Jurisdiction - Singapore
Singapore – New Tax Treatment For Software Payments And Payments For Use Or Right To Use Information And Digitised Goods.

2 March, 2013


Legal News & Analysis – Asia Pacific – Singapore – Tax


The Inland Revenue Authority of Singapore (IRAS) conducted public consultation from April to May 2012 on its proposal to adopt a rights-based approach to characterise, for tax purposes, software payments and payments for the use or the right to use information and digitised goods.


With effect from 28 February 2013, IRAS will be implementing the new rights-based approach for such payments. Following the consultation exercise, IRAS has finally recognised that the delivery models and licensing arrangements for software, information and digitised goods have evolved over time and that payments by end-users for such items are for the copyrighted articles and the transactions do not involve the transfer of rights to exploit the copyrights embedded in the software or goods.

 The following payments are covered under the new IRAS practice:

  • Payments for software, including payments for downloadable software, software bundled with hardware, software licence (site, enterprise or network), limited duration licensed software and software product with online elements;
  • Payments for information, including subscriptions to Bloomberg, Reuters, Lexis-Nexis and other similar subscriptions, but excluding payments for the use or right to use patents, trademarks, registered designs, geographical indications, layout designs of integrated circuits, plant varieties and trade secrets;
  • Payments for digitised goods, including payments for online or downloadable ring tones, music videos, books, and other similar goods.


In raising tax assessments, IRAS will apply the rights-based approach to characterise a payment based on the nature of the rights transferred in consideration for the payment. The approach distinguishes between the transfer of a “copyright right” and the transfer of a “copyrighted article” to the payer from the owner.

Payment for copyright right

A transaction is regarded as involving the transfer of a copyright right if the payer is allowed to commercially exploit the copyright. In this context, IRAS regards the term “commercially exploit” to mean to be able to:

  • Reproduce, modify or adapt and distribute the software, information or digitised goods; or
  • Prepare derivative works based on the copyrighted software program, information or digitised goods for distribution.


Where partial rights in the copyright are transferred for which payment is made to the copyright owner, such as licensing of copyright to be exploited by the payer, the payment is treated by IRAS as a royalty. Accordingly, where the conditions are satisfied, such payments made to non-residents are subject to withholding tax at 10% under domestic law or at the reduced withholding rate under the Royalties Article in the applicable tax treaty between Singapore and the non-resident’s country.

Where there is complete alienation of the copyright in the goods by the copyright owner in return for payment, the transaction is accepted by IRAS as a sale of copyright. In such a case, any gains derived from the proceeds of sale by the copyright owner could constitute either business income or capital gains. As to whether the gains are business income (which is taxable) or capital gains (which are not taxable), this would require further analysis of the transaction by the taxpayer. Where proceeds of such a sale are derived by a non-resident, these would not be subject to withholding tax.

Payment for copyrighted article

Where the payments for software or digitised goods do not involve the transfer of copyright rights embedded in the goods, such payments would be considered by the IRAS as payments for copyrighted articles and also not subject to withholding tax.

When these tax changes come into effect, IRAS is leaving it to taxpayers to ascertain the nature of the payments and hence the right tax treatment as no approval is required. As such, if and when businesses face uncertainty over the tax treatment to be adopted, it may be prudent to obtain legal advice early.


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