Withholding Tax (Section 45)
In Singapore, when a tax entity derives income from operations from a Singaporean, either from services provided or work done in Singapore, citizens are allowed to withhold some tax which is to be paid to the Inland Revenue Authority of Singapore (IRAS). As such, a person has the legal obligation to retain a certain percentage of the payment when such person makes payment of a specified nature under the Singapore Income Tax Act to a non-resident and pays the retained amount to IRAS. The kept amount refers to Withholding Tax.
Two categories are identified as tax entities under the Inland Revenue Authority of Singapore (IRAS). These are resident and non-resident. It solely depends on where the company or individual is operating from. For example, if a company operates and controls its business in Singapore, it is considered a resident company. Otherwise, if another foreign company manages its operation and control, it is regarded as a non-resident company.
Taxes that Can Be Withheld
According to Section 45 of the Income Tax Act 1947, these are the list of payments subject to Singapore withholding tax. Some of these are:
- Commissions, interests, and any other debt or loan-related fees.
- Royalty, rights of use, and intellectual property.
- Management fees.
- Professional service fees for non-resident professionals
- Non-resident director’s remuneration
- Services rendered, etc.
The amount to be withheld depends on the type of payment in question. This is when Section 45 comes into play. There are numerous payment types, and consequently, there are varying payment fees. Furthermore, if a person fails to pay the Singaporean withholding tax, a demand note would be issued, and a late penalty charge would be added. This penalty charge can be up to 15%.