Nature of Payments that are Not Subject to Withholding Tax

Dividend Payments

There is no need to withhold tax on dividend payments, even if there are withholding tax rates ascribed to dividends in some of our tax treaties. Singapore currently does not impose withholding tax on dividends.

Payments to Singapore Branches of Non-Resident Companies

As announced in Budget 2014, withholding tax is waived for all payments under section 12(6) and 12(7) of the Income Tax Act which are made to Singapore branches of non-resident companies on or after 21 Feb 2014. Examples of such payments are interest, commission, royalties and management fees. 

The waiver is intended to reduce compliance costs of payers making payments to Singapore branches of non-resident companies.

Singapore branches of non-resident companies will, however, still be taxed on such payments and are required to declare them in their annual income tax returns.

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 to strengthen our position as a regional funding centre, payments made by banks, finance companies and certain approved entities (collectively referred to as "specified entities") to non-resident persons are exempted from withholding tax.

From 1 Apr 2011 to 31 Dec 2026 (Both Dates Inclusive)

Specified entities do not need to withhold tax on all section 12(6) payments made to all non-resident persons excluding permanent establishments in Singapore where payments are made for the trade or business of the specified entities. This enhanced withholding tax exemption will take effect for:

  1. Payments liable to be made during the period from 1 Apr 2011* to 31 Dec 2026** (both dates inclusive) on contracts which take effect before 1 Apr 2011; and
  2. Payments liable to be made on contracts which take effect during the period from 1 Apr 2011* to 31 Dec 2026** (both dates inclusive).

* In Budget 2012, the withholding tax exemption was extended to include non-resident permanent establishments in Singapore. Hence, specified entities do not need to withhold tax on section 12(6) payments made to such permanent establishments if the payments are liable to be made from 17 Feb 2012 to 31 Dec 2026, or arise from contracts which take effect during the period from 17 Feb 2012 to 31 Dec 2026. The permanent establishments in Singapore will be taxed on such payments and they are required to declare such payments in their annual income tax returns.

** The end date of 31 Dec 2026 does not apply for payments made to Singapore branches of non-resident companies as there is a waiver of withholding tax on all section 12(6) and 12(7) payments made to such entities.

 

Specified entities refer to:

  1. Banks licensed under the Banking Act or approved under the MAS Act;
  2. Finance companies licensed under the Finance Companies Act; and
  3. 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 the Monetary Authority of Singapore (MAS) for the purpose of this tax exemption.

 

Section 12(6) Payments on Interbank/ Interbranch Transactions

New! As announced in Budget 2021, all section 12(6) payments made by banks in Singapore to their branches/ head offices outside Singapore or another bank outside Singapore will be exempt from tax. Hence, banks in Singapore do not need to withhold tax when making section 12(6) payments to their branches/ head offices outside Singapore or another bank outside Singapore. The exemption will apply to:

  1. Section 12(6) payments that are made on contracts that take effect from 1 Apr 2021 to 31 Dec 2031 (both dates inclusive); and
  2. Section 12(6) payments that are made from 1 Apr 2021 to 31 Dec 2031 for contracts that take effect before 1 Apr 2021 (both dates inclusive). 

 

Payments for the Charter of Ships

As announced in Budget 2012, withholding tax is exempted for 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 further enhances Singapore's competitiveness as an International Maritime Centre and reduces 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 be assessed to tax on such fees.

Other Payments Exempt from Withholding Tax

  1. Payments for Satellite Capacity
  2. Payments for the Use of International Submarine Cable Capacity, Including Payments for Indefeasible Rights of Use (IRUs)

The exemption does not apply to payments which are:

  1. Treated as income earned by any trade or business carried on or exercised by a non-resident person in Singapore; or
  2. Effectively connected with a permanent establishment in Singapore.

Payments for Satellite Capacity

From 28 Feb 2013, payments for satellite capacity have been characterised as payments for services instead of payments for the use of movable properties. Payers are recognised as not having material possessory interest or control over the satellites. Payers therefore 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)

From 28 Feb 2013, payments for the use of international submarine cable capacity (except for payments made under IRU agreements) have been 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 above 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, tax exemption had been granted on such payments made during the period 28 Feb 2003 to 27 Feb 2018 (both dates inclusive). In Budget 2017, in line with the Government's thrust to grow the digital economy and for Singapore to continue to be a key hub for data flow, it was announced that the tax exemption will be further extended by another five years, till 31 Dec 2023.

  • Does my company have to file IR 37 on behalf of the non-resident payee for payments which are exempt from tax?

    Filing of Form IR37 is not required for payments that have been granted exemption from income tax under Singapore tax laws.

    However, if the payment is exempt from tax under an Avoidance of Double Taxation Agreement (DTA) which Singapore concluded with the payee's country of residence and the payee is claiming tax exemption under the DTA, filing of Form IR37 is required.

    Please refer to Claiming Relief/ Exemption under Tax Treaty for more details.