Income subject to tax and its tax rate
Section 45B (1): Section 45 shall apply in relation to the payment of any remuneration by a company to any non-resident Director of the company.
Section 45(B) (2): subject to tax at 20%.
For tax purposes, a non-resident Director is:
- A member of the board of Directors from a company incorporated in Singapore
- Physically present in Singapore for less than 183 days in the year preceding the Year of Assessment. This to determine if the Director is indeed a non-resident.
As a concession the airfare paid by the employer for non-resident Directors to attend meetings in Singapore is not taxable.
The IRAS has clarified that fees paid to non-resident Directors solely in the capacity as Directors by non-resident companies without a business presence in Singapore are not sourced in Singapore. This will be applied even if the board meetings are held in Singapore; therefore the fees paid will not be subject to withholding tax.
Exemption under the double tax agreement is generally not available. There are lots of non-resident companies listed in the stock exchange, such as the Cayman Islands. In order to boost tourism, the IRAS gave consent to Directors who frequent Singapore because of casinos and other entertainment purposes.
If the foreign individual in his capacity as a non-resident Director of a company incorporated in Singapore receives any gains from ESOP/ESOW it is to be reported in the Form IR21 within 30 days from the date of exercise assignment, release or acquisition of shares.
Any payment made to non-resident Director in his capacity as an Executive Director must be reported in the IR8A form. Withholding tax is not applicable on remuneration paid to an Executive Director. If the non-resident Executive Director in his capacity as a board Director receives a director’s fee, withholding tax must be charged. Time apportionment is not needed for director’s fees paid by a Singapore company to its non-resident Director. Short term employee exemption under section 13(6) does not affect a company Director.
Withholding tax on payment to non-resident professional
A non-resident professional is an individual that carries out independent scientific, artistic, educational or teaching activities. Such as Doctors, Lawyers, Accountants, Engineers and Dentists.
A good example of this would be a foreign wine expert asked to taste and give an opinion on certain wine. They are invited by organisations in Singapore to impart technical knowledge and expertise; including coaches or trainers who conduct seminars in Singapore. A non-resident professional includes an individual who operates through a foreign firm.
Section 43 (10) defines a foreign firm as an unincorporated body of two or more persons who have entered into partnership with one another to conduct a business for profit and whose principal place of business is situated outside Singapore.
Payments subject to withholding tax and rate
A non-resident professional whose income accruing in or derived from Singapore and whose principal place of business is situated outside Singapore is subject to withholding tax at 15% on the gross amount of the payments made.
The statement ‘income accruing in or derived from Singapore’ means that the services are rendered in Singapore. The non-resident professional can choose to be taxed at a rate of 20% of their net income. The option should be exercised upfront or within 45 days after payment. For example airfare, accommodation and materials but not private expenses such as transport and meals. With relevant tax treaties put into place, the income of the non-resident professionals can be exempt from tax or taxed at a lower rate than 20%.
Tax exemption and concessionary treatment
In order to promote Singapore as an Arbitration Hub, income derived by non-resident arbitrators on or after the 3rd of May 2002 is exempt from taxation.
If the non-resident professional opts to be taxed on the net income at the tax rate of 20% (the non-resident rate), as a concession, the cost of accommodation provided for up to 60 days in a calendar year and cost of airfare are not taxable whilst being held by the non-resident.
Withholding tax on payment made to non-resident entertainers
A public entertainer refers to:
a.) A stage, radio or television artist (e.g. a professional singer, dancer or actor);
b.) A musician;
c.) An athlete; or
d.) An individual exercising a profession, vocation or employment of a similar nature in Singapore for less than 183 days in any calendar year.
If the public entertainer is in Singapore for less than 183 days in a calendar year, he would be treated as a non-resident. There are certain non-residents who will not be treated as entertainers such as Choreographers, Directors in the entertainment scene, Coaches, or Personal Trainers for sporting events will not be treated as entertainers.
Payments subject to withholding tax & tax rate
The concessionary tax rate of 15% will be charged on the net income of non-resident entertainers from activities performed as public entertainments. The responsibility resides with the local agent or sponsors of the public entertainer to withhold 15% of the gross income including the cash value of benefits-in-kind of foreign public entertainers.
To promote Singapore as an entertainment hub the rate of withholding tax has been reduced to 10% on amounts payable from the 22nd of February 2010 to the 31st of March 2015. The withholding tax rate could be reduced under a relevant tax treaty.
Tax exemptions and concessions
Even if the public entertainers are here for only one day, withholding tax still applies. The tax exemption for short-term employment for 60 days or less in a calendar year does not apply to public entertainers.
Regarding tax treaties, if the entertainer’s visit was more than 50% support from the public funds of the government of a foreign country, then tax exemptions are applied and provided for. The following items are exempted from tax as an administrative concession:
a.) Accommodation (excluding the value of food) provided for 60 days or less in a calendar year; and
b.) Cost of airfare.
Withholding tax on other payments
Distributing unit trust to its holders
Withholding tax at 20% should be withheld from approved unit trusts Section 13B distributed to a non-resident with a permanent establishment in Singapore and where the gains or profits have not been taxed in the hands of the unit trust.
Withholding tax at 20% should be withheld from distributions by a unit trust designated under Section 35 where the distribution is made to a non-resident person (other than an individual) that is not a foreign investor. Distributions made by designated unit trusts and approved CPF unit trusts on or after the 28th of February 1998 will not be subject to withholding tax.
Distributions by REITS
A withholding tax of 10% applies to any distribution made from the 18th of February 2005 to the 31st of March 2015 by a trustee of any REIT (Real estate investment trusts) listed in the Singapore exchange to the following: (as per Section 45G).
a.) To any person not known to the trustee to be resident in Singapore to whom section 43 (3B) applies; or
b.) To any other person not known to the trustee to be:
(i) An individual;
(ii) A company incorporated and resident in Singapore;
(iii) A branch in Singapore of a company, incorporated outside Singapore that has obtained the Comptroller’s approval for distributions to be made by the trust to it without deduction of tax; or
(iv) A body of persons incorporated or registered in Singapore, including a charity registered under the Charities Act (Cap. 37) or established by any written law, a town council, a statutory board, a co-operative society registered under the Co-operative Societies Act (Cap. 62) or a trade union registered under the Trade Unions Act (Cap. 333).
Real Property Transactions
Firstly, lawyers have to determine if the company is in the business of rental property. Section 45(D) applies to payments made to a non-resident person with respect to the disposal of any real property by that non-resident, if that non-resident person’s income arising from the disposal of that real property is chargeable to tax under Section 10(1)(a).
15% of the gross income paid to the non-resident seller by a designated person for the purchase of the property and not the net profit the non-resident seller makes. By applying the badges of trade, we can determine if the seller is a property dealer. The non-resident seller must be carrying on a trade of buying and selling properties. Designated person refers to Advocate or Solicitor who act on behalf of the buyer of the property.
Under Section 45 (E), when withdrawals from SRS accounts are made by a foreigner or Singapore PR, a 20% withholding tax applies.
Under Section 45 (H), when payment of any commission or other payments by any person to a licensed international market agent not known to him to be a resident in Singapore for organising or conducting a casino marketing arrangement with a casino operator in Singapore.
Summary of tax rates:
|Type of payments to non-residents||Withholding tax|
|Interest, commissions, fees and other payments in connection with any loan or indebtedness.||15%|
|Royalty for the use of movable property.||10%|
|Know-how payments for the right to use scientific, technical, industrial or commercial knowledge or information.||10%|
|Rent or other payments for the use of movable property.||15%|
|Management and technical services fees.||17%|
|Distributions made by a Trustee of any listed real estate investment trust.||10%|
|Proceeds from any sale of real property where the non-resident seller is a real property trader.||15%|
|Non-resident Directors’ remuneration or fees.||20%|
|Non- resident entertainers.||10%|