Section 45 of SITA | Report

Added on -2020-02-14

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FINANCE1
Table of ContentsINTRODUCTION................................................................................................................................3Operations of S45 of SITA, rationale for implementation and other relevant sections....................3Tax treatment of 3 payments, interest, royalties and technical assistance........................................4Consequences of defaulting withholding tax payments...................................................................5Tax exemptions.................................................................................................................................6Press release of real cases of withholding tax in Singapore.............................................................6CONCLUSION....................................................................................................................................6REFERENCES.....................................................................................................................................82
INTRODUCTIONEvery country’s taxation authority frame several rules and policies so as to collect taxrevenues for the growth and success of the economy. In Singapore, every citizen is liable to followSITA (Singapore Income Tax Act) taxation rules and regulations and pay their tax obligation timelyto IRAS (Inland Revenue Authority of Singapore) (Alm and et.al., 2010). Section 45 of SITA dealswith the withholding tax provisions that is a mechanism developed to generate tax revenues fromnon-residents (Phang, 2015). According to the section, certain group of non-resident areaccountable to pay taxes at a prescribed rate on gross payment as their withheld tax obligations(Chang, Chen, and Chen, 2016). Withholding tax is a mechanism framed by Singapore governmentto collect taxes for those payments that have been made to non-residents. This report aims atexamining the provisions and policies of section 45 of the act and its applicable tax rates for non-residents regarding several specific transactions that are interest, royalties and technical assistancefees. Moreover, the report will also lay emphasizes towards the compliance obligations for the taxcontributors. Along with this, it will also identify the situations where withholding taxationrequirement can be exempted for the non-Singapore residents as per the legislations andadministrative policies. Operations of S45 of SITA, rationale for implementation and other relevant sectionsThe main reason behind introducing S45 is to arises liability to the non-resident companiesor individual who derived any income or receipts that is sourced in Singapore. According to S45 ofSITA, when a person makes following payments to non-residents, then he or she will be liable towithheld a certain tax percentage or give to IRAS, called withholding taxes, mentioned below:Section 12(6) of the act presented that when an individual makes payments such as interest,management fees, commission or any other for his or her loan, indebtedness, guarantee oragreement sourced in Singapore, then the person will be accountable to pay withholding taxto the ISAR (Fiechter 2010).As per section 12(7), when a person gets rights to utilize a movable property and in returnmake royalty or other kind of payment (lump-sum or instalments) to the property owner,then such person will be accountable to follow the provisions of withholding taxationrequirement (Diamond and Diamond, 2013). S12(7)(b) – Payment by an individual in connection with receiving utilization rights forscientific, industrial, commercial and technical know-how (Cheng and et.al., 2012). S12(7)(c) –If a person pay management fees for getting managers assistance for his or hertrading activities, business and profession, then it will come under the requirement of3

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