It has recently come to Transient Workers Count Too’s attention that a clause in the Income Tax Act that refers to withholding tax may apply to low-wage migrant workers.
Workers who are terminated prematurely and who, as a result, have worked and stayed less than 183 days in Singapore would be considered “non-residents”. The Income Tax Act contains a definition of “resident” that uses the 183-days threshold.
Section 45F of the Act stipulates that:
45F.—(1) Subject to subsection (2), section 45 shall apply in relation to the payment of any income accruing in or derived from Singapore on or after 3rd May 2002 from —
(a) any profession or vocation (other than that derived by any public entertainer as defined in section 40A) by any person to any individual referred to in section 43(4)(a) not known to him to be resident in Singapore; or
(b) any profession or vocation by any person to any foreign firm referred to in section 43(4)(b),
as section 45 applies to any interest paid by a person to another person not known to him to be resident in Singapore and, for the purpose of such application, any reference in that section to interest shall be construed as a reference to such payment.
(2) For the purpose of this section, the deduction of tax under section 45 shall be at the rate of 15%.
The wording of this section is complicated, making reference to other sections. Very simply, Section 45 states that anyone paying interest to a non-resident should deduct a specified percentage from that payment on behalf of the Comptroller of Income Tax.
The opening sentence of Section 45F then says a similar deduction should be made with respect to payment of income arising from any profession or vocation. And it is here that even low-wage migrant workers appear to be included. Are not construction work, sanitation work, domestic work or shipyard work ‘vocations’?
Section 43(4) however, might save the day. This section says:
(4) Notwithstanding anything in this Act but subject to subsection (5) and sections 13(1)(r) and 40A, tax at the rate of 15% shall be levied and paid on the gross amount of any income accruing in or derived from Singapore on or after 3rd May 2002 from any profession or vocation carried on by —
(a) an individual not resident in Singapore and whose principal place of business is situated outside Singapore; or
(b) a foreign firm.
One might have noticed that for Section 45F to apply, the recipient of the payment has to meet the definition contained in Section 43(4). The payee individual who is not resident in Singapore (i.e. less than 183 days here) and from whose payment a withholding tax has to be deducted would be one “whose principal place of business is situated outside Singapore”. Is the low-wage worker’s principal place of business in Singapore or outside?
An info page on the website of the Inland Revenue Authority of Singapore (IRAS) both clarifies and complicates the situation further. Titled Do I have to pay tax?, the page is addressed to foreigners working in Singapore for less than 183 days. It says that
- If you are employed for 60 days or less, you are considered a non-resident and: Your short-term employment income is exempt from tax. This rule does not apply if you are a director of a company, a public entertainer or exercising a profession in Singapore. Professionals include foreign experts, foreign speakers, queen’s counsels, consultants, trainers, coaches etc.
- If you are here for 61 to 182 days, you are considered a non-resident, and: Your employment income is taxed at 15% or progressive resident rates. Depending on which results in a higher tax. Director’s fees and other income are taxed at the prevailing rate of 20%. You are not entitled to tax reliefs.
Research done with the assistance of Janahan Thiru