As of 2024, Singapore’s withholding tax (WHT) regime remains a pivotal aspect of its tax framework, especially in the financial sector. WHT is levied on certain types of payments made to non-residents, functioning as a pre-emptive tax collection mechanism to ensure that income generated within Singapore from foreign entities is appropriately taxed. Traditionally, the financial sector benefited from WHT exemptions on a range of financial instruments and services. These exemptions were strategically implemented to enhance Singapore’s status as a global financial hub, incentivising international businesses and facilitating cross-border financial activities with reduced tax friction.

However, recent years have witnessed a recalibration of these exemptions. While some exemptions have been extended, such as those related to specific transactions under derivative contracts and payments made by the Monetary Authority of Singapore (MAS), others, notably those involving payments by financial institutions under currency swap transactions, have been discontinued post-2022. This recalibration is reflective of Singapore’s commitment to adhering to international tax compliance standards and addressing the challenges of tax base erosion and profit shifting. The scope of this article will explore the WHT system, its historical exemptions within the financial sector, the recent policy changes, and the potential repercussions for financial institutions operating in Singapore.

Background of Withholding Tax in Singapore

Withholding tax in Singapore is a critical tool used by the Inland Revenue Authority of Singapore (IRAS) to collect taxes from non-resident individuals and entities earning income from Singaporean sources. It applies to a variety of income types, including interest, royalties, and services fees. Withholding tax serves to facilitate tax collection from non-residents who might not be otherwise subject to the regular tax assessment process in Singapore.

Historically, the Singaporean government has provided WHT exemptions to foster a favourable environment for international trade and finance. These exemptions have been particularly prevalent in the financial sector, aligning with the nation’s strategic focus on becoming a leading global financial centre. Exemptions were introduced to attract foreign investment, simplify cross-border transactions, and reduce the tax-induced distortions in financial decisions.

The exemptions also aimed to mitigate the inherent tax disadvantages that might deter non-resident participation in Singapore’s financial market. Such incentives were deemed necessary to maintain and enhance Singapore’s competitive edge in the international financial landscape. This was not just about promoting business efficiency but also about ensuring that Singapore remained an attractive jurisdiction for multinational corporations to engage in substantial economic activities.

Recent Changes in Tax Policy

The policy landscape in Singapore has experienced notable changes with respect to WHT exemptions. In recent times, while certain exemptions have been extended to encourage continued growth in specific sectors, others have been withdrawn. For example, the exemptions for certain payments related to swaps, derivative contracts, and MAS

transactions have been extended until 2026. However, the WHT exemptions for payments made under currency swap transactions or interest rates by financial institutions were not renewed past 2022.

The Singapore government’s rationale for these changes is aligned with global tax reforms, particularly the OECD’s initiatives against Base Erosion and Profit Shifting (BEPS). By tightening its WHT exemption policies, Singapore ensures that it remains compliant with international standards, prevents tax avoidance, and maintains the integrity of its tax system. The implementation and transition periods for these changes have been staggered to provide businesses with time to adapt to the new tax environment.

Potential Impacts on Financial Institutions

The withdrawal and modification of WHT exemptions in Singapore’s financial sector are poised to have several immediate and long-term impacts on financial institutions. In the short term, banks and financial services firms might experience an increased tax burden on certain cross-border payments, which could affect their profitability and alter cash flow management strategies. The cessation of exemptions for payments by financial institutions could lead to a reassessment of international transaction structures.

Administratively, the changes necessitate an update in tax compliance processes. Institutions are likely to face a higher compliance burden, needing to reassess their internal systems for tracking and documenting transactions subject to WHT. Given IRAS’s focus on compliance, firms must ensure accurate reporting and timely tax remittance to avoid penalties.

Strategically, long-term implications may include the need for financial institutions to re-evaluate their business models and transaction flows. The evolving tax landscape might lead to a reconsideration of Singapore as a hub for certain financial activities, potentially affecting decisions on regional treasury centres and investment structures. Additionally, firms will need to stay abreast of ongoing tax reforms and be prepared to adapt to further changes in tax policies, reflecting Singapore’s commitment to international tax cooperation and its stance against tax evasion practices.

Implications for International Investment

The revisions in Singapore’s withholding tax exemptions could influence foreign investors’ decisions and international partnerships. For instance, the extension of certain withholding tax (WHT) exemptions until December 31, 2026, for specific financial transactions may continue to attract foreign investment in related sectors. However, the lapsing of WHT exemptions for payments made under currency swap transactions or interest rates by financial institutions might lead some investors to reassess the net yields on their investments in Singapore.

When compared to other financial hubs, Singapore’s strategic use of tax incentives and exemptions has been instrumental in its competitiveness. The fine-tuning of these incentives reflects a keen awareness of global tax policy trends and Singapore’s commitment to adhering to international standards. Consequently, investment flows may be redirected towards sectors where incentives continue or to new areas bolstered by schemes like the Enterprise Innovation Scheme (EIS), which provides a 400% tax deduction for qualifying expenditures on innovation and R&D activities from the year of assessment (YA) 2024 to YA 2028.

Industry Responses and Adaptations

The financial sector in Singapore is known for its resilience and adaptability. In response to the withdrawal of certain WHT exemptions, financial institutions are likely examining alternative strategies to maintain their competitive edge. This might involve leveraging other available tax incentives or pivoting to new growth areas supported by recent schemes. For example, the Enterprise Innovation Scheme (EIS) could prompt a strategic shift towards innovation and technology development.

Professional advisory and tax consultancy services play a crucial role in navigating these changes. Their expertise is vital for institutions as they interpret the new tax rules, optimise their tax positions, and ensure compliance. These services are essential for businesses to understand the full spectrum of incentives available, such as those outlined under the Enterprise Development Grant (EDG), which funds 50% of project costs related to business growth and innovation until March 31, 2026.

Looking ahead, it is anticipated that Singapore may introduce more tax reforms to further align with global practices while also maintaining its position as a leading financial centre. The government’s approach seems to balance the need for a competitive tax environment with the necessity of a robust tax revenue system. These reforms could involve fine-tuning existing incentives or introducing new measures to support emerging sectors and digital transformation initiatives.


The recalibration of withholding tax exemptions in Singapore marks a significant policy shift with broad implications for the financial sector. It underscores the government’s proactive stance on aligning with international tax standards while fostering a competitive business environment. The financial sector’s response to these changes will likely include strategic realignments and increased reliance on professional advisory services. Overall, the adaptability and forward-looking nature of Singapore’s financial sector are poised to continue driving its success in a changing global tax landscape.