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Comprehending the S45 Withholding Tax in Singapore
The S45 Withholding Tax is one of the indirect taxes levied by the Inland Revenue Authority of Singapore (IRAS). It is usually charged in situations where GST may not apply. With a dedicated tax return that needs to be submitted periodically, it is important to understand its rules so you can stay compliant.
What is the S45 Withholding Tax?
The S45 Withholding Tax is levied on payments given to non-resident contractors, lessors, and service providers for any services, interests, and royalties earned in Singapore. Businesses will deduct or withhold a specified percentage out of the total payment as tax before sending the rest of the money to the third parties, hence the name Withholding Tax.
The current scope of S45 includes:
Interest owed on loans or financing done outside the country.
Royalties or licenses granted for the use of proprietary material.
Services offered by foreign firms for management or technical assistance.
Payments for leasing or renting movable properties such as ships, aircraft, or other machinery.
Fee for directors stationed outside Singapore that are paid for their board-ship in Singapore firms.
Fee against professional services rendered by foreign consultants, independent trainers, artists, musicians, or contractors.
Why is the S45 Withholding Tax important?
It enables the Singapore government to monitor foreign payments and maintain control over the economy.
It allows the IRAS to collect tax from non-residents who earn revenue from Singapore. This levels the playing field for local consultants and institutions offering services that generally fall under GST.
It discourages tax avoidance behaviours by international businesses who tend to make the most out of potential trade law loopholes.
What are the different S45 Withholding Tax rates and how do they apply?
In Singapore, the Withholding Tax rates differ based on what kind of payment it is. Below are some common rates:
Type of payment | Withholding Tax rate |
|---|---|
Interest, commission, or service charge | 15% |
Royalties and other licensing fees | 10% |
Technical service and consultancy fee | 17% |
Rent for movable property | 15% |
Fees paid to directors | 24% |
Non-resident professional services | 15% or subject rate |
Note: Busineeses can withhold a lesser amount of S45 whenever the service they import is from a country that has signed a Double Tax Agreement (DTA) with Singapore. The IRAS has specific guidelines to help businesses confirm this.
What are some exclusions and reductions under the S45 Withholding Tax law?
Certain payments may qualify for exceptions or reductions under S45 owing to DTAs. Companies must consider the following before charging a Withholding Tax on their transactions:
Whether the transaction qualifies for S45 or GST.
Whether the nature of the service rendered to the taxpayer in Singapore qualifies for tax exemption under IRAS guidelines.
If the service provider or the receiver of payment has a DTA with Singapore.
Some regular exclusions include:
Interest payment to external commercial borrowers that are for approved infrastructure projects.
Affiliate royalties where Singapore has a DTA with the country of the recipient.
Remunerations for consultancy services performed by the professional outside Singapore.
How to pay S45 Withholding Tax to the government and file returns
In order to stay compliant with the laws pertaining to the S45 Withholding Tax, a business should:
Capture the S45 tax associated with each vendor bill before withholding the tax amount and paying the rest to the vendor/professional. When using a cloud-based accounting software, this is usually done at the time of recording vendor bills, in a similar fashion to a Tax Deducted at Source (TDS) entry.
The S45 withheld by the business across relevant purchases or expenses must be compiled into a report called IR37 and filed through the myTax Portal by the 15th of the second month from the date of payment.
The tax must be paid to the IRAS within a month's time from the date of filling a return.
What are some available methods for paying tax to the government?
You can pay what you owe to the IRAS in the following ways:
GIRO or General Interbank Recurring Order is a cashless way to move money from one bank to another. This is ideal since a business needs to pay the GST owed to the IRAS only once a month.
Cash deposits are another way to send money to the IRAS. This can be done via national banks.
Telegraphic transfers can be used when making international payments to the IRAS.
Finally, a conventional check or a cashier's order can also be used to pay GST.
What are some penalties for failing to comply with S45 tax regulations?
Some of the consequences of failing to file or pay the S45 Withholding Tax on time include:
A 5% late fee on amount of tax withheld
An extra 1% fee for each month on amount due if the payment was overdue for more than 60 days.
Potential removal of tax deductions or credit
What are some best practices to stay compliant?
Tax compliance is key to boosting business credibility and staying afloat in most countries, including Singapore. Here are some tips one can follow to stay compliant under S45 tax laws:
Identify taxable payments early – Check if payments to non-residents would be subject to Withholding Tax.
Review DTAs – See if Singapore has tax treaties with the country of the service provider/the recipient of payments. In this way, you may end up charging the right amount of tax that could potentially be lesser than usual.
Use accounting software – Employ systems that can automate tax calculation and reporting based on your sales and purchase transactions.
File returns on time – The S45 Withholding Tax needs to be compiled into a report called IR37. More information on its format and reporting structure can be found on the IRAS website. For those looking to simplify this, certain modern accounting software come integrated with the IRAS portals. This allows them to generate e-invoices, compile tax returns and file them directly to the IRAS database. Accounting software that isn't integrated still allows you to capture and report on the tax withheld by you. This can then be downloaded and manually submitted into the IRAS portal by business owners or managers.
Consult tax professionals – Get the help of a tax consultant to assist with any situation that may lead to doubts or complications when adhering to tax regulations.
Streamline your S45 workflow
The S45 Withholding Tax is one of the more important forms of indirect taxes that businesses need to comply with in Singapore. It is important to understand the regulations associated with it and employ systems that can track, report, and streamline your tax handling processes. One such system is Zoho Books, a cloud-based accounting software that can simplify and automate tax tracking and reporting for you.