Paying for Services Outside Singapore - Withholding Tax
Withholding tax is something that most companies don’t think about until its too late and the impact for some businesses that outsource a lot of services and systems can be huge sometimes crippling. Learn more about withholding tax here.
An Overview of Withholding Tax
Singapore domestic corporations paying certain types of income to non-residents are required to withhold tax unless a lower treaty rate applies *. Interest on loans and rentals from movable property are subject to WHT at the rate of 15%.
Withholding tax is known as tax deduction at source in other countries refers to the tax withheld by the entity paying for the service and remitted to the Inland Revenue Authority of Singapore (IRAS). Under the law, it is required to withhold a percentage of a payment which is paid to a non-resident individual or company in Singapore.
* Tax Treaties
Benefiting from tax treaties is not a given, this often requires a certification of tax residency in the payee’s jurisdiction. The process for the application varies from place to place.
Nature of Payments That Are Subject to Withholding Tax IRAS Link
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); and
- Distribution of real estate investment trust (REIT).
Here is the overview flow chart of treatment of payments IRAS Link
Withholding Tax Penalties
The headlines are a 5% penalty and subsequently, an additional 1% penalty (not exceeding 15% of the tax outstanding) can will be imposed for each completed month that the tax remains unpaid.
More specific details: https://www.iras.gov.sg/irashome/Other-Taxes/Withholding-tax/Filing-and-Paying-Withholding-Tax/Penalties-for-Late-or-Non-Payment/
Final Note for Service Providers in Singapore
Withholding tax is not just a Singapore thing. When you provide services overseas you may be liable for a deduction on fees you charge due to local jurisdiction withholding taxes. You can plan the way you work to minimise the risk of unforeseen withholding taxes through proper work processes and structure.
If you need help on withholding tax in Singapore or elsewhere please let us know.