In the digital economy, it is normal for Singapore companies to pay overseas vendors. You might pay a US company for software rights, a UK consultant for advice, or an Indian agency for technical support.

But did you know that before you send that money, you are often legally required to withhold a portion of it and pay it to IRAS?

This is called Withholding Tax (Section 45).

Many business owners are unaware of this rule until they receive a “Late Payment Penalty” letter from IRAS. In this guide, we explain which payments are taxable and how to stay compliant in 2025.

What is Withholding Tax?

Singapore operates on a territorial tax basis. Generally, non-residents are only taxed on income derived from Singapore.

Since IRAS cannot easily chase a foreign company for tax, they make YOU (the Singapore Payer) responsible. You act as the tax collector. You must “withhold” the tax from the payment and submit it to IRAS.

The Deadline: You must file and pay by the 15th of the second month following the date of payment.

  • Example: You pay a vendor on 5 January. The Withholding Tax is due by 15 March.

Common Payments That Trap SMEs

Not every overseas payment is taxable. Buying physical goods (like furniture) is exempt. The confusion lies in Services and Rights.

1. Software & Intellectual Property (The 10% Rule)

This is the most common trap.

  • Taxable: Payments for the “Right to Use” software, copyright, or IP. This is treated as a Royalty.

    • Rate: Typically 10%.

    • Example: You pay an overseas developer for a custom software license or franchise fee.

  • Exempt: Payments for “Shrink-wrap” software (standard off-the-shelf software like Microsoft Office or standard SaaS subscriptions) are often treated as the sale of goods and may be exempt.

    • Warning: The line between “Service” and “Royalty” is thin. Always verify.

2. Management & Technical Fees (The 17% Rule)

  • Taxable: Payments to overseas companies for assistance or management services performed in Singapore.

    • Rate: Prevailing Corporate Tax Rate (17%).

    • Example: An overseas expert flies to Singapore to train your staff for a week.

  • Exempt: If the service was performed entirely outside Singapore (e.g., via Zoom or email) and the vendor has no permanent establishment here, it is usually exempt.

3. Interest on Loans (The 15% Rule)

If your company borrowed money from an overseas lender (even a related company), the interest you pay them is subject to 15% Withholding Tax.

What Happens If You Forget?

If you pay the full amount to the vendor and forget to withhold the tax, you are still liable to pay IRAS. This means the tax comes out of your pocket (grossing up).

The Penalties:

  1. 5% Penalty immediately on the unpaid tax.

  2. 1% Additional Penalty for every completed month the tax remains unpaid (up to 15%).

  3. Appointment of Agent: IRAS can appoint your bank to seize funds from your account to settle the debt.

Conclusion: Don’t Autopilot Your Payments

Before you approve that big invoice to a foreign vendor, pause and ask: “Is this subject to Section 45?”

At Excellence Singapore, our Taxation Services Team handles the S45 filings for you. We review your contracts to determine if Withholding Tax applies and help you file the Form IR37 on time.

Avoid the 5% penalty. Contact us for a Withholding Tax Assessment.