| Currently, payments of royalty and
interest (other than interest on bank deposits and inter-bank
transactions) to non-residents are subject to tax at
27 per cent of the gross amount payable less allowable
expenses. In practice, as the law requires withholding
of tax on such payments to non-residents at 27 per cent
of the gross amount, and the recipients either cannot
or do not claim the expenses, the tax is effectively
27 per cent of the gross amount. Unless reduced under
a double taxation agreement, this tax rate of 27 per
cent is high in comparison with the rates of other countries
in this region. This high level of tax discourages the
development of activities which require high input of
technology or funding from overseas.
To facilitate the development of Singapore
as a knowledge centre and a node for technology transfer,
I have decided to reduce the rate of tax on royalty
and rent for movable properties payable to non-residents
to 15 per cent of the gross amount with immediate effect.
This will benefit creative services as well as knowledge
and technology intensive activities.
Similarly, I have also decided to reduce
the rate of tax on interest payments to non-residents
to 15 per cent of the gross amount with immediate effect.
This will make it more flexible for Singapore companies
to diversify their borrowing sources to include financial
institutions overseas, particularly, in the financing
of operations outside Singapore. It will further facilitate
our regionalisation efforts as business enterprises
which need to borrow offshore for venturing overseas
or expanding their overseas operations will benefit
from lower borrowing costs.
With the rate of tax on such payments
reduced to 15 per cent of the gross amount, the rate
for withholding of tax on these payments will be similarly
reduced. This reduced rate of tax will, however, not
apply to interest, royalty and rent for movable properties
derived by non-residents through their operations carried
out in or from Singapore. Such interest, royalty and
rent will continue to be taxed on the net amount at
the normal corporate income tax rate.
Notwithstanding this reduction in the
rate of tax on interest and royalty payments to non-residents,
full or partial exemption on such payments will continue
to be granted selectively under the various incentive
schemes for projects which contribute significantly
to the economic and technological development of Singapore.
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