When a Singapore company pays interest on a loan from its overseas shareholder or parent company, it must usually withhold tax at 15% of the gross interest and pay it to IRAS. Section 12(6) of the Income Tax Act 1947 deems interest borne by a Singapore resident company to be derived from Singapore, so the non-resident lender is taxable here. The company must file and pay by the 15th day of the second month after the date of payment. That date can be earlier than the day cash leaves the account. A tax treaty may reduce the rate if the lender provides a Certificate of Residence.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
Why does Singapore tax interest paid to an overseas lender?
Section 12(6) of the Income Tax Act 1947 deems interest in connection with any loan or indebtedness to be derived from Singapore where it is borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore. Once your company bears the interest cost, the lender is treated as earning Singapore-sourced income, wherever the loan was signed and wherever the money is paid.
Section 45 then places the collection duty on the payer. Where a person is liable to pay interest to someone not known to be resident in Singapore, the payer must deduct tax at the appropriate rate and pay it to the Comptroller. In practice, your Singapore company is the one that must act. The overseas shareholder does not file a Singapore return for this interest in the ordinary case: IRAS’s rate table describes the tax on interest to a non-resident not carrying on operations in Singapore as a final tax.
Our complete guide to withholding tax in Singapore covers the other types of payment, such as royalties and service fees. This article deals only with interest on shareholder and group loans.
What rate applies?
IRAS lists interest, commission, fees and other payments in connection with any loan or indebtedness at 15% of the gross amount for a non-resident company. The rate is applied to the full interest payable, not to the lender’s profit, and no expenses are deducted.
A Double Taxation Agreement (DTA) between Singapore and the lender’s country may cap the rate lower. For example, the Singapore-China DTA limits tax on interest to 10% of the gross amount in general cases, and 7% where the interest is received by a bank or financial institution. Each treaty is different, so check the interest article of the treaty that applies to your lender before using a reduced rate.
When is the interest treated as paid?
This is where most group loans go wrong. IRAS’s e-Tax Guide on determining the date of payment (third edition, published 30 January 2026) explains that, under section 45(8)(b), withholding tax must be accounted for at the earliest of these dates:
- When the liability to pay arises, meaning the interest is due and payable under the loan agreement. Without an agreement, the invoice date is used.
- When the interest is credited to the lender’s account, or reinvested, accumulated, capitalised, carried to any reserve or otherwise dealt with on the lender’s behalf.
- When the interest is actually paid.
The guide gives three practical points for shareholder loans:
- A year-end accrual alone does not trigger withholding. If interest is accrued in the accounts but is not yet due under the agreement, the withholding obligation does not arise solely because of the accrual.
- Crediting a designated account does trigger it. If the lender asks the company not to pay out the interest but to credit it to an account, the interest is deemed paid on that date.
- Adding interest to the loan principal triggers it. If the lender agrees that interest will be capitalised into the loan, the interest is deemed paid on the date it is added.
So if your loan agreement says interest is payable on 31 December each year, that is the date of payment, even if the parent tells you to keep the cash and roll the interest into the loan. Leaving interest unpaid on an intercompany current account does not postpone the obligation once the interest is due.
How and when must the company file and pay?
The company must file and pay the tax withheld by the 15th of the second month from the date of payment. Withholding tax filing has been compulsory electronically since 1 July 2016, through the myTax Portal.
| Date of payment (interest due, credited or paid) | File and pay by |
|---|---|
| 31 December 2026 | 15 February 2027 |
| 31 March 2027 | 15 May 2027 |
| 30 June 2027 | 15 August 2027 |
| 30 September 2027 | 15 November 2027 |
If the tax is not received by the due date, IRAS’s e-Tax Guide states that a 5% late payment penalty is imposed under section 45(4)(a). If it remains unpaid 30 days after the due date, an additional 1% may be imposed for each completed month it remains unpaid, up to a maximum of 15% of the unpaid tax.
How does the company claim a reduced treaty rate?
- Confirm the lender is a tax resident of the treaty country and that the interest is not effectively connected with a permanent establishment of the lender in Singapore.
- Ask the lender for a Certificate of Residence (COR) issued and certified by its home tax authority, in English, stating the year it covers. IRAS says no other document is accepted as a substitute.
- Make sure the lender’s name on the COR matches the name you declare in the withholding tax filing exactly.
- File and pay at the treaty rate by the due date. IRAS allows the COR to be submitted afterwards: by 31 March of the following year for payments in the current calendar year, or within three months of filing for earlier years.
- Obtain a fresh COR for each year in which the reduced rate is claimed.
IRAS warns that treaty relief may be withdrawn and late payment penalties imposed if the COR is not submitted on time. If you are unsure whether the lender will provide one, IRAS’s advice is to withhold at the 15% domestic rate. You can later apply for a refund by filing an amendment with the COR. Our guide to Certificates of Residence for Singapore companies explains how the document works from the other side.
Example: a parent loan with annual interest
Example: A hypothetical Singapore trading company borrows S$2,000,000 from its parent company, which is tax resident in China. The written loan agreement charges 5% a year, with interest payable on 31 December. For 2026 the interest is S$100,000.
| Scenario | Rate | Tax withheld (S$) | Paid to parent (S$) |
|---|---|---|---|
| No COR obtained | 15% | 15,000 | 85,000 |
| Valid COR for 2026 from the Chinese tax authority | 10% | 10,000 | 90,000 |
The date of payment is 31 December 2026, so the company must file and pay by 15 February 2027. Suppose the parent instead tells the company on 31 December to add the S$100,000 to the loan balance. The date of payment is still 31 December 2026, because capitalising interest is a deemed payment. If the company did nothing and paid the S$15,000 late, the initial 5% penalty would be S$750, with further 1% monthly penalties possible up to a total of S$2,250.
Now suppose the company’s financial year ends on 30 September and it accrues three months’ interest at that date. Because the interest is not due until 31 December, the accrual alone does not create a withholding obligation at 30 September.
Are there exemptions?
IRAS lists several exemptions, but most do not help an ordinary trading company paying interest to its parent:
- Section 12(6) payments made by banks, finance companies and certain MAS-approved entities to non-residents for their trade or business are exempt for contracts within the stated period. This exemption depends on who is paying, not who is lending.
- Withholding is waived on section 12(6) payments made to Singapore branches of non-resident companies, which declare the income in their own tax returns.
- Interest on certain approved foreign loans for buying productive equipment may qualify for withholding tax relief under the Approved Foreign Loan scheme, but only with prior approval. Our guide to the Approved Foreign Loan scheme explains the conditions.
Interest on a loan from an overseas bank is still subject to withholding unless an exemption or treaty rate applies.
What about interest-free loans and transfer pricing?
If a shareholder loan genuinely carries no interest, there is no interest payment to withhold on. But a nil or unusually low rate between related parties raises a separate question: whether the terms are at arm’s length. Our articles on how IRAS treats interest-free loans between related companies and on arm’s length interest on intercompany loans cover that analysis. Where the rate is above what the company could borrow at commercially, part of the interest may also be challenged. Set the rate, record the basis for it and keep the loan agreement up to date.
Documents checklist
- Signed loan agreement showing principal, interest rate, interest payment dates and any capitalisation clause
- Board resolution approving the borrowing
- Interest computation for each period
- Bank records or journal entries showing when interest was paid, credited or capitalised
- Certificate of Residence for each year a treaty rate is used
- Withholding tax filing acknowledgements and payment records
- Transfer pricing support for the interest rate
Frequently asked questions
Can the company deduct the interest if it withholds tax?
Withholding does not change the deduction. Interest on money used to produce income is deductible under section 14(1)(a), subject to the usual rules, including the restriction on interest attributable to non-income-producing assets. The company deducts the gross interest, including the part withheld and paid to IRAS.
Who bears the 15%: the company or the parent?
The law requires the company to deduct the tax from the interest, so normally the parent receives the net amount. If the loan agreement requires the company to pay the full interest without deduction, the company bears the cost, and the computation needs to be reviewed.
We have paid interest for years without withholding. What now?
Quantify each payment, its date of payment and the tax that should have been withheld, then consider a voluntary disclosure. Our article on correcting unwithheld tax through IRAS voluntary disclosure explains the process.
Does withholding apply to a loan from an individual shareholder overseas?
Yes. Interest paid to a non-resident individual is also within section 12(6) and subject to withholding at 15%, unless a treaty or exemption reduces it.
Is a year-end accrual a payment?
Not by itself. IRAS’s e-Tax Guide states that a mere accounting accrual does not trigger withholding if the interest is not yet due. The obligation arises when it is due, credited, capitalised or paid, whichever is earliest.
Official sources: IRAS: withholding tax rates, IRAS e-Tax Guide on the date of payment, IRAS: claiming treaty relief.
Need help with withholding tax on a shareholder loan?
Raffles Corporate Services can review your shareholder or group loan agreement, work out the dates of payment and the tax to withhold, file and track the withholding tax returns, collect and check the Certificates of Residence, and keep the related board approvals and registers in order. Contact us at [email protected] or on WhatsApp at +65 8501 7133.
Kevin Yeo, Raffles Corporate Services