Interest payments
Any interest paid to a non-resident entity in connection with a loan or indebtedness is subject to withholding tax. There are several examples of interest, including interest on overdue trade accounts and interest on credit terms granted by suppliers.
Interest on late payments of goods is taxed even if the interest is treated as a component of the seller’s trade income (e.g. interest charged on late payments of the sale price of goods).
Interest payments are exempt from withholding tax if:
- Payments of interest and other Section 12(6) payments, which are made to Singapore branches of non-resident companies
- Banks, finance companies, and certain entities may pay interest and other Section 12(6) payments to non-residents if you make the payments for the purposes of the trade or business of these entities
- Interest paid to a resident of another country for a loan obtained outside Singapore for the purpose of acquiring overseas real estate, as long as the interest is not deductible against Singaporean income.
Purchasing software and paying for the right to use the information and digital goods
In order to determine the classification of payments for software and payments for the use of information and digitised goods, IRAS employs a rights-based approach. In this article, we will explain the concepts of “copyright rights” and “copyrighted articles”.
Payments for Copyright
The seller may transfer copyright rights as part of a transaction if the payer is permitted to make commercial use of the rights. The term ‘commercially exploit’ refers to the ability to distribute:
(a) Software, information or electronic products in a replica, modified or adapted form;
(b) Derivative works are created from copyrighted software programs, online information, or digitized goods.
Payments to a copyright owner for the transfer of partial rights in the copyright (e.g. licensing the copyright to be exploited commercially by the payer) are royalties. The withholding tax on such payments to non-residents is 10% or the reduced rate set out in the Double Taxation Agreement (DTA).
The buyer paid the copyright’s seller for releasing his copyright completely; therefore, the transaction is a transfer of ownership. Copyright owners derive business income or capital gains from such sales. There is no withholding tax from the sale proceeds paid to a non-resident.
Payments for Copyrighted Article
Software or digitized goods that do not involve the transfer of copyright rights are not subject to withholding tax because they are considered payments for copyrighted articles.
Whether a person purchases software for personal use or for business use, he is making a payment for a digital product. There is no withholding tax.
If the vendors perform the services in Singapore, withholding tax may apply. These activities may include maintenance, user training, customization, and the development of additional applications that do not fall under the rights-based approach.
Payments for real estate purchased from non-resident property traders
If the seller is a non-resident property trader, then the buyer or his solicitor must withhold tax upon completion of the sale on the purchase price of the property.
In the event that the buyer is uncertain whether the seller is a property trader for Singapore income tax purposes, he or his solicitor may wish to ask the seller for a letter of confirmation (not necessarily under oath) from the seller that he or the company is not a property trader under Singapore income tax laws.
If the seller provides the buyer or his solicitor with a letter of confirmation, the buyer or his solicitor does not require to withhold tax from the sale price of the property. IRAS does not require the buyer or his solicitor to submit the letter of confirmation but must retain it and submit it upon request.
Payments for the use of movable property
Section 12(7)(d) of the Income Tax Act requires withholding tax for payments made to non-resident persons for movable property.
However, this does not include payments for the use of movable property outside Singapore, such as cars, mobile phones, laptops, and other items which are incidental to overseas business trips. Withholding tax is not applicable to such payments.
Payments relating to non-financial derivatives
Non-financial derivatives may take the form of forwards, futures, swaps, or options. Examples include commodities, emissions, and freight derivatives.
Payments exchanged or made in respect of non-financial derivatives are exempt from withholding tax if:
- The derivative does not create any loan or indebtedness;
- Payment is not a return for the use of money or provision of credit; and
- Payments are at arm’s length.
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