Singapore’s DTA with Luxembourg enters into force on 28 December 2015

7 January 2016

The Avoidance of Double Taxation (DTA) agreement between Singapore and Luxembourg has come into effect on 28 December 2015 and will take effect from 1 January 2016.

The DTA signed on 9 October 2013 includes the internationally agreed Standard for the exchange of information for tax purposes, and provides greater clarity on taxing rights and minimises the scope of double taxation between the two nations.

The revised withholding tax rates under the treaty are as follows:

  • Dividends —

(a) 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends;

(b) 10% of the gross amount of the dividends in all other cases.

  • Interest — 10%.  Interest paid by a resident of a Contracting State to a resident of the other Contracting State shall be taxable only in that other State.
  • Royalties — 7%.

The full text of the DTA is available on the IRAS website.

Source: IRAS

Updated IRAS website content on “Withholding Tax”

8 January 2015

The Inland Revenue Authority of Singapore (“IRAS”) has updated its website content on “Withholding Tax > FAQs (For payments made to non-resident companies) – Services”. The update relates to clarification on withholding tax on payments to non-residents in respect of services rendered in Singapore.

Generally,where a Singapore company makes a payment to a non-resident for services rendered in Singapore, that payment will be subject to withholding tax even if that payment is on a cost reimbursement basis (i.e. with 0% mark-up).  The updated content clarifies that no withholding tax is applicable on costs reimbursements between related parties for services rendered in Singapore if such cost reimbursements are in respect of the services listed in Annex A of the e-Tax Guide  ‘Transfer Pricing Guidelines for Related Party Services’. An added condition is that such cost reimbursements must satisfy the cost-pooling conditions stated in the said e-Tax Guide such that 0% mark-up is acceptable.

Prior to this update, only management fees paid to non-residents, for services rendered in Singapore, that represented a cost reimbursement between related parties under a cost-pooling arrangement (i.e. the cost pooling conditions as per the e-Tax Guide  ‘Transfer Pricing Guidelines for Related Party Services’ are satisfied) were exempted from withholding tax.

This update was done on 26 November 2014.

Source: Inland Revenue Authority of Singapore

Waiver of Withholding Tax

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

IRAS updates website content on “Withholding Tax > FAQs (For payments made to non-resident companies) – Services”

2 June 2014

On 29 May 2014, the Inland Revenue Authority of Singapore (“IRAS”) updated its website content on “Withholding Tax > FAQs (For payments made to non-resident companies) – Services”. The update relates to clarification on withholding tax on reimbursed expenses.

With regards to reimbursement of accommodation, meals and transportation expenses to a non-resident company, withholding tax is applicable unless the payer can obtain a detailed breakdown of the expenses showing that the expenses were reimbursed at the actual costs incurred, without any mark-up or profit element. The payer does not need to submit the breakdown/documents to IRAS but it is required to retain them and submit to IRAS upon request.

For more information, please refer to the IRAS website.

Source: Inland Revenue Authority of Singapore

IRAS updates e-Tax Guide “Pharmaceutical Manufacturing Industry: Tax Treatment of Research & Development and Intellectual Property-Related Expenditures”

19 May 2014

On 16 May 2014, the Inland Revenue Authority of Singapore (“IRAS”) issued the e-Tax Guide “Pharmaceutical Manufacturing Industry: Tax Treatment of Research & Development and Intellectual Property-Related Expenditures (Second Edition)”.

The e-Tax guide provides guidance on tax treatments for the following items common to pharmaceutical manufacturing companies in:

(a) Deduction of research and development(“R&D”) expenditure under sec 14D and sec 14DA of the Income Tax Act (“the Act”);

(b) Writing down allowances under sec 19B of the Act;

(c) Provision of R&D services;

(d) Deduction of royalty payments and withholding tax implications.

The new edition reflects the changes to R&D since the first edition of the e-Tax Guide was published on 22 August 2011. The major changes are:

  • The extension of the R&D scheme from year of assessment (“YA”) 2015 to YA 2025;
  • The expansion of sec 14D and sec 14DA to include payments made under R&D cost-sharing agreements with effect from YA 2012; and
  • The removal of writing down allowances claim under sec 19C for approved R&D cost sharing agreements.

For the full details, please refer the e-Tax Guide on the IRAS website.

Source: Inland Revenue Authority of Singapore