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Waiver of S45 Withholding Tax - Partnerships with Non-Resident Partners
Last Update - 13/11/2009
In a recent dialogue between the Institute’s Taxation & Levies Committee and the Inland Revenue Authority of Singapore (IRAS), the Committee had raised the compliance difficulties associated with the determination of the tax residency status of a partnership with non-resident partners.
Section 45 of the Singapore Income Tax Act (ITA) provides that payers need to withhold tax in respect of payments made to non-resident persons. For partnerships with non-resident partners, the withholding tax requirement applies in respect of payments to the non-resident partners through the partnership.
In view of the compliance difficulties involved and on the premise that all partnerships doing business in Singapore have to file a yearly return (Form P) to declare all its income, including payments on which withholding tax is applicable, IRAS is prepared to waive the withholding tax requirement under section 45 (inclusive of sections 45A and S45F) subject to certain conditions for payments made to a partnership with non-resident partners. This waiver is granted in the exercise of the Comptroller’s powers under section 45(2)(b) of the ITA.
With immediate effect, withholding tax waiver is granted to all partnerships with at least one resident partner. For partnerships where all partners are non-resident, IRAS will require an undertaking from the head office of the partnership that should there be default of tax payment by any non-resident partner arising from the waiver, the head office will be liable for any outstanding tax arising from the waiver. Partnerships will be required to notify the Comptroller immediately should there be a change in the composition of partners to one that comprises of only non-residents upon the withdrawal of its resident partner(s). The partnership will also have to forward the required undertaking from its head office together with the notification of change in composition of partners in order to continue to enjoy the waiver.
Existing partnerships comprising all non-resident partners are required to submit the aforementioned letter of undertaking from their head office by 31 December 2009. With effect from 01 January 2010, to enjoy the waiver for withholding tax, new partnerships with all non-resident partners will be required to submit the letter of undertaking from their head office immediately upon the commencement of the partnership business in Singapore. The Comptroller may review and revoke the waiver for specific cases should the circumstances justify.
IRAS will be writing to the partnerships with non-resident partners to inform them of IRAS’ position on the application of withholding tax to partnerships.
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