Withholding Tax Filing and Rationale for Tax Withheld at Source
Withholding tax is a way to ensure that a country's tax loss or leakage is minimized when payment is made to a non-resident in respect of income derived (or deemed to be derived) in Singapore. As the non-resident may not be in Singapore to report and pay the tax at a later date, withholding tax makes sure that tax is collected by the person who makes the payment to the non-resident recipient.
The Income Tax Act listed some income which are subject to withholding tax when you are making a payment to non-resident. They are as follows:
- Management Fee;
- Technical Service Fee;
- Rental from Movable Property;
- Royalty & Know-how;
- Proceeds from sale of real property;
- SRS Withdrawals;
- Directors' Fees;
Public Entertainers; and
- Unit Trust & Reit Distribution
Should you Withhold Tax?
For most of the payments above, if the following conditions are satisfied, you should withhold tax:
- Borne, directly or indirectly, 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
- Deductible against any income accruing in or derived from Singapore
Other than the above 2 conditions, interest income will also be deemed to be derived in Singapore if the funds provided by the loans (which give rise to the interest income) are brought into or used in Singapore.
For management fee and technical service fee, they are not deemed to be derived from Singapore if the services are rendered outside Singapore by a non-resident person who:
- is not incorporated, formed or registered in Singapore,
- does not carry on a business in Singapore, and
- does not have a permanent establishment in Singapore.
If the non-resident person who is rendering the services carries on a business in Singapore, or has a permanent establishment in Singapore but the rendering of service is not performed through that business carried on in Singapore or that permanent establishment in Singapore, the fees for the services are not deemed to be derived from Singapore.
The above explanation is a general analysis of how you should apply the withholding tax. The application of withholding tax vary from situation to situation and it is important for you to consult a tax practitioner on whether withholding tax is applicable in your situation.
Deadlines and Penalties for Withholding Tax Submission and Payment
You have to file your withholding tax electronically and pay the tax withheld by 15th of the second month from the date of payment to the non-resident. For example, if you make the payment (net of withholding tax) to the non-resident on 10th June 2018, you should file withholding tax form and pay the tax withheld to IRAS by 15th July 2018. If you make the payment on 20th June 2018, you should file the form and pay the tax to IRAS by 15th August 2018.
For GIRO payment, the deduction will be made on the 25th of the month instead of 15th of the month where payment is due.
Date of Payment
The date of payment to non-resident is the earliest of the following dates:
- When the payment is due and payable as per the contract or agreement, or the invoice date if there is no contract.
- When payment is made to the non-resident including transferring of funds into the non-resident bank account.
- For Director's Fees, the earliest of the payment date or Company's Annual General Meeting approval date on the fees.
Penalties for Late Payment or Not Withholding Tax
5% penalty on the unpaid tax is applicable if the payment is not made by due date and an additional 1% on the unpaid tax for every subsequently month (up to 15%).
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