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Payments That Are Subject to Withholding Tax

A person must withhold tax when payment of a specified nature has been made to non-residents companies. The rate of withholding tax depends on the nature of payment.

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Nature of Payments That Are Subject to Withholding Tax

The following types of payments attract withholding tax when paid to non-resident companies:

Interest, commission, fee in connection with any loan or indebtedness;
Royalty or other payments for the use of or the right to use any movable property;
Payments for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information;
Payments of management fees;
Rent or other payments for the use of any movable property;
Payments for the purchase of real property from a non-resident property trader;
Structured products (other than payments which qualify for tax exemption under section 13(1)(zj) of the Income Tax Act);
Distribution of real estate investment trust (REIT).

Most of these payments are also covered under Sections 12(6) and Section 12(7) of the Income Tax Act.
You may refer to this flowchart on the withholding tax implications for such payments, General Overview of Withholding Tax on Income Deemed to be Sourced in Singapore under Sections 12(6) and 12(7) of the Income Tax Act (PDF, 101KB).

Please refer to our FAQs below for specific scenarios.

Interest Payments

Withholding tax is applicable to any interest in connection with any loan, indebtedness or any arrangement or service related to any loan or indebtedness. Examples include interest on overdue trade accounts and interest on credit terms paid to a non-resident supplier. This tax applies even if the interest is treated as part of the seller's trade income (e.g. interest charged on late payment of the sale of goods).

Exceptions to Withholding Tax on Interest Payment

Payment made to a Singapore branch of a non-resident bank, where the Singapore branch has been granted waiver from compliance with sections 45 and/or 45A by IRAS . You may refer to the list of approved Singapore branches of non-resident banks (PDF, 74KB).
Interest and other section 12(6) payments made to Singapore branches of non-resident companies from 21 Feb 2014.
Interest and other section 12(6) payments made by banks, finance companies and certain approved entities to non-residents, where the payments are made for the purpose of the trade or business of the specified entities.
Interest paid to a non-resident for a loan obtained from outside Singapore for acquiring an overseas immoveable property.

Payments in Respect of Interest Rate/ Currency Swap Arrangements

Examples where withholding tax is applicable:

There is a close nexus between the swap payments and the financing arrangement, for instance
- The swap arrangement is directly connected with a financing arrangement and the counter parties for the two arrangements are the same. The swap payments and interest payments together give the true economic effect of a financing arrangement; or
- The documentation shows explicitly that the swap arrangement is entered into to hedge a borrowing by the payer of the swap payments or the interest liabilities on such borrowing.
The economic substance of a swap arrangement is that of a loan or a financing arrangement.

Exception to Withholding Tax on Payments in Respect of Interest Rate / Currency Swap Arrangements

The swap arrangement is not entered into in relation to any borrowing by the payer of the swap payments. However, if the arrangement is in substance a loan or financing arrangement of the payer of swap payments, no exception will be granted. This treatment is effective for any swap payments due and payable on or after 26 Nov 2010.

Payments in Respect of Non-Financial Derivatives

Non-financial derivatives are derivatives where the payoffs are linked in whole to the payoffs or performance of the underlying non-financial assets.

Such derivatives take the form of forward, futures, swap or options. Examples include commodity, emission and freight derivatives.

Withholding tax is not applicable to payments exchanged or made in respect of non-financial derivatives when:

The derivative does not effectively give rise to the creation of any loan or indebtedness;
The payment is not effectively a return for the use of money or provision of credit; and
The payment made is at arm's length.

Payments for Software and Payments for Use of or Right to Use Information and Digitised Goods

The rights-based approach was adopted from 28 Feb 2013 to characterise the following payments for tax purposes:

Payments for Software

These include payments for downloadable software, software bundled with hardware, software licences (e.g. site, enterprise or network), limited duration licensed software and software products with online elements.

Payments for the Use of or Right to Use Information

These include subscriptions to Bloomberg, Reuters, Lexis-Nexis and other similar subscriptions. They exclude payments for the use or the right to use patents, trademarks, registered designs, geographical indications, the layout design of integrated circuits, plant varieties and trade secrets.

Payments for the Use of or Right to Use Digitised Goods

These include payments for online or downloadable ring tones, music videos, books, and other similar goods.

The rights-based approach characterises a payment based on the nature of the rights transferred in consideration for the payment. It draws a distinction between the transfer of a "copyright right" and the transfer of a "copyrighted article" from the owner to the payer.

Payments for Copyright Right

A transaction involves the transfer of a copyright right if the payer is allowed to commercially exploit the copyright. The term 'commercially exploit' means to be able to:

reproduce, modify or adapt and distribute the software, information or digitised goods; or
prepare derivative works based on the copyrighted software program, information or digitised goods for distribution.

Where a payment is made to a copyright owner for the transfer of partial rights in the copyright (e.g. licensing of copyright to be exploited by the payer), the payment is a royalty . Such payments to non-residents are subject to withholding tax at 10% or the reduced rate as provided in an Avoidance of Double Taxation Agreement (DTA).

If the payment is made to the copyright owner for the complete alienation of his copyright in the goods, the transaction is a sale of the copyright. In the hands of the copyright owner, any gains derived from such sale constitute either his business income or capital gains. The sales proceeds paid to a non-resident are not subject to withholding tax.

Payments for Copyrighted Article

Payments for software or digitised goods that do not involve the transfer of the copyright rights embedded in the goods will be considered as payments for copyrighted articles and are not subject to withholding tax.

For example, if a person purchases software for personal use or for use within his business operations, the payment he makes is a payment for a copyrighted article. Thus, withholding tax is not applicable. Payments for additional services such as subsequent software maintenance, user training, customisation of software or information, and development of add-on applications are not within the scope of the rights-based approach. Withholding tax may apply. Please refer to payment for services rendered. For more information, please refer to the e-Tax Guide, Rights-Based Approach for Characterising Software Payments and Payments for the Use of or the Right to Use Information and Digitised Goods (PDF, 82KB).

Payments for Technical Services Under Section 12(7)(b) and Management Services Under Section 12(7)(c) of the Income Tax Act (ITA)

With the enactment of Section 12(7A) of Income Tax Act (ITA) which takes effect from 29 Dec 2009, management services performed by non-residents outside Singapore are generally excluded from the scope of Section 12(7)(c). This includes payments made to related parties provided they meet the arm's length requirement*. With the change, the tax treatment for such services performed outside Singapore will be aligned with the technical services described in Section 12(7)(b) performed outside Singapore.

For services performed in Singapore, withholding tax is to be imposed at the prevailing corporate tax rate on the gross payment and paid to IRAS. This tax is not a final tax. If the non-resident company has incurred expenses in earning the service income, it can forward the certified 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 company is a resident of a jurisdiction which Singapore has an Avoidance of Double Taxation Agreement (DTA) with, it may claim relief from double taxation, depending on the provision of the DTA.

Payment for Services Rendered

The following rules apply to payment for services rendered:

Where payment is made to a non-resident company for the installation of equipment, technical support services, training, consultancy or other services provided by the non-resident company, withholding tax is applicable on the service fees attributable to the work done in Singapore.
If the payer pays for monthly allowance of the non-resident company's employees who are sent to Singapore to perform the services, withholding tax is applicable on the allowance as the monthly allowance is considered additional service fees paid to the non-resident company.
However, if the non-resident company provides the services via electronic means from overseas (e.g. Internet presentation, email and telephone) without sending staff to Singapore, the services are rendered outside Singapore and withholding tax is not applicable.
Where payment is made to a non-resident company for services rendered in Singapore under a cost-pooling arrangement, withholding tax is not applicable if the cost-pooling conditions stated in the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.46MB) have been satisfied such that 0% mark-up is acceptable.

Withholding tax is imposed at the prevailing corporate tax rate of 17% on the gross service fees. This is not the final tax. If the non-resident company wishes to claim for the expenses incurred, it may submit a tax return together with the certified 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 company is a resident of a tax treaty partner, the Avoidance of Double Taxation Agreements (DTAs) may provide for relief from double taxation, depending on the provision of the DTA.

Administrative Concession - No Withholding Tax on the Reimbursement of Accommodation, Meals and Transportation expenses

As an administrative concession, withholding tax is not applicable for reimbursement of, accommodation, meals and transportation expenses (including airfares) paid to a non-resident company if the payer can obtain a detailed breakdown of the expenses showing that the expenses were reimbursed at the actual costs incurred, without any mark-up or profit element. The payer need not submit the breakdown/ documents to IRAS but will need to retain them and submit to IRAS upon request.

Extension of administration concession to reimbursement of airfares and accommodation based on published rates

In situations where the employees of the non-resident company make multiple trips to Singapore, the payer would need to track and collate expenses for all the trips in order to avail itself of the administrative concession.

To ease the administrative burden of companies, the administrative concession is extended to the reimbursement of airfares and accommodation based on published rates of airlines and accommodation, provided that the following conditions are satisfied:

(a) The contract with the foreign vendor provided for reimbursement of airfares and accommodation based on the published rates;

(b) The published rates used for reimbursement purpose are reflective of the prevailing market rates of the airfares and accommodation costs. The reimbursement rates should be updated at least once in every 2 years if the tenure of the contract is more than 2 years; and

(c) The reimbursement rates are supported by supporting documents, e.g. booking reservations of airlines and accommodation. The payers would be required to retain the relevant supporting documents and submit to IRAS only upon request.

Payment for Management Services

Management service refers to management or assistance in the management of any trade, business or profession. It includes routine support services as listed in Annex C of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.46MB).

You may refer to this flowchart (PDF, 116KB) to determine whether withholding tax is applicable on management fees paid to non-residents for management services performed.

For services performed in Singapore, withholding tax is to be imposed at the prevailing corporate tax rate of 17% on the gross payment and paid to IRAS. This is not the final tax. Where the non-resident company has incurred expenses in earning the service fee, it may submit a tax return together with the certified 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.

Payments for Use of Movable Property Under Section 12(7)(d) of the Income Tax Act

Rent or other payments made to non-resident persons for the use of movable property are subject to withholding tax under Section 12(7)(d) of the Income Tax Act.

Rent or other payments made for the use of movable property outside Singapore such as cars, hand phones, laptops and other similar items where such use is incidental to overseas business trips (including overseas trade fairs or exhibitions), are not payments falling within the scope of Section 12(7)(d). As such, withholding tax is not applicable.

This treatment has also been expanded, from 1 Apr 2014, to include rental of movable properties used for overseas representative offices. Payers are not required to withhold tax on such payments made on or after 1 Apr 2014. In this way, businesses are given greater support for efforts to explore and expand into overseas markets.

Real Estate Investment Trust (REIT) Distributions

REIT distributions to unit-holders which are non-resident non-individuals are subject to a final withholding tax of 10% or at the prevailing corporate tax rate.

A non-resident non-individual is one which is not a resident of Singapore and:

which does not have a permanent establishment in Singapore; or
which carries on an operation in Singapore through a permanent establishment in Singapore, where the funds used to acquire the units in REIT are not obtained from that operation.

For more information, please refer to the e-Tax Guide on Income Tax Treatment of Real Estate Investment Trusts and Approved Sub-Trusts (PDF, 598KB).

Payments for the Purchase of Real Property from Non-Resident Property Traders

A buyer of a real property or his solicitor is required to withhold tax on the purchase price of that real property upon completion of the sale if the seller is a non-resident property trader.

If the buyer is unsure whether the seller is considered a property trader for Singapore income tax purposes or not, the buyer or his solicitor may wish to ask for a letter of confirmation (not necessarily under oath) from the seller stating that he or the company has not been treated as a property trader for Singapore income tax purposes. With the letter of confirmation from the seller, the buyer or his solicitor is not required to withhold tax on the purchase price of the real property. The buyer or his solicitor is not required to submit the letter of confirmation to IRAS but will have to furnish the letter upon request.

FAQs

1. Interest due on deposits, loans, guarantee fees, loans, interest rate/ currency swap arrangements and consent fees
- A Singapore-resident company held in trust a sum of money for a non-resident company and it deposited the money to a bank. (a) Is the interest payable to the non-resident subject to withholding tax? (b) If the non-resident carries on business in Singapore and has a permanent establishment in Singapore, is withholding tax applicable on interest paid?
  (a) Generally, withholding tax is applicable on interest paid to a non-resident company. However, if the money was placed in an approved bank in Singapore, there is no need to withhold tax if the interest is paid to a non-resident company which:
  - - Does not, by itself or in association with others, carry on a business in Singapore; and
  - - Does not have a permanent establishment in Singapore.
  A non-resident company is not considered as carrying on business by itself or in association with others in Singapore if it merely has associated companies / subsidiaries carrying on business in Singapore since they are separate legal entities.
  
  (b) If the funds used by the non-resident to make the deposit in an approved bank in Singapore are not obtained from the operation in Singapore, withholding tax will not be applicable. Otherwise, the applicability of withholding tax depends on whether the recipient is a resident of a jurisdiction with which Singapore has concluded an Avoidance of Double Taxation Agreement (DTA) or a non-treaty partner:
  
  Resident of a DTA partner
  The provisions in the relevant DTA [Interest Article] will apply.
  
  Resident of a non-DTA jurisdiction
  The payer is required to withhold tax at 15% of the gross amount
- A non-resident company took up a loan from another non-resident company through a Singapore-resident company to acquire a vessel. Is the interest paid to the non-resident subject to withholding tax?
  
  If there was only one loan agreement and the Singapore-resident company was not a party to the agreement, i.e., it merely acted as an intermediary, withholding tax is not applicable.
  However, if there were two separate loan agreements, withholding tax is applicable on the interest payable to the non-resident company since it was borne by a person resident in Singapore.
- A Singapore resident company paid interest to a non-resident in respect of a loan obtained for its branch's business outside Singapore. Is the interest subject to withholding tax?
  No, since it is in respect of a business carried on outside Singapore through a permanent establishment outside Singapore. This is provided that the interest is not deductible against any income accruing in or derived from Singapore.
- A Singapore resident company obtained a loan from outside Singapore to acquire a property overseas for investment purposes. Is the interest subject to withholding tax?
  No, the interest is not subject to withholding tax since the loan is in respect of an immoveable property situated outside Singapore. This is provided that the interest is not deductible against any income accruing in or derived from Singapore.
- Singapore subsidiary paid guarantee fee to its non-resident holding company for acting as its guarantor. Is the guarantee fee subject to withholding tax?
  Generally, withholding tax is applicable on guarantee fees paid to a non-resident company. However, guarantee fees paid to the non-resident holding company will not be deemed to be sourced in Singapore, and hence withholding tax will not be applicable, provided the non-resident company satisfies the following conditions:
  It is not incorporated, formed or registered in Singapore; and
  In any event,
  
  - does not, by itself or in association with others, carry on a business in Singapore or has a permanent establishment in Singapore; or
  
  - carries on a business by itself, or in association with others, in Singapore or has a permanent establishment in Singapore, but the giving of the guarantee is not effectively connected with the business carried on in Singapore or with that permanent establishment.
  This treatment applies only if the transactions are conducted at arm's length and not with intent of siphoning off Singapore income.
- A Singapore branch paid guarantee fees to its non-resident head office for acting as its guarantor. (a) Is the guarantee fee subject to withholding tax? (b) What if the non-resident Head Office is a resident of a DTA country?
  (a) Generally, withholding tax is applicable if the guarantee fees are:
  1. borne by a person resident in Singapore or a permanent establishment in Singapore, except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore or any immoveable property situated outside Singapore; or
  2. deductible against any income accruing in or derived from Singapore.
  If the guarantee is provided by the non-resident head office which is not incorporated in Singapore and the provision of the guarantee is not effectively connected with its permanent establishment in Singapore or a business carried on in Singapore by the head office (if any), the head office would not be deemed to derive the guarantee fees from Singapore. In such a case, the Singapore branch does not have to withhold tax on the guarantee fees paid to its non-resident head office.
  
  This treatment applies only if the transactions are conducted at arm's length and not with intent of siphoning off Singapore income.
  
  (b) If the guarantee fees paid to the non-resident is deemed to be sourced in Singapore, reference should be made to the relevant DTA to determine the appropriate tax treatment. It should be noted that guarantee fees generally does not fall within the meaning of interest as defined in most tax treaties. In such cases, taxpayers should refer to the Business Profits Article or the relevant article(s) in the DTA for guidance.
- Is interest rate or currency swap payment made by a bank in Singapore to its branches or another bank outside Singapore (i.e. inter-branch / inter-bank payments) subject to withholding tax?
  Withholding tax is not applicable as the Minister has granted tax remission under Section 92(2) of the Income Tax Act.
- A Singapore resident company had issued notes/ bonds. It subsequently proposed changes to certain terms and conditions of the agreements under which the notes/ bonds were issued, via a consent solicitation exercise. It paid early consent fees and normal consent fees to the non-resident noteholders/ bondholders for voting in favour of the proposed amendments. Noteholders/ bondholders who delivered valid and unrevoked voting instructions on or prior to an early consent fee deadline, are paid an early consent fee. Those who gave consent after the early consent fee deadline but prior to an expiration deadline or at the meeting for voting will receive a lower fee instead, i.e. normal consent fee. Are the consent fees subject to withholding tax?
  
  On the basis that both the early consent fees and normal consent fees are:
  
  - one-time payments meant to incentivise the noteholders/ bondholders to vote in favour of the proposed changes;
  - paid only to noteholders/ bondholders who have indeed voted in that manner; and
  - not compensation for the income derived or generated in connection with the holding of the notes/ bonds,
  
  withholding tax is not applicable since the fees are distinct and separate from the underlying indebtedness of the principal sum of the notes/ bonds and are not payments in consideration for or arising out of such indebtedness.
  
  In addition, given that the consent fees are made for one-time inducement purposes, the fees are not tax-deductible for income tax purposes as they are capital in nature.
2. Royalties
- What is the withholding tax rate if my company pays royalty to a non-resident company?
  
  The withholding tax rate is 10% or such reduced rate as provided under a tax treaty. This is a final tax.
  
  The above rate will, however, not apply to royalties derived by a non-resident through operations carried in or from Singapore. The chargeable income from such operations will continue to be taxed at the prevailing corporate tax rate.
- Must a Singapore branch withhold tax on royalties paid to its head office that is resident in another jurisdiction?
  
  For tax purposes, the branch and head office are treated as separate entities. If there is a tax treaty between Singapore and the jurisdiction that the head office is tax-resident in, the withholding tax rate specified in that treaty will apply. For example, if a Singapore branch pays royalties to its German head office, the Singapore branch has to withhold tax at 8% in accordance with paragraphs 1, 2 and 5 of Article 12 of the Singapore-Germany Avoidance of Double Tax Agreement.
  
  If there is no tax treaty between Singapore and the jurisdiction that the head office is a tax resident of, the withholding tax prescribed in the Singapore Income Tax Act will apply. Following on from the earlier example, if the Singapore branch pays royalties to its US head office, the Singapore branch should withhold tax at 10%, in accordance with Singapore's prescribed withholding tax rate on royalties.
- a) Is a payment to a non-resident vendor, for the customisation of software subject to withholding tax? b) If the cost of hardware is included in the payments made to the non-resident vendor, is the portion attributable to the hardware subject to withholding tax?
  
  a) Withholding tax is applicable if the services are performed in Singapore. However, if the services are rendered outside Singapore, withholding tax is not applicable.
  b) Withholding tax is not required on the portion relating to the purchase of hardware and equipment.
- Do I need to withhold tax if my company purchased a design software from a non-resident company for use in our business operation (i.e. to design company’s products which will be manufactured and sold by the company to its customers, without involving a transfer of copyright rights embedded in the software)?
  
  Withholding tax is not applicable if the software is used for personal consumption or for use within the company’s business operations. The company must not have the rights to commercially exploit the software (i.e. reproduce, modify or adapt and distribute the software).

3. Services

If the installation of equipment, technical support services and training services are performed in Singapore by employees of a company which is a resident of a DTA jurisdiction, is the payment subject to withholding tax?

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.

A Singapore company engaged the services of a consultancy company from countries which Singapore does not have a comprehensive tax treaty (e.g., Hong Kong or USA). What are the withholding tax implications for the payments made by the Singapore company? If the Singapore company bears the tax for the Hong Kong or USA company, what are the tax implications?

Where payment is made to a non-resident company for consultancy or other services provided by the non-resident company, withholding tax is applicable on the service fees attributable to work done in Singapore.

As Singapore does not have in place a comprehensive tax treaty with Hong Kong and USA, withholding tax has to be paid at the prevailing corporate tax rate (i.e. 17%) on the gross service fees. The withholding tax is not the final tax. If the Hong Kong or USA company wishes to claim deduction for the expenses incurred, it may forward the certified financial statements and tax computation for IRAS’s examination. Any tax withheld in excess of the tax on the net income will be refunded when the assessment is finalised.

If the Singapore company bears the tax for the non-resident under contractual terms (i.e. payment to payee is treated as net of tax), the withholding tax would be computed on a re-grossed basis.

Example

Fees paid to Hong Kong or USA company	$10,000 (net of withholding tax)
Regrossed amount [Gross amount/(100%-Applicable tax rate)]	$10,000 / (100%-17%*) =$12,048.19
Less : Tax deducted [$12,048.19 x 17%] Net amount paid to non-resident	$2,048.19 $10,000.00

Fees paid to Hong Kong or USA company

$10,000 (net of withholding tax)

Regrossed amount

[Gross amount/(100%-Applicable tax rate)]

$10,000 / (100%-17%*)

=$12,048.19

Less : Tax deducted [$12,048.19 x 17%]

Net amount paid to non-resident

$2,048.19

$10,000.00

The Singapore company is required to remit the total tax of $2,048.19 to IRAS.

*Prevailing corporate tax rate is 17%

A Singapore company purchased a software system which was developed outside Singapore from a non-resident company. The non-resident company sent its personnel to Singapore to oversee system installation and onsite testing of the system. Is withholding tax applicable?

Generally, payments to non-resident persons for services rendered in Singapore are subject to withholding tax. If the non-resident company resides in a jurisdiction which does not have a DTA with Singapore, then the withholding tax rate will be the prevailing corporate tax rate.

However, for payments made to a treaty partner, for example Canada, Article 5 of the Singapore-Canada DTA states that the mere installation and onsite testing services performed in Singapore for not more than six months would not be construed as a Permanent Establishment (PE) if the Canadian company has no fixed place of business in Singapore. Hence, income attributable to such services is not subject to withholding tax.
If a non-resident individual who is a resident of a DTA jurisdiction rendered professional services in Singapore, do I need to withhold tax since the individual does not have a PE in Singapore?
Professional services provided by a non-resident individual do not fall under the Business Profits Article but are covered under the Independent Personal Services Article. For more details on tax treatment of non-professional, please refer to Withholding Tax for Non-Resident Professionals.
Singapore Company A (Singapore tax resident) makes payment for technical services rendered in India, to an Indian Branch of Singapore Company B (Singapore tax resident). Is the income subject to withholding tax in Singapore?

For payments made to a foreign branch of a Singapore resident company, withholding tax will not apply.

The technical service fee received by the foreign branch (India branch) of a Singapore resident company (Singapore Company B) is Singapore sourced income, assessable to tax in Singapore on an arising basis whether or not the income is remitted. Withholding tax is not applicable since the payment is made to a Singapore-resident company.
Is payment for web-hosting services provided by a non-resident company subject to withholding tax?

Withholding tax is applicable if the payment for web-hosting services is made to a non-resident company for the work done in Singapore. The payer is required to withhold tax at the rate of 17% (prevailing corporate tax rate).

If there is payment for rental of equipment such as the leasing of a server, such payment is also subject to withholding tax. This is regardless of the location of the equipment. The payer is required to withhold tax at the rate of 15% or at a reduced rate as specified in the relevant Avoidance of Double Taxation Agreement (DTA) .
Do payments made to Singapore branches of non-resident companies for performance of construction contracts in Singapore qualify for the waiver of withholding tax announced in Budget 2014?

No, such payments made to Singapore branches of non-resident companies are not Section 12(7) payments and hence do not qualify for the waiver of withholding tax announced in Budget 2014.

Gains/profits arising from construction contracts carried out in Singapore are subject to tax in Singapore. For collection of tax due, IRAS may appoint the payer to be the agent of the Singapore branch of the non-resident company under Section 57 of the ITA. The appointed agent will be required to deduct the tax due from each progress payment to the Singapore branch. However, where the Singapore branch files an income tax return (i.e. Form C-S/ C), IRAS will not appoint the local payer to be a collecting agent for the purpose of advance deduction of tax.
Do I need to withhold tax on cloud computing payments?

As payments for cloud computing are considered as payments for services, withholding tax would apply if such payments are made to non-residents for services rendered in Singapore. If the non-resident service provider is a resident of a DTA jurisdiction, the provisions of the DTA will apply (refer to Q1 of the Services FAQs).

4. Consultancy and Management Fees
- Is withholding tax applicable to advisory fee paid by a Singapore company to an unrelated US consultancy firm for a project carried out in China?
  
  If the services provided by the US consultancy firm were rendered in Singapore, the fee is subject to withholding tax. On the other hand, if the services were rendered wholly or partly outside Singapore, only the payment attributable to the services rendered in Singapore is subject to withholding tax.
  
  There is no comprehensive Avoidance of Double Tax Agreement (DTA) concluded between Singapore and the US and the Singapore-China DTA is not applicable in this case.
- Is withholding tax applicable to payments made to a non-resident head office for management, administration, human resource and financial services if the amount paid is an allocation or reimbursement of expenses?
  No. Withholding tax is not applicable to reimbursement/allocation of management fees (without profit element) between a head office and branches under a cost-pooling arrangement. For more information on cost-pooling, please refer to Part III, Section 12 of the e-Tax Guide on Transfer Pricing Guidelines (PDF, 1.46MB).
- Is withholding tax applicable on management fees paid to a non-resident company for services rendered in Singapore on a cost-plus basis? If so, can I withhold tax on the mark-up instead of on the gross fees?
  
  As the services are performed in Singapore, withholding tax is to be imposed at the prevailing corporate tax rate of 17% on the gross fees and paid to IRAS. This is not the final tax. If the non-resident company has incurred expenses in earning the management fees, it may submit a tax return together with the certified 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.
  
  Please refer to this flowchart that illustrates the applicability of withholding tax on management fees from 29 December 2009 (PDF, 116KB).
5. Rental for the use of movable property
- A non-resident derived rental from the letting of his furniture and fittings (not arising from the letting of property) from Singapore. Is the rental income subject to withholding tax?
  The rental from letting of furniture and fittings is considered as rental for the use of moveable property thus, the payer is required to withhold tax at the rate of 15%.
- Is the payment made to a non-resident person for the rental of movable equipment (such as movable marquees, stage, audio equipment) used in overseas trade fairs or exhibitions subject to withholding tax?
  
  Rent or other payments made to non-resident persons for the use of movable property outside Singapore where such use is incidental to overseas business trips are not payments falling within the scope of Section 12(7)(d). As such, withholding tax is not applicable.
  
  Overseas trade fairs or exhibitions are considered as 'overseas business trips', and hence, withholding tax is not applicable on the rental payments.

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