Withholding Tax Guide for Singapore
Here is an outline of withholding the rates of tax for the non-residents residing in Singapore. These might include business partners, overseas agents and employees.
Withholding of taxes is a major part of the tax collection policy followed in Singapore and is mainly applicable to the payments which are made to the non-residents who can be business partners, employees, overseas agents etc. As per the tax rules of IRAS, an individual is legally authorized to withhold a certain percentage of payment which is paid to any non-resident of a specific nature as per the Income Tax Act of Singapore and the withheld amount is to be paid to the IRAS. The amount which is withheld to be paid to the IRAS is known as the Withholding Tax.
Inland Revenue Authority in Singapore has divided the companies as well as the individuals into two kinds of tax entities mainly for the tax purpose. These include the non-resident and the resident as well. A company if managed and controlled in Singapore is categorized as the Singapore Tax Resident and a company based in a foreign country and having its branch in Singapore is considered as non-resident Singapore tax entity. It is due to the fact that all the businesses of the company are exercised from the parent country which is based in any other country.
The payments which are categorized in as software payments are generally considered as royalty payments. These are generally for withholding tax excluding the payments done for site license, shrink-wrap software, downloadable version of end-user software, software that comes along with the computer hardware etc. such exemptions are only applicable if buyer does not have commercial right to copyright, reverse engineer, duplicate, modification of software or its decompiling.
WITHHOLDING TAX AMOUNT
Withholding tax amount is mainly dependent on the kind of payment which is to be made. It is also dependent on to whom the payment is to be done. Here is an outline of the percentage of amount which can be withheld.
- For technical, management and other sorts of service fees paid to the non-resident company, the tax rate for withholding is similar to that of the corporate tax rates. It is currently 17%. In case of non-resident, the withholding tax rate is 20% of gross payment.
- The withholding tax rate for other kinds of payments is 10% or 15%.
- The case in which double tax agreement is applicable. The tax rates which are specified in the contracts or agreements would apply with respect to the country.
The tax rates are reduced to 10% or 15% for the payments which are made to the non-residents in case:
- They are not earned from any business, trade, vocation or profession carried out in Singapore: and
- They are not connected with the permanent establishment of non-residents in the country.
Hence, the prevailing corporate tax rate which is currently 17% will be applicable to the non-resident companies in other cases.
ACCOUNTING OF WITHHOLDING TAX
The withholding tax should be accounted at the earliest:
- The payment is payable or due based on agreement or contract
- If the payment is credited to the account of the non-resident payee or other designated account
Date of actual payment
If there is no contract, the date of payment is the date of invoice. The date of General Meeting where fess of the Director is declared, it is regarded as the date of payment with respect to withholding tax.