Taxable Income of Non-Resident Professionals

Non-resident professionals are subject to 15% withholding tax of gross income. They may opt to be taxed at 22% of net income instead.

15% Withholding Tax Treatment

The non-resident professional is subjected to a final withholding tax of 15% on the gross income /fee derived from services performed in Singapore.

Under the 15% withholding tax treatment:

  1. Gross income refers to both cash and non-cash payments and includes:
    1. accommodation provided/reimbursed by payer;
    2. airfare provided/reimbursed by payer;
    3. allowance;
    4. honorarium/speaker's fee;
    5. per diem; and
    6. transport (e.g. airport transfers) and meals provided/reimbursed by payer
  2. No deduction is allowed against the gross income/fees for any expenses incurred;
  3. We will not send tax bill to the non-resident professional as the payer has accounted for the withholding tax; and
  4. The following are not applicable
    1. concession of not taxing accommodation provided for 60 days or less in any calendar year and cost of airfare
    2. tax exemption for short-term employment  of 60 days or less in a calendar year. 

The non-resident professional is engaged by a company to render services in Singapore for seven days. Besides an engagement fee of $5,000, the non-resident professional 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

Where the non-resident professional is to receive the payment 'free of withholding tax', the payment the non-resident professional receives is considered as the net amount after the deduction of withholding tax. 

The payer therefore remains responsible for the payment of withholding tax which will be calculated at the rate of 15% of the re-grossed amount (known as tax allowance).

Under the terms of engagement, the total income of $8,400 (as shown in example 1) is free of Singapore withholding tax. Hence, it is to be re-grossed at the rate of 15%:

$8,400 x 100% = $9,882.35
  85%

Payer is required to account for withholding tax at the rate of 15% on the re-grossed amount: $9,882.35 x 15% = $1,482.35.

Option to be Taxed on Net Income at 22% (20% for period of engagement prior to 1 Jan 2016)

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 22% instead of 15% of the gross income.

Under the option:

  1. As a concession, the following are not taxable :
    • cost of airfare borne by the payer and
    • cost of accommodation (excluding value of food) provided by the payer for short-term engagement of 60 days or less in a calendar year. 
  2. Where the cost of accommodation is borne for more than 60 days, the cost of the entire period is taxable. For example, the payer bears for 70 days of accommodation in a calendar year, the full cost is taxable.
  3. 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.
  4. As a concession, the following expenses incurred by the non-resident professional are deductible:
    • Cost of airfare and
    • Cost of accommodation (excluding value of food) for short-term engagement of 60 days or less in a calendar year.
  5. Where the cost of accommodation incurred by the non-resident professional exceeds 60 days, the cost of the entire period is not deductible. For example, the non-resident professional pays for 70 days of accommodation in a calendar year, the cost of the entire stay is not deductible.
  6. Private expenses (e.g. value of food and ground transfers from and to airport) and expenses incurred to put the non-resident professional in a position 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 has accounted for withholding tax.

 

Exercising Option to be Taxed on Net Income at 22% 

 

This 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 22%.

The option must be exercised:

1. By the non-resident professional/the payer by completing and endorsing on section 3 of the  Form IR37C.

2a. Up-front i.e. before or at the same time as when the tax is withheld and remitted to IRAS; or

2b. If tax at 15% has been remitted to IRAS by 15th of the second month from the date of payment to the non-resident professional (for date of payment from 28 Nov 2013).

 

The non-resident professional is engaged by a company to render services in Singapore for seven days. Besides an engagement fee of $5,000, the non-resident professional 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 @ 22%

$ 1,100

Where the non-resident professional is to receive the payment 'free of withholding tax', the payment received by the non-resident professional is regarded as the net amount after the deduction of withholding tax. 

The payer remains responsible for the payment of the withholding tax which will be calculated at the rate of 22% of the re-grossed amount (known as the tax allowance).

Under the terms of engagement, the total income of $5,000 is free of Singapore withholding tax. Hence, it is to be re-grossed at the rate of 22%:

$5,000 x 100% = $6,410.25
   78%

Payer is required to account for the withholding tax at the rate of 22% on the re-grossed amount: $6,410.25 x 22% = $1,410.25.

  • #1 What if the payer bears the withholding tax on my behalf?

    Where the amount of withholding tax is borne by the payer, the amount of tax allowance is a benefit and is taxable. See Example 2 (15% withholding tax treatment) or Example 4 [Option to be taxed on net income at 22% on how the tax allowance is computed.

  • #2 I have incurred expenses on food and transport. Are these expenses tax-deductible?

    The withholding tax of 15% is a final tax on gross income/fees. No deduction will be allowed on any expenses incurred in the production of income. 

    Under the option to be taxed on net income at 22%, these expenses are not deductible against your income as they are private in nature.

     

  • #3 I am here to participate in a seminar in Singapore. Is the per diem provided to me subject to withholding tax?

    Yes, as you are exercising a profession through your attendance in the seminar.

  • #4 Is the per diem allowance provided to me for my accommodation (< 60 days per calendar year) taxable under the option to be taxed on net income?

    Only accommodation provided for not more than 60 days in a calendar year is not taxable under the option to be taxed on net income at 22%.

    In the case of a per diem allowance granted, the full per diem is subject to withholding tax . However, you may claim the actual amount expended for accommodation against your gross income.

     

  • #5 Are service charge and GST for hotel and meals provided to the non-resident professionals subject to withholding taxes?

    Yes, please include service charge and GST when computing withholding tax.

  • #6 Are airfare and accommodation provided to a foreign consultant for attending a job interview in Singapore subject to withholding tax?

    No, unless the income/benefits are attributable to services (e.g. give a seminar/presentation, involved in meeting/discussion) performed by foreign consultant.

  • #7 I received fees for some services rendered by me in Singapore. Separately, I am paid a retainer fee when I am outside Singapore. Are the payments subject to withholding tax?

    Yes, as the retainer fees are not income attributable to services performed outside Singapore, it is also subject to withholding tax in Singapore.

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