax at 10% or at the reduced rate provided under the DTA.
Payments made by end-users to non-residents for the use of information and digitised goods, and which are accruing in or derived from Singapore on or after 28 Feb 2003 have been granted an exemption from withholding tax. This exemption is for a period of 10 years, up to 27 Feb 2013. Hence, end-users need not withhold tax on such payments during this period.
- Examples of payments for information that are covered by this exemption include end-user subscriptions to Forrester, Lexis-Nexis etc.
- Examples of payments for digitised goods include downloadable ring tones, music videos, MP3s etc.
To qualify, the use of the information or digitised goods must be for the end-user's personal consumption or use within his business operations. There must not be any rights granted to exploit the copyright of the information or to copy, modify or adapt the digitised good.
For more information on the details and conditions for this exemption, please read the e-Tax Guide, Exemption of Payments for the Use of or the Right to Use Information and Digitised Goods by End-Users from Withholding Tax. (152KB)
With effect from 28 Feb 2013, the rights-based approach will be adopted to characterise payments for the use of or the right to use information and digitised goods. If there is a partial transfer of rights permitting the payer to commercially exploit the rights, the payment is a royalty. Withholding tax applies if the payment is made to a non-resident. Where there is a complete alienation of copyright rights in information or digitised good, the owner derives business income or capital gains. Withholding tax is not applicable.
Where no such rights are transferred or licensed (for instance, if the owner allows the payee to use the copyrighted article in his business operations but did not transfer the right of the article), the owner derives business income from the transfer or license of a copyrighted article. Withholding tax is not applicable.
Payments for Satellite CapacityRevised!
Payments to non-residents for the use of satellite capacity are subject to a final withholding tax at the rate of 15% or such reduced rates as provided under a DTA.
A tax exemption has been granted on lease payments for satellite capacity for the period 11 Jul 1997 to 27 Feb 2013 (both dates inclusive).
With effect from 28 Feb 2013, payments for satellite capacity will be characterised as payments for services. This is in recognition that the payers generally do not have material possessory interest or control over the satellites. Accordingly, payments for satellite capacity are more akin to payments for services than payments for the use of movable properties. With the new characterisation, payers no longer need to withhold tax on payments to non-residents for the use of satellite capacity since the services are rendered outside Singapore.
Payments for the use of international submarine cable capacity, including payments for Indefeasible Rights of Use (IRUs)Revised!
Payments for the use of or the right to use international submarine cable capacity (including payments for an IRU) are subject to withholding tax at 15% or such reduced rates as provided under a DTA.
A tax exemption has been granted for payments accruing in or derived from Singapore during the period 28 Feb 2003 to 27 Feb 2013 (both dates inclusive).
With effect from 28 Feb 2013, payments for the use of international submarine cable capacity (except for payments made under IRU agreements) will be characterised as payments for services. Withholding tax is not applicable if the payment is made to a non-resident who performs the services outside Singapore.
The new characterisation does not apply to payments for the use of international submarine cable capacity made under IRU agreements, as payers under such arrangements possess significant control over the physical cables as well as the management and maintenance of the cables. Withholding tax remains applicable to such payments made to non-residents. However, the existing tax exemption will be extended for another 5 years, from 28 Feb 2013 to 27 Feb 2018 (both dates inclusive).
FAQs
Filing of Form IR37
Q. Does my company have to file IR37 for payments which are exempt from tax?
Filing of Form IR37 is not required for payments that have been granted exemption from income tax, unless your company is claiming tax exemption under treaty benefits.
Please refer to FAQs for more details.