Withholding Taxes - Singapore / Malaysia Projects

[vijsrinp]

Dear Expert,

We have secured a 6-year contract with a company in malaysia for software portal implementation (software-as-a-service model), consulting services and maintenance. The portal will be hosted in singapore and once fully implemented it will be transferred to Malaysia.

We are finalizing the terms and have a legal/corporate firm assisting us. However there is some gap in interpretation of software-as-a-service model for tax and accounting since this is neither fully shrink wrap software nor is it fully consulting.

Does anyone have any inputs on this since we have withholding tax obligations in malaysia and possible relief/rebate we can get due to double taxation agreement (DTA).

Rgds,
Vijsrinp

[Strong Eagle]

As far as I know, it is a paid labor project for the purposes of development and maintenance, thus, if you are operating out of SG, the MY firm will be required to withhold unless your employees are working there for an MY denominated firm.

You can define something as 'product', the software underlying the service. For example, I have used SOAS tools for project management... the costs of making the service available are non labor costs, the costs of using, developing, and updating the service portal are labor.

You do get relief from taxation in SG if you pay taxes in MY... I forget the details because it has been a while... and do recall, you still come out on the short end of the stick.

My view is that you should get yourself set up as a corridor company if you are going to do business with an MY company. An MY entity avoids the mandatory withholding, and allows you to pass through costs from SG to MY, thereby reducing MY company taxable income.