Recent withholding tax developments
Under the tax law, payers are required to withhold tax in respect of specified payments made to non-resident persons which are borne, directly or indirectly, by a person resident in Singapore or a permanent establishment (PE) in Singapore (except in respect of any business carried on outside Singapore through a PE outside Singapore) or which are deductible against any income accruing in or derived from Singapore:
- Interest, commission, fee or any other payment in connection with any loan or indebtedness or with any arrangement, management, guarantee, or service relating to any loan or indebtedness.
- Royalty or other payments in one lump sum or otherwise for the use of or the right to use any movable property.
- Payment for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or the rendering of assistance or service in connection with the application or use of such knowledge or information.
- Payment for the management or assistance in the management of any trade, business or profession.
- Rent or other payments under any agreement or arrangement for the use of any movable property.
Notwithstanding the above, certain payments in relation to services performed outside Singapore are not subject to Singapore withholding tax.
Payments made to Singapore branches of non-resident companies
It was proposed in Budget 2014 that payers will no longer need to withhold tax on the specified payments made to Singapore branches of non-resident companies.
The change will take effect for all payment obligations that arise on or after 21 February 2014. Prior to the proposed change, Singapore branches were subject to withholding tax unless such branches had obtained waiver of withholding tax on the above payments. The branches in Singapore will continue to be assessed for income tax on such payments that they receive and will be required to declare such payments in their annual income tax returns.
Rent or other payments made for the use of movable property
Rent or other payments made for the use of certain movable property outside Singapore, where such use is incidental to the overseas business trips made by employees and businesses, are not within the scope of the withholding tax provisions. Examples given by the Inland Revenue Authority of Singapore (IRAS) include the use of cars, handphones, laptops and other similar items outside Singapore, where such use is incidental to the overseas business trips made by employees and businesses.
The IRAS has with effect from 1 April 2014, expanded the scope of the withholding tax exemption to include rental of movable properties used for overseas representative offices. Hence, payers are not required to withhold tax on such payments liable to be made on or after 1 April 2014.
Prior to 1 April 2014, rental incurred by an overseas representative office of a Singapore company for the use of any movable property outside Singapore would fall within the scope of the Singapore withholding tax provisions.
The above changes are much welcomed. From the perspective of the payers who are obligated to withhold tax under the law, their administrative workload will be reduced as they will no longer have to track payments made by their overseas representative offices and those made to Singapore branches to ensure that withholding tax provisions are complied with. The enhancement will also ease the cash flow of Singapore branches which have not obtained the withholding tax waiver from the IRAS on their income received, as well as remove the administrative burden of tracking the withholding tax suffered and making the claim in their annual income tax returns.