Singapore Income Tax Act and Withholding Tax: A Comprehensive Report

This report provides an overview of Singapore's taxation policies, focusing on the Singapore Income Tax Act (SITA) and specifically Section 45 concerning withholding tax. It explains how the government uses taxation for national development and covers the tax treatment of various items like interest, commission, and royalty payments. The report details the consequences of non-compliance, including penalties for failing to withhold or remit taxes, and highlights exemptions. A key element is a case study of Delta Ltd, analyzing whether the company should deduct withholding tax from payments to a non-resident chef. The report concludes by summarizing the key aspects of Singapore's tax system, emphasizing the importance of understanding and adhering to the regulations outlined in the SITA.

Running head: Taxation
Taxation
Name of the Student
Name of the University
Author Note

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Executive Summary
The report shows about the taxation policy as how it help the government in regards of the
development of the country as tax is been charged upon the income which is been generated
by the individual and the corporate. It shows about the Section 45 of Singapore Income Tax
Act. Section 45 takes into consideration the withholding tax limit as it say that the individual
should deduct an amount as withholding tax whenever it make payment of royalty or any
other similar nature to an non- resident individual. Lastly it show about the Case of Delta Ltd
as whether it should deduct the amount from the Chef payment or not.

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Table of Contents
Introduction................................................................................................................................3
S45 as per Singapore Income Tax Act.......................................................................................3
Tax treatment in regards of different items................................................................................4
Consequence of Defaulting withholding Tax Payment.............................................................5
Exemptions for withholding tax.................................................................................................5
Case study of Delta Ltd..............................................................................................................6
Conclusion..................................................................................................................................6
Reference....................................................................................................................................8

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Introduction
Taxation is been charged by the government upon the individual and the corporate tax
on the proportion of their income. This amount is been charged by the government so that it
can able to make proper development in the country. The report is been based upon the SITA
as Singapore Income Tax Act (Agarwal & Qian 2014). It shows the various aspects of the
taxation and also shows tax treatment in regards of the different payment which is made as
per Singapore Income Tax Act. It also show the consequences of non payment or late
payment and also show a case which is been related to a situation and how it should be
treated as per the Singapore Income Tax Act. So it helps to know how to deal with the norms
of the Singapore taxation and also gave the details of the same (Araki & Claus 2014). It also
about the payment which the individual have to make to the government and also about the
different section which are there in regards of the withholding limit. It also show about the
penalty which can be imposed upon the individual if it does not able to follow the norms
properly and also it show about the case study of delta ltd and suggest whether it should
deduct the amount or not.
S45 as per Singapore Income Tax Act
This section S45 give detail in regards of the Withholding tax payment to Non-
Residents and Partnership. It contains the details of the amount which should be charged
from them as different payment (Brauner & Baez Moreno 2015). As per the section it state
that when any sort of the payment is been made by the individual which is related to the
nature of royalty or interest to an non-resident than it have to deduct a part of payment as
withholding tax and should submit the deducted amount to Inland Revenue Authority of
Singapore (Saad 2014).

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It also state that if an individual do a payment to the partnership and if any partner of
the partnership is a non-resident than the individual should deduct the withholding tax from
the amount of the payment and the same should be submitted to Inland Revenue Authority of
Singapore (Caruana-Galizia & Caruana-Galizia 2016).
It can be said that the taxation has become very harsh so to give flexibility to the
partnership firm it has given the exemption as if the company have one resident partner than
it does not have to apply with regard of S45 withholding tax limit (Fleming et al., 2014).
It also state that it is necessary for the partnership firm that if there is any kind of the
change in the partner than it should directly notify the same to the Comptroller so that proper
amount of the changes can be done in regards of the partnership (Wiedemann & Finke 2015).
Tax treatment in regards of different items
The tax treatment of different nature in Singapore Income Tax Act is shown below:
1. Interest , Commission – As per “Section 12(6) in Singapore Income Tax Act” it
state that any payment of the interest or commission in regards of the loan is to be
considered as part of the Singapore only if it is directly or indirectly related to resident
in Singapore or the individual which have permanent establishment in Singapore
(Iras.gov.sg. 2019). It also takes into consideration the income which is generated by
loan and it is been utilize in Singapore.
2. Royalty – As per “Section 12(7)(a) in Singapore Income Tax Act” say that any
amount paid as royalty or any other payment in regards of the use of the movable
property is deemed to be in Singapore only when the individual is the resident of
Singapore or having some permanent establishment in Singapore (Iras.gov.sg. 2019).
3. Payment for the use of scientific or commercial knowledge or Information - As
per “Section 12(7)(b) in Singapore Income Tax Act” state that any amount of money

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which is paid in regards of the use of scientific, technical or commercial knowledge
or information is deemed to be Singapore only when the resident is of Singapore or it
have an establishment permanently in Singapore (Iras.gov.sg. 2019).
Table No – 1
Source - Author
Consequence of Defaulting withholding Tax Payment
Their are many cases where the individual is not able cut the amount of the
withholding so the penalty is been shown below:
1. Penalties for the failure of withhold tax – As per “Section 45(1) of Singapore
Income Tax Act” state that the amount which is been deducted by the individual so it
should be paid to the government as per the section 89 (Iras.gov.sg. 2019). It also
show that if the individual is not able to deduct the amount than it will have to pay the
same from his own capital as it is there necessary for the individual to pay and so it
should be recover from it as per the Section of 45(1) (Iras.gov.sg. 2019).

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2. Penalties for failure to notify IRAS of tax withheld – If the individual have
deducted the amount of tax withholding from the non-resident but the individual have
not submitted the IR37 so it will be consider as offence so it will be charged penalty
as 3 times of the amount deducted but it should not exceed $10000 or 3 years of
imprisonment or both (Iras.gov.sg. 2019).
3. Penalties for late payment of tax withheld – This penalty is been imposed when the
individual is not able to pay the tax amount on time so it have to pay some penalty
amount so the amount of penalty will be 20% of the tax holding limit. So first 5% of
the withhold tax and additional of 1% tax for every month till to the maximum of
15%. So this is the penalty which the individual have to pay in regards of the late
payment (Iras.gov.sg. 2019).
Exemptions for withholding tax
There are some items which are exempted from the limit of withholding tax and the
exemption are been shown below:
1. Specified Software Payments – This is been consider as withholding tax only after it
able to satisfy the definition which is given as it take into consider downloadable
software, shirnk-wrap software, site licence and also computer hardware with
software bundled (Iras.gov.sg. 2019).
2. Payment for Satellite Capacity – The payment which the individual make in regards
to the non resident for the leasing capacity on the space of satellite so it will be
exempted for 15% final from the withhold tax limit (Iras.gov.sg. 2019).
3. Payment for use International Submarine Capacity – Any amount of payment
which is been done in regards of international submarine capacity so it will be
exempted for 15% from the withhold tax limit (Iras.gov.sg. 2019).

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Case study of Delta Ltd
As per Section 45 of Singapore Income Tax Act it said that if the individual made
payment to an non-resident than it should deduct an withholding tax amount form the same
and should deposit the same to the government (Johannesen & Zucman 2014).
So as per the case given it can be seen that Delta Enterprise have appoint an chef who
is non-resident and as the company was doing payment to Chef so it should deduct the
amount from the payment it was making as per the “Section 89 of Singapore Income Tax
Act” so it should deduct the same for the payment amount (Markle 2016).
Conclusion
The report concludes about the taxation policy, as the taxation policy is been charged
by the government form the individual and corporate. The tax is been charged by the
government so that it can able to make development in the country and able to maintain the
economy as the money which is been invested in the government company so that it can able
to run the economy more successfully. It conclude about the Singapore Income Tax Act and
explain the Section 45 which is related to the withholding tax as it said that if any individual
make payment to an non-resident than it should deduct an amount form the payment as
withholding tax and should deposit the same in the government account.
It show various types of the withholding amount as what should be deducted by the
company and also show the exemption in regards of the same as it does not take into
consideration. Lastly it conclude about the different penalty which is to be imposed by the
Government upon the individual and how much amount it have to pay in regards of the
penalty and also show about the case of Delta Ltd as whether it should deduct the amount of
payment which is been made to the Chef as the Chef is an non-resident so the company

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should deduct the amount as withholding tax and should deposit the same in the government
account.

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Reference
Agarwal, S., & Qian, W. (2014). Consumption and debt response to unanticipated income
shocks: Evidence from a natural experiment in singapore. American Economic
Review, 104(12), 4205-30.
Araki, S., & Claus, I. (2014). A comparative analysis on tax administration in Asia and the
Pacific. Asian Development Bank.
Brauner, Y., & Baez Moreno, A. (2015). Withholding taxes in the service of BEPS action 1:
address the tax challenges of the digital economy. WU International Taxation
Research Paper Series, (2015-14).
Caruana-Galizia, P., & Caruana-Galizia, M. (2016). Offshore financial activity and tax
policy: evidence from a leaked data set. Journal of Public Policy, 36(3), 457-488.
Fleming Jr, J. C., Peroni, R. J., & Shay, S. E. (2014). Formulary Apportionment in the US
International Income Tax System: Putting Lipstick on a Pig. Mich. J. Int'l L., 36, 1.
Iras.gov.sg. (2019). S45 Withholding Tax and Partnerships - IRAS. Retrieved from
https://www.iras.gov.sg/irashome/Businesses/Self-Employed/Working-out-your-
taxes/S45-Withholding-Tax-and-Partnerships/
Iras.gov.sg. (2019). S45 Withholding Tax and Partnerships - IRAS. Retrieved from
https://www.iras.gov.sg/irashome/Businesses/Self-Employed/Working-out-your-
taxes/S45-Withholding-Tax-and-Partnerships/
Iras.gov.sg. (2019). Withholding Tax - IRAS. Retrieved from
https://www.iras.gov.sg/irashome/e-Services/Other-Taxes/Withholding-Tax/
Johannesen, N., & Zucman, G. (2014). The end of bank secrecy? An evaluation of the G20
tax haven crackdown. American Economic Journal: Economic Policy, 6(1), 65-91.

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Markle, K. (2016). A comparison of the tax‐motivated income shifting of multinationals in
territorial and worldwide countries. Contemporary Accounting Research, 33(1), 7-43.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
Wiedemann, V., & Finke, K. (2015). Taxing investments in the Asia-Pacific region: The
importance of cross-border taxation and tax incentives (No. 15-014). ZEW
Discussion Papers.