Withholding Tax (WHT) Exemption for Banks
To facilitate access to a wider range of funding sources for banks’ lending business and strengthen our position as a regional funding centre, the following enhancements will be made to the WHT exemption regime for banks with effect from 1 April 2011 as announced in Budget 2011:
- WHT exemption will be granted on interest and other qualifying section 12(6) payments made to all non-resident persons (excluding Permanent Establishments in Singapore) if the payments are made for the purpose of their trade or business; and
- Entities covered under the exemption will be expanded to include banks licensed under the Banking Act or approved under the MAS Act, finance companies licensed under the Finance Companies Act, and approved financial institutions licensed under the Securities and Futures Act that engage in lending as part of their regulated activity of dealing in securities in Singapore (such as investment banks).
The WHT exemption covered by the enhancements will be applicable for:
- Payments liable to be made during the period from 1 April 2011 to 31 March 2021 (both dates inclusive) on contracts which take effect before 1 April 2011; and
- Payments liable to be made on contracts which take effect on or after 1 April 2011 to 31 March 2021 (both dates inclusive).
MAS will release further details of the changes by end March 2011.
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 (38KB).
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 tax return (Form C).
Software Payments
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, buyers 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 buyer 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)
Payments for the use of or the right to use information and digitised goods by end-users
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.
However, 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. 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)
Payments for Satellite Capacity
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 an DTA.
However, a tax exemption has been granted on lease payments for satellite capacity for the period 11 Jul 1997 to 10 Jul 2012 (both dates inclusive).
Payments for the use of international submarine cable capacity, including payments for Indefeasible Rights of Use (IRUs)
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 an DTA.
A tax exemption has been granted to such payments made to non-residents for payments accruing in or derived from Singapore during the period from 28 Feb 2003 to 27 Feb 2013 (both dates inclusive).
FAQs
Payment for software
Shrink-wrap software with a product maintenance agreement
Site Licence
Provision of information and ditigised goods
Filing of Form IR37
Payment for software
Q1. Is a payment made by a Singapore company for the licence owned by a non-resident subject to withholding tax?
As the payment is considered as royalty, it is subject to withholding tax. However, the payment would be exempted from withholding tax if the site licence acquired was to be installed in computers at the Singapore company’s premises.
Q2. Is payment for the customisation of the software subject to withholding tax?
Withholding tax is applicable if the services are performed in Singapore. However, if the services are rendered outside Singapore, withholding tax is not required.
Q3. Is withholding tax applicable on payments made to a non-resident vendor who provides installation and training services to my Singapore company?
As payment is for services rendered in Singapore, it is subject to withholding tax at the prevailing corporate tax rate.
Q4. If the cost of hardware is included in the payments made to a non-resident vendor, is the portion attributable to the hardware subject to withholding tax?
Withholding tax is not required on the portion relating to the supply of hardware and equipment.
Shrink-wrap software with a product maintenance agreement
Q5. Singapore subsidiary of an overseas software company derived annual product maintenance fee from the sale of shrink-wrap software in Singapore. The software was imported from its non-resident holding company.
(a) If the Singapore subsidiary pays part of the maintenance fee to the non-resident holding company for software updates in the form of CDs, is withholding tax applicable on this payment?
Where shrink-wrap software updates are provided to customers in the form of CDs imported from holding company and no duplicating is done by the Singapore company, the portion of annual product maintenance fees relating to shrink-wrap software updates qualifies for exemption.
(b) Is withholding tax applicable to payments for the support services if these are provided through the internet?
Where maintenance support services are rendered in Singapore, withholding tax is applicable. If the support services are rendered from outside Singapore, withholding tax is not required.
Q6. Is withholding tax applicable on site licence fees and maintenance fees arising from the purchase of the site licence?
Payments for the site licence and maintenance services arising from the purchase of the site licence qualify for tax exemption.
Q7. What are the types of maintenance and support services incidental to the purchase of site licence that are exempt from withholding tax?
Generally, maintenance and support services, for example upgrading of software, correction of bugs and troubleshooting over telephone or emails are exempted from withholding tax. However, training and installation services are not exempted. Payments for training and installation services are taxable in Singapore only if the services are performed in Singapore.
Q8. If a Singapore company purchases some customised services such as training courses from a non-resident company, does exemption apply to such payments?
The exemption will not apply as the training fees or service fees are for services rendered in Singapore.
Q9. If payment is made to a non-resident company, which has a Singapore branch, for maintenance services provided by the branch, does the payment qualify for exemption?
As an administrative concession, the withholding tax requirement is waived but the Singapore branch must declare the royalties received as income in their annual tax returns.
Q10. My company is a local computer distributor and pays licence fee to a non-resident company for a master copy of software for duplication and installation into the computers assembled in Singapore. Does exemption apply?
No, as the software is duplicated for commercial exploitation.
Q11. For software bundled with computer hardware, the payment for software is exempted from withholding tax provided there is no breakdown in prices. What if there is a breakdown of the prices of the software and hardware?
If there is a breakdown of prices, withholding tax is applicable on the portion for software payment unless it qualifies for exemption as site licence fees.
Provision of information and digitised goods
Q12. My company subscribes to Bloomberg for the use of its information. Is withholding tax applicable to the payments made?
Payments for the use of scientific, technical, industrial or commercial knowledge or information are subject to withholding tax. However, tax exemption has been granted for payments on or after 28 February 2003 made by end-users for a period of 10 years.
Q13. My Singapore company makes payment to a related non-resident company for the lease of a phone line. The purpose of the lease is to enable the Singapore company to gain access to certain information available within the group entity. Is the payment subject to withholding tax?
The payment is for use of information and tax exemption has been granted for a period of 10 years for payments on or after 28 February 2003.
Filing of Form IR37
Q14. 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.