It depends on the tax treatment of such services as provided in the DTA. Generally, the payments would be subject to withholding tax if the non-resident company has a permanent establishment (PE) in Singapore. The concept of PE is used in a DTA between two Contracting States to determine whether a person resident in a Contracting State has a taxable/business presence in another Contracting State. Each DTA would have its own definition of PE.
For example, under Article 7 of the Singapore-United Kingdom (UK) Avoidance of Double Taxation Agreement (DTA), the profit of a UK resident company is not subject to tax in Singapore if it does not carry on business in Singapore through a permanent establishment (PE) in Singapore. Article 5 of the Singapore-UK DTA provides the definition of a permanent establishment in respect of this particular DTA. For example, if the non-resident company has a fixed place of business in Singapore, it will be regarded as having a PE in Singapore.
• If the UK Company has a PE in Singapore, tax has to be withheld at the prevailing corporate tax rate (i.e. 17%) on the gross fees attributable to the work done in Singapore. The withholding tax at 17% is not the final tax. If the UK company wishes to claim deduction for expenses incurred, it must forward the certified financial 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 UK Company does not have a PE in Singapore, the income is not subject to tax in Singapore and withholding tax does not apply. In this case, the UK company is required to submit the Certificate of Residence (COR) to the local payer for onward submission to IRAS to substantiate that it is a tax resident of UK and qualifies for the DTA benefits. In addition, the local payer is still required to submit the withholding tax form (Form IR37) to IRAS even though withholding tax is not applicable.
In some of our DTAs, specifically those with Australia*, Pakistan, Republic of Korea#, Sweden and Taiwan, specific payments such as 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 of whether the non-resident has a PE in Singapore.
For DTAs which contain a separate Article on Technical Services, e.g., the Singapore-Malaysia DTA, the tax to be withheld will depend on the tax rate as stated in this Article. However, if the non-resident company has a PE in Singapore, the provisions of the Business Profits Article will apply.
Example
A company resident in Malaysia performing technical services in Singapore will be subject to the withholding tax rate of 5% on the gross fees relating to services rendered in Singapore as provided under the Technical Services Article of the DTA. The 5% rate applies only if the Malaysian company does not have a PE in Singapore.
If the company has a PE in Singapore, the Business Profit Article shall apply and the withholding tax rate will be 17% of the gross fees relating to the services rendered in Singapore. The withholding tax at 17% is not the final tax. If the Malaysian company wishes to claim deduction for expenses incurred, it must forward the certified financial 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.
*With effect from 1 May 2018, the income derived by a non-individual (e.g. company) tax resident in Australia from the provision of services in Singapore through employees or other personnel engaged by the non-individual would be considered as profits of an enterprise and Articles 4 and 5 would be the applicable articles. Consequently, the service income will only be subject to tax in Singapore if the provision of services constitutes a PE in Singapore under the provisions of Article 4 of the Singapore-Australia DTA. This means that no withholding tax is applicable on the service income if there is no PE in Singapore. For more information, please refer to footnote 1 of Article 2 of the DTA (PDF, 625KB) which documents the mutual agreement reached by the competent authorities of Singapore and Australia.
#This refers to the DTA with Republic of Korea (“ROK”) signed 6 November 1979. There is a revised DTA (PDF, 661KB) with ROK signed on 13 May 2019 and effective from 1 January 2020. Under the revised DTA, profits derived by an enterprise from the performance of professional services and other activities of an independent character fall under the Business Profits Article. This means that the service income will only be subject to tax in Singapore if the services are performed through a PE in Singapore.