If your company paid overseas consultants, software vendors, lenders or licensors without withholding Singapore tax where it was required, the fix is to work out the tax for every payment, file and pay it, and disclose it to IRAS before IRAS asks. Withholding tax is due by the 15th of the second month after the payment. Late payment attracts a 5% penalty and a further 1% for each completed month after 30 days, up to 15%. A qualifying voluntary disclosure means no penalty within one year of the due date, and a flat 5% after that. Once IRAS queries the payments, that reduced treatment is no longer available for them.
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Correct it before IRAS asks. A voluntary disclosure is the only published way to keep the penalty to 0% or 5%. If IRAS raises the payments first, the reduced treatment is lost for them and penalties are higher. Make the disclosure complete, pay or agree a plan, and keep to it.
How companies end up here
Withholding tax applies to certain payments made to non-residents, such as interest, royalties, payments for the use of software or other intangible property, technical or management service fees for work done in Singapore, and some others. The company paying is responsible for deducting the tax and paying it to IRAS, even though it is the foreign recipient’s tax. Common ways it gets missed:
- software subscriptions and licences invoiced by an overseas vendor
- an overseas consultant who came to Singapore to run a workshop or project
- interest on a loan from an overseas shareholder
- a group recharge for management services from a foreign parent
Whether a particular payment is subject to withholding, and at what rate, depends on its nature, where the work was done and any tax treaty. Our guides to when withholding tax applies and to overseas software, support and training invoices cover the rules.
What the company owes
| Item | IRAS rule |
|---|---|
| Filing and payment deadline | 15th of the second month after the date of payment to the non-resident |
| Late payment penalty | 5% of the unpaid tax |
| Continued late payment | A further 1% for each completed month the tax remains unpaid after 30 days from the due date, up to 15% |
| Recovery | IRAS may appoint agents such as the company’s bank to collect, and take legal action |
| Qualifying voluntary disclosure | No penalty within one year of the filing deadline; flat 5% of the outstanding tax after that |
Sources: IRAS pages on late payment of withholding tax and voluntary disclosure for withholding tax.
In practice the company usually bears the tax itself, because the overseas supplier was paid in full. Some contracts allow the payer to recover it or gross up the payment; check the contract before deciding who bears the cost going forward.
Step by step
- List every payment to non-residents for the past five years from the ledger and bank records, with the invoice, contract and a description of what was supplied and where.
- Decide which payments were subject to withholding. Classify each by type, check where services were performed and whether a tax treaty reduces the rate, and keep the reasoning.
- Calculate the tax for each payment at the correct rate, using the payment date to set each due date.
- File and pay. IRAS’s guide says withholding tax records should be filed in myTax Portal, and paid where applicable, before the S45 voluntary disclosure application is submitted.
- Submit the S45 voluntary disclosure application with an explanation of how the error arose and the controls now in place, signed off by the managing director or an authorised officer.
- Answer IRAS’s follow-up questions by the dates given, and keep to any payment plan.
- Fix the process. Add a non-resident check to the payment approval step, so future invoices are reviewed before payment, not after.
Example
Example only, not a client case. A Singapore software reseller paid its overseas parent a monthly licence fee of S$20,000 for three years without withholding. On review, the payments are royalties for software use, and the company works out the withholding tax for each month at the applicable rate. Payments in the most recent year are within the one-year grace period, so a qualifying disclosure attracts no penalty on them; the older payments attract a flat 5% of the outstanding tax. The company files the records, pays, and submits the S45 application with a new control requiring finance to review all overseas invoices.
Frequently asked questions
The overseas supplier says it will not accept a lower payment. What then?
The company is still responsible to IRAS. Whether it can recover the tax from the supplier depends on the contract. For future payments, agree in writing who bears the tax.
Can we claim a deduction for withholding tax we paid on the supplier’s behalf?
The tax treatment depends on the facts, including whether the payment was grossed up. Ask your tax adviser to treat it in the computation correctly.
IRAS has already written about one payment. Can we still disclose the others?
Errors directly related to the scope of an IRAS query do not qualify. Unrelated payments may still be disclosed. Get advice before replying.
More on the tax and GST hub, and see the general guide to IRAS’s Voluntary Disclosure Programme.
Missed withholding tax on overseas payments?
If your company has paid non-residents without withholding tax, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will review the payments, calculate the tax, file the records and prepare the voluntary disclosure, and deal with IRAS’s questions. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not tax advice for your situation.
Kevin Yeo, Raffles Corporate Services