What is Withholding Tax in Singapore?

We touched on the various taxes which can affect the taxable income of a business as well as taxes which can affect operating cost in an earlier article (Types of Taxes to be Aware of in Singapore). In this article, we explain Withholding Tax in greater detail.

Who is required to withhold tax?

As stipulated by Singapore law, it is the person or corporation (Payer) making payment of a specified nature to a non-resident individual or company (Payee). A certain percentage of payment must be withheld (Withholding Tax) on behalf of the Payee and this Withholding Tax must be given to the Inland Revenue Authority of Singapore (IRAS).

Types of payment to withhold tax

• Distribution of Real Estate Investment Trust (REITs)
• Payments for services, interest, royalty, rental of movable properties, etc. 
• Payments to non-resident directors, professionals, public entertainers and international market agents
• Foreigners or Permanent Residents withdrawing from the Supplementary Retirement Scheme (SRS) Account

Non-Resident Companies and Individuals

The following are definitions of non-resident companies and non-resident individuals. The latter is further divided into the categories of professionals, directors and entertainers. The last category of individuals fall under those who wish to withdraw their funds from the Supplementary Retirement Scheme. 

The tax must be e-filed and paid to IRAS by the Payer latest by the 15th of the second month from the date of payment to the non-resident. 

Here is a link to the complete list of types of payment and the corresponding withholding tax rates on IRAS website. A tax calculator is also available for this purpose on the website.

Non-Resident Companies

The status of resident or non-resident for a company is determined by whether the control and management of a company is carried out in Singapore or not. It is important to note that the place where the company is incorporated bears no significance on this status. 

‘Control and management’ refers to the making of decisions on strategic matters such as company policies. These activities must be carried out by the top management or the Board of Directors on Singaporean soil. 

If the above are fulfilled, the company is considered a resident. If not, i.e. they are executed beyond Singaporean borders, the company is then a non-resident.

Non-Resident Individuals

Non-resident individuals are not entitled to tax reliefs. The tax rate is dependent on the period of employment. 

There are two periods of employment which determine individuals as non-residents:

1. 61 to 182 days in a year
2. 60 days or less in a year 

Tax relief does not apply to both of the above. 

1. 61 to 182 days in a year

All income earned in Singapore will be taxed at either a 15% flat rate or based on progressive resident rates, whichever is higher. Other incomes such as director’s fee and rental income will be taxed at a prevailing rate of 22%. The correct form to be filled for this category is Form M. 

2. 60 days or less in a year

This is considered a short-term employment, thus is exempt from tax. However, this rule does not apply to directors of a company, public entertainers or professionals. Their absence from Singapore is disregarded and their income will be taxed in full at 22%.

Non-Resident Directors

Also referred to as Foreign Board Directors, this title is for directors of a company who are not citizens and who do not have Permanent Residence status in Singapore. Withholding tax is required for remuneration paid to non-resident directors. 

If the board director takes on an executive role where he or she is involved in the daily operations of the company, the remuneration paid for this role is not subject to withholding tax.

Non-Resident Professionals

A ‘professional’ is defined as one that exercises any profession or vocation of an independent nature under a contract. This includes:

• Queen’s Counsels;
• consultants, trainers, coaches;
• an individual who operates through a foreign firm;
• a foreign speaker/academic conducting seminars or workshops;
• a foreign expert who is either invited by government bodies, statutory boards, or private organisations to impart their technical know-how or expertise in Singapore;

A foreign firm is an unincorporated body of at least two persons who have entered into a partnership with a view to carry on business for profit and whose principal place of business is outside Singapore. This definition excludes foreign universities, foreign clubs and associations, foreign government and foreign government bodies.

Non-Resident Public Entertainers

Examples are athletes, and artists for radio, stage or television (singers, actors, dancers, musicians). Non-Public Entertainers are those who work behind the scenes. For example, crew, choreographers, directors in the entertainment scene, horse trainers, coaches and personal trainers for sporting events.

SRS Withdrawal

This law applies to foreigners or non-Singaporean Permanent Residents only. A portion of their income earned from business activities or employment within the country will be deducted and credited into a Supplementary Retirement Scheme (SRS) Account. 

A withholding tax will be imposed depending on the type of withdrawal made. This tax will then be paid to IRAS. For more details, go to Tax Obligations for SRS Withdrawal.

Wrap Up

Withholding tax is dependent on an individual’s type of profession or the tax residency status of a company. For those who wish to navigate all tax matters securely in Singapore, especially foreigner professionals or foreign companies, you may engage our corporate tax services.

Other relevant articles:

• 6 Reasons Companies Should Use Corporate Tax Services
• 2020 Guide on How to Reduce Corporate Tax in Singapore
• Tips for Corporate Tax Filing in YA2020
• Types of Taxes to be Aware of in Singapore
• About Tax Residency of a Company in Singapore
• Tax Residency Certificate in Singapore – Why Apply and How
• Stamp Duty for Variable Capital Companies in Singapore
• What is a Tax Reclaim Form?
• How to Manage Tax for a Dormant Company
• What is ECI and When NOT to File?