Understanding withholding taxes on royalty’s payments from Singapore

Copyright royalties withholding taxes singapore

In the event of cross-border transactions, some payment might trigger a Withholding Tax (“WHT”) payment in the country of origin of the payments. Indeed, the Inland Revenue Authority of Singapore (“IRAS”) imposes WHT for payment of interest, commission, royalty’s, and management fees.

In this article we help you to identify the WHT requirements linked to royalty’s payments from Singapore.

The Withholding Tax in Singapore is 10% of the royalty’s payments

In Singapore, usually a payer must withhold tax on such payments made to a non-resident person. The Withholding tax rate is 10% on the gross amount of royalty’s payments from Singapore. However, it might be difficult for the Singapore company to determine if the payment qualifies as royalties or service fees. Indeed, the term “royalty’s payments” is not defined under the Singapore Income tax Act. Thus, it can be difficult to determine the applicable rate to withhold.

Implementation of a right-based approach to identify as royalty’s

IRAS has come to help to identify royalty payment by adopting a right-based approach. The right-based approach is for:

  1. payments for software, and
  2. payments for the use, or the right to use information and digitalised goods.

The rights-based approach has been adopted with effect from 28 February 2013.  Before, exemption of WHT were granted for software payments and payments for the use of or the right to use information and digitised goods.

The rights-based approach characterises a payment based on the nature of the rights transferred. It draws a distinction between the transfer of a “copyright right” and the transfer of a “copyrighted article” from the owner to the payer.

Copyright right qualification

A transaction involves a “copyright right” if the payer is allowed to commercially exploit the copyright. The term “commercially exploit” means to be able to:

  1. reproduce, modify or adapt and distribute the software, information or digitised goods; or
  2. prepare derivative works based on the copyrighted software program, information or digitised goods for distribution.

Generally, a payment for copyright right is a royalty. When such payment is made to a non-resident person, it is subject to a withholding tax rate of 10%.

Copyrighted article definition

A “copyrighted article” is transferred if:

  • the rights are limited to those necessary to enable the payer to operate the software, or
  • to use the information or digitised goods, for personal consumption or for use within their business operations.

A payment made to a non-resident person for a “copyrighted” article is not a royalty payment. Thus, it will not trigger withholding tax obligations. Payments for “copyrighted articles” are characterised as business income and not royalty’s.

Case examples of royalty’s payments from Singapore

Finally, and to better understand the distinction between the transfer of a “copyright right” and the transfer of a “copyrighted article”, below are two cases of different type of uses for a software:

  1. Buying a software solution from a non-resident company for internal use only: Not subject to a royalty payment.
  2. Buying a software solution from a non-resident company to distribute this solution to Singapore clients: Subject to royalty payment.

Dealing with your intellectual properties and taxes is an intricated process. We can help you navigate it smoothly and structure your local and regional business accordingly. Don’t hesitate to reach out to us to discuss your projects.

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