Royalty Income: Taxable or Not in Singapore

Royalty income is a significant source of earnings for many individuals and businesses in Singapore, particularly for creators, innovators, and intellectual property owners. However, the taxability of royalty income depends on its nature and source. This guide provides a comprehensive explanation of when royalty income is taxable or exempt in Singapore, based on the guidelines from the Inland Revenue Authority of Singapore (IRAS).

What is Royalty Income?

Royalty income refers to payments received for the use of or the right to use intellectual property (IP) such as:

• Copyrights
• Patents
• Trademarks
• Designs
• Trade secrets
• Other proprietary assets

It can also include payments for the use of or the right to use information concerning industrial, commercial, or scientific knowledge.

Is Royalty Income Taxable in Singapore?

In general, royalty income is taxable in Singapore. However, specific exemptions and tax treatments apply depending on the source and nature of the income. Below is a detailed breakdown:

Taxable Royalty Income

The following types of royalty income are taxable:

1. Royalties Received by Residents:
   • Royalty income received by tax residents of Singapore is taxable under Singapore’s income tax laws.
2. Royalties from Singapore Sources:
   • Royalties derived from Singapore sources are taxable, regardless of the recipient’s residency status.
3. Royalties from Business Activities:
   • Royalties earned as part of a trade, business, or profession are taxable as business income.
4. Foreign Royalties Remitted to Singapore:
   • Foreign-sourced royalties remitted to Singapore are taxable unless they qualify for specific exemptions.

Non-Taxable Royalty Income

The following scenarios may result in non-taxable royalty income:

1. Exempt Foreign-Sourced Royalties:
   • Foreign-sourced royalty income may be exempt from tax if not remitted to Singapore.
2. Qualifying Tax Exemptions:
   • Certain royalties may qualify for tax exemptions under double taxation agreements (DTAs) or other tax relief measures.

Withholding Tax on Royalties

For Non-Resident Individuals or Companies

• A withholding tax of 10% generally applies to royalty payments made to non-resident individuals or companies for the use of intellectual property in Singapore.
• The rate may vary depending on applicable DTAs.

Obligations for Payers

• Payers of royalties must deduct the withholding tax at the time of payment and remit it to IRAS by the 15th of the following month.

Examples of Taxable and Non-Taxable Scenarios

Scenario 1: Taxable Royalty Income

• A Singapore-based author receives royalties from the sale of their book published and sold in Singapore.
• The royalties are taxable as they are derived from Singapore sources.

Scenario 2: Non-Taxable Royalty Income

• A Singapore-based inventor earns royalties from a foreign company for the use of a patent. The royalties are retained overseas and not remitted to Singapore.
• The royalties are not taxable as they are foreign-sourced and not remitted to Singapore.

How to Report Royalty Income to IRAS

For Residents

1. Declare taxable royalty income in your annual income tax return under the section for Other Income or Business Income.
2. Include details of any allowable deductions or exemptions.

For Non-Residents

1. Ensure that the payer has withheld the appropriate withholding tax.
2. File a tax return if required by IRAS.

Key Considerations for Royalty Income Taxation

1. Source of Income:
   • Identify whether the royalty income is derived from Singapore or foreign sources.
2. Residency Status:
   • Tax treatment differs for residents and non-residents.
3. Applicable Tax Reliefs:
   • Check for exemptions under DTAs or other tax relief measures.
4. Proper Documentation:
   • Maintain records of royalty agreements, payment receipts, and evidence of remittance for foreign royalties.

Common Mistakes to Avoid

1. Failing to Declare Taxable Income:
   • Ensure that all taxable royalties, including foreign-sourced royalties remitted to Singapore, are reported.
2. Incorrect Withholding Tax Application:
   • Verify that the correct withholding tax rate is applied to payments made to non-residents.
3. Omitting Supporting Documents:
   • Keep accurate records to support claims for exemptions or reliefs.

How Apexia Corporate Advisory Can Help

Navigating the tax regulations surrounding royalty income can be complex. At Apexia Corporate Advisory, we offer expert guidance to ensure compliance and optimize your tax position. Our services include:

1. Tax Advisory Services
   • Clarify the tax treatment of royalty income for residents and non-residents.
2. Tax Filing Assistance
   • Help individuals and businesses accurately declare royalty income in their tax returns.
3. Withholding Tax Compliance
   • Assist payers in managing withholding tax obligations for royalty payments.
4. Record-Keeping Solutions
   • Support the organization of documents related to royalty income and tax relief claims.

Conclusion

The taxability of royalty income in Singapore depends on factors such as its source, the residency status of the recipient, and applicable tax reliefs. By understanding these distinctions, individuals and businesses can ensure compliance with IRAS regulations while optimizing their tax liabilities. For professional advice on managing royalty income taxation, contact Apexia Corporate Advisory today.