Withholding tax in Singapore: when to file and pay

Any person who withholds tax from interest, royalties, management fees, Directors’ remuneration or other payments paid to a non-resident person must complete and submit the IR37 form to the Comptroller together with the relevant amount of tax withheld.

The following information must also be provided:

  • The particulars of the local payer.
  • The nature of payment. (e.g. interest, royalties, directors’ fees, charters fees, etc.)
  • The particulars of the non-resident payee, including country of residence.
  • The date of payment.
  • The period of payment or deemed payment.
  • The gross amount.
  • The rate of tax and the amount of tax deducted and;
  • The amount of penalty (if any) for late payment of withholding tax to the Comptroller.

Forms

Form IR37: Must be completed and submitted to the IRAS when making payment such as interest, management fees, or royalty etc.

Form IR37A: Payments to foreign property traders for the disposal of real property.

Form IR37B: Withdrawals made by Supplementary Retirement Scheme (SRS) members who are foreigners or Singapore Permanent Residents.

Form IR37C: Payments to individual foreign professionals or foreign firms.

Form IR37D: Payments to foreign public entertainers.

The IR586 form must be completed and submitted with the IR37 form to the IRAS for payments made to non-resident professionals with a reduced tax rate claimed under tax treaty. With effect from the 1st of April 2009, the IR37 form can be consolidated every six months and submitted every 15 June and 15 December when tax exemption under a tax treaty has been claimed. Certificate of Residence must be furnished to IRAS by the 31st of March by the following year. This must be submitted within 3 months from the date of submission of Form IR37 if the claim is for preceding year(s).

Timing of Payment

Under Section (45)(8)(D), even if interest is not actually paid by a person to another person it will be deemed paid if it is reinvested, accumulated, capitalised, carried to any reserve or credited to any account or otherwise dealt with on behalf of the other person.

Tax should be withheld and paid at the earliest of the following dates:

  1. When payment is due and payable based on the agreement/contract. In the absence of a contract or agreement, the date of invoice would be the deemed date of payment;
  2. When payment is credited to the account of the non-resident (re-invested, accumulated, capitalised or carried to any reserve) or any other account however designated (considered as deemed payment); or
  3. The date of actual payment.

As for director’s fee the date of payment is the date they are voted and approved at the company’s Annual General Meeting.

The filing of Form IR37/A/B/C/D and payment of withholding tax must be made to the IRAS by the 15th of the second month from date of payment to the non-resident. For example if the payment is withheld in April, the withholding tax must be filed by the 15th of June.

Confirmation of Payment letter (CP) will be issued within 21 days from the receipt of payment and Form IR37/C/D. If not received, the IRAS should be contacted and informed as soon as possible.

Concession Given by IRAS for Multiple Payments made to Non-Resident Professional

Where a non-resident makes multiple payments of the same type to a non-resident professional, these payments are allowed to be consolidated and tax could be remitted to the IRAS.

As long as the first and last date of payment does not exceed 60 days, the consolidation and remittance must be done by 15th of the second month for the last date of payment. If payment is made subsequent to the 60 day period, withholding tax must be accounted for separately.

Withholding Tax Borne by Payer

The IRAS allows for the grossing up of the withholding tax due if there is an agreement entered into with the non-resident which sets out that the invoiced amount has to be paid in full.

If the withholding tax is borne by the payer, the benefit or income to the recipient has to be brought into the computation of the withholding tax amount. The formula to use when regrossing the amount is:

Gross Amount

(100 – Withholding Tax)

Penalties

Under Section 45(4), if the withholding tax is not paid to the Comptroller:

  1. By the 15th day of the second month from when the interest from the tax is to be deducted is paid, a sum equal to 5% of such amount of tax shall be payable; and
  2. Within 30 days after the time specified in paragraph (a), an additional penalty of 1% of such amount of tax shall be payable for each completed month that the tax remains unpaid, but the total additional penalty under this shall not exceed 15% (maximum cap) of the outstanding tax amount.

The above applies for payments made to the non-residents on or after 1st April 2003.

                                                i.e. 5% + 15% = 20% (maximum penalty for withholding tax)

Under Section 45(5), where a company withheld tax but failed to notify the Comptroller within the stipulated time that the tax has been withheld from a payment made to a non-resident will be guilty of an offence and, on conviction, may be liable for a penalty equal to three times the amount of tax withheld as well as a maximum fine of $10,000 or to imprisonment for up to three years, or to both a fine and imprisonment.

Under Section 45(6), where an individual has been convicted for three or more offences under this section the imprisonment he shall be no less than six months.

Recommendations

  • In order to pay withholding tax on a timely basis, keep track of all payments to non-residents.
  • Note all foreign parties’ contract for:

-         Timing of payment and amount.

-         Nature of payment.

-         Whether treaty rates apply.

-         Whether tax exemptions apply.

-         The party bearing the withholding tax.

  • Conduct periodic/yearly review to detect non-compliance and make voluntary disclosures if necessary.
  • Keep proper documentation of withholding tax payments e.g. payment vouchers.
  • Hire a tax consultant or obtain clarification from IRAS if in doubt whether withholding tax applies to a payment.

 


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