Withholding tax in Singapore is used to collect taxes from non-resident companies and individuals who earn income sourced in Singapore. It refers to the tax withheld and paid to IRAS when a Singapore Payer makes a specified payment to a non-resident Payee for services or work done in Singapore. Singapore withholding tax is necessary for non-resident individuals or companies that have an income derived from a Singapore source or have services and work done in Singapore.
The payments that require one to withhold tax are:
- Payments for services, interest, royalty, rights of use etc.
- Payments to non-resident directors, professionals, public entertainers and international market agents
- Foreigners/PR withdrawing from Supplementary Retirement Scheme (SRS) Account
- Distribution of Real Estate Investment Trust (REITs)
A company is either a tax resident or a non-resident of Singapore. In the Singapore context, the tax residency status of a company depends on the place in which the business is controlled and managed. This control and management refers to decision making on strategic matters, such as business policies and strategies. Hence, companies where control and management is not exercised in Singapore is considered a non-resident. The place of incorporation of a company is not necessarily indicative if a company is a tax resident of non-resident.
Individuals also can be a tax resident or non-resident. Non-resident individuals include foreign professionals, non-resident public entertainers and foreign board directors.
How is withholding tax imposed?
It is important for businesses to understand withholding tax because as a Singapore payer, it is the responsibility of the business to withhold the correct amount to pay to IRAS since withholding tax is deducted directly from the payer. The tax amount that has to be withheld is a percentage of the gross payment collected from the non-resident. The percentage amount differs based on the type of payment.
Payment of Withholding Tax to IRAS
Withholding tax payments are required to be submitted by the 15th of the second month from the date of payment to the non-resident. For example, if a payment was made on 1st April, the withholding tax payment has to be filed by 1st June. If payment is made by GIRO, it would be due on the 25th of the month the tax is due. It is important to ensure that payments are made on time as penalties will be imposed if the withholding tax is not paid to IRAS before the due date.