7 January 2015

In the Budget 2014, it was announced that payers will no longer need to withhold tax on Section 12(6) and 12(7) payments made to permanent establishments (“PEs”) that are Singapore branches of non-resident companies. These Singapore branches will continue to be assessed for income tax on such payments that they receive and will be required to declare such payments in their annual tax returns. This waiver took effect for all payment obligations that arose on or arises after 21 February 2014.

The IRAS has clarified in its website that payments made to Singapore branches of non-resident companies for performance of constructions contracts in Singapore are not Section 12(7) payments and therefore do not qualify for the waiver of withholding tax. The IRAS further elaborated that for collection of tax due on the gains or profits arising from construction contracts carried out in Singapore, IRAS may appoint the payer to be the agent of the Singapore branch of the non-resident company under Section 57 of the Income Tax Act. The appointed agent will be required to deduct the tax due from each progress payment to the Singapore Branch. However, if the Singapore branch of the non-resident company does not wish to have the tax due being deducted in advance by the payer, it can apply to the IRAS for waiver of the withholding tax subject to meeting certain stipulated conditions.

Source: Inland Revenue Authority of Singapore