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Taxation of International Executives in Singapore
The general rule in Singapore is that the government assesses tax for the preceding calendar year on income of an individual, and does so in the following calendar year (Year of Assessment).
The Inland Revenue Authority of Singapore (IRAS) normally issues tax returns between February and March of the subsequent year. Unless you receive an extension, you must file with the IRAS by 15 April (by paper) or 18 April (electronically).
Unless you opt for interest-free monthly GIRO deduction instalments, you must pay tax within one month of receiving your Notice of Assessment.
This progressive rate tax schedule applies to chargeable income earned by resident individuals:
From Year of Assessment 2012 going forward
|Chargeable Income||Rate (%)||Gross Tax Payable (S$)|
You’ll pay the higher of resident rates or 15 percent if you’re a non-resident. The tax rate for other income is 20 percent.
In Singapore, qualitative and quantitative tests determine whether you are a resident.
Citizens are normally residents, according to the qualitative tests, but permanent residents must convince the IRAS that they do indeed have permanent residence status in Singapore.
If you live, work or are physically present in Singapore for at least 183 years of the tax year, then you are tax resident for the year of assessment, according to the quantitative test. But this doesn’t apply to company directors.
Three-Year Administrative Concession
Your are a tax resident if you work or stay in Singapore without interruption for three years, even if the number of days in the first and third year is less than 183, according to the three-year administrative concession.
Two-Year Administrative Concession
You are a tax resident for the two years if you work or stay in Singapore without interruption for no less than 183 days, including public holidays and weekends, according to the two-year administrative concession. If you are a foreign employee who came to Singapore on or after the first day of 2007, you get this concession, unless you are a professional, public entertainer or a company director.
Cessation of Employment
The IRAS must receive from employers a notification, via Form IR21, of the cessation of employment of a non-citizen, and that includes someone who is permanently leaving Singapore after being a permanent resident. You have to file the form by the earlier of one month before the employee leaves the job or leaves the country.
If the employee is a permanent resident not leaving the country forever, tax clearance is not needed The employer gets the concession as long as the employee swears he/she is coming back via a Letter of Undertaking that the employer obtains through any means necessary. Overseas postings don’t qualify for this concession.
For clearing any tax money owed by the employee, withholding must be applied by the employer. The employer can release the withholdings at the earlier of getting IRAS permission or30 days after filing the notification.
You’ll have to explain yourself on Form IR21 if you mysteriously fail to withhold the employee’s money. However, you are off the hook if the employee quits or absconds without notice. Otherwise, you just might have to pay the tax that the employee owes.
When a non-citizen employee ends a job in Singapore, he/she derives the final gain on any unvested share awards and unexercised stock options, according to the deemed exercise rule. That is true unless the employer opts to track share award vesting and stock option exercise and then report to the IRAS any profits or losses.
After repatriation, a non-citizen doesn’t normally have to file taxes in Singapore if the tax clearance process has been completed. Additional tax clearance is needed if the employee receives a bonus or other employment-related income after leaving Singapore and the money was not already reported to the IRAS.
Should the non-citizen employee come back to Singapore to do business, than any income generated by that business activity could be taxed by the IRAS, but it depends on the exercised period of employments and tax residency. The IRAS looks carefully at the time the employee spends in Singapore during the calendar year to determine the period of employment exercised and the tax residency.
Tax Equalisation or Tax Protection Plans
An employer can get a tax reimbursement for any additional tax arising from an assignment overseas. It can be via either a “tax protection plan” or a “tax equalization plan.”
The company reimburses the employee, under a tax protection plan, for any extra taxes the employee would have to pay to the home country had the overseas posting not occurred. The employee keeps the tax windfall if the employee’s actual taxes are less than the hypothetical tax of the home country.
Tax equalization plans are different, because they ensure the employee pays the same taxes as the hypothetical taxes of the home country. The employer must reimburse the excess if the actual taxes exceed the hypothetical taxes. However, if the reverse is true, the employer pockets the excess.
In either plan, you have to figure out the hypothetical tax of the home county by looking at the employee’s base salary and other income just as if the employee had stayed home.
The employee has a taxable benefit in the year the reimbursement is received from the employer.
A company may reimburse the excess tax stemming from all income, including that from investment. It might instead reimburse an excess arising only from employment income. The company’s tax-equalization policy determines the employer’s and employee’s liability.
Tax is due on employment income. It doesn’t matter who the employer is or where it resides or where the money is paid.
Tax exemption for short-term visiting employees
If you are a short-term visiting employee who works in Singapore for no more than 60 days of the calendar year, you are exempt from paying income tax. This doesn’t apply to company directors, public entertainers and professionals.
Here’s how you commonly get paid:
When the employee renders service to the employer and receives money or some other compensation, this is called salary.
Allowances are taxable employer payments for transportation, meals, etc.
- Director’s Fees
The year in which you become entitled to these fees is the year you’ll be assessed.You are entitled on the approval date to fees in arrears voted or approved at the company’s general meeting (annual or extraordinary). If you are approved in advance for director’s fees, you can’t obtain them on the date of the general meeting, but only after you render your services for the accounting year.
An employer may give a contractual or non-contractual bonus to an employee.Normally, the tax on a contractual bonus applies in the year in which the employee becomes entitled to it as specified in a bonus plan or contract. Bonuses paid on a non-contractual basis are taxable when paid.
These are taxable non-cash benefits such as insurance, vehicle, passage for home leave and accommodations.a) Accommodation Provided by the Employer
As of 1 January 2014, this is the taxable value of accommodation furnished by an employer:The taxable value for a serviced apartment or residence that is not located in a hotel building equals the annual value of the residence minus employee-paid rent.
Furniture and fittings have a taxable value as follows:
- 40 percent of the yearly value if partially furnished; or
- 50 percent of the yearly value if fully furnished.
Fully furnished means that both furniture/household appliance and fitting are supplied. Partially furnished means only fittings, such as a ceiling fan, air conditioner, lights, etc., are supplied.
For a hotel accommodation, the taxable value is the employer’s actual cost minus any employee-paid costs.
b) Home Leave Passage
The restrictions applied to the taxable value of home leave passage for an expatriate and immediate family are:
- 20 percent of a single return fare for expatriate spouse; and
- 20 percent of two return fares per child
But this applies only for trips to the home country of the expatriate or spouse.
You don’t get a home leave concession if you are a permanent resident or citizen of Singapore.
The IRAS has a standard formula for determining the taxable value of a vehicle provided by the employer to the employee for private purposes.
d) Insurance Premiums
The premiums paid by the employer for an employee’s own personal insurance policy are a taxable benefit.
The premiums paid by the employer for an employee’s group insurance that pays claims to the employee are a taxable benefit, but claim payouts are not taxable.
Employers, except ones that are service companies, tax-exempt bodies or investment holding companies, that adopts a cost plus markup calculation for tax assessment doesn’t have to claim a tax deduction in the corporate/business tax retrun for the premiums on the group insurance for the relevant year. This means the premiums will be tax-exempt for employees.
The premiums paid by the employer for an employee’s group insurance that pays claims to someone other than the employee are not a taxable benefit, but claim payouts disbursed to the employee after the fact is taxable unless the employee dies or is injured — that gratuity is tax-exempt.
e) Tax Paid by the Employer
It is considered a taxable benefit when the employer pays the cost of tax on behalf of the employee.
f) Equity-Based Remuneration
Employees can buy company shares at a predetermined price and timeframe via an Employee Share Option Plan (ESOP). Employees are taxed for any gains resulting from exercising their share options.
Plans that provide share awards or employee share purchases are Employee Share Ownership (ESOW) plans. In this plan, the employee gets to own shares of the employer company or those of its parent company. When the ESOW plan vests, the employee is liable for taxes on profits, although a moratorium can defer these taxes.
Taxable profit is the difference between the shares’ open market value and the shares’ acquisition price as of the exercise date or vesting date, for both ESOP and EWOW plans.
Unless the tracking option alternative is in effect, departing expatriates with unvested share awards or unexercised stock options are subject to a deemed exercise rule.
If certain conditions are met, the following tax incentives are available to equity-based remuneration plans:
- Qualified Employee Equity-Based Remuneration (QEEBR) Scheme;
- ERIS (SMEs) – Equity Remuneration Incentive Scheme (Small and Medium Enterprises);
- ERIS (All Corporations) – Equity Remuneration Incentive Scheme (All Corporations); and
- ERIS (Start-Ups) – Equity Remuneration Incentive Scheme (Start-Ups).
The ERIS schemes no longer apply for partial tax exemption on gains arising from ESOP or ESOW plans — they have been phased out as of these expiration dates:
- ERIS (Start-Ups) – expired on 16 February 2013
- ERIS (All Corporations) – expired on 1 January 2014
- ERIS (SMEs) – expired on 1 January 2014
The partial tax exemption remains applicable if the gains or profits are derived no later than 31 December 2023 for share awards and stock options granted on or before the respective expiration dates.
g) Contributions made by the Employer to Overseas Pension / Provident Fund
Employer contributions to a Singapore employee for an overseas provident or pension fund are taxable. The employee cannot deduct contributions to the fund.
The IRAS has granted a non-taxable concession to employer contributions that are required by an overseas fund run, regulated or supervised by the home country’s government. This only applies if the contributions remain mandatory even when the employee is working outside of the home country and the Singapore employer doesn’t take a corporate tax deduction on the contributions.
The employee has a taxable benefit if the employer gives a reduced-rate or zero-interest loan. The benefit amount is the value of the interest reductions. If the employee has little influence on, control of or holdings in the company, the loan scheme gets an administrative concession — the benefit is not taxable, but only on condition that the loans are available to all employees.
Cash or non-cash employer gifts are taxable benefits-in-kind. However, there is an IRAS administrative concession: cheap gifts ($2,000 or less per incident) that the employer hands out at festivals and special occasions and are available to all staff members are not subject to taxes.
Not Ordinarily Resident (NOR) Scheme
If you are a NOR, you get some tax breaks during the qualifying period, as long as you meet certain conditions:
- Time apportionment of Singapore employment income, subject to a minimum of 90 business days outside Singapore and a minimum effective tax rate of 10 percent (calculated on total employment income before time apportionment); and
- Tax exemption on employer’s contributions to non-mandatory overseas pension / provident fund (up to a set ceiling), subject to certain limitations.
Area Representatives of Non-Resident Companies
Area representatives of non-resident companies who live in and use Singapore as a nexus for activities that extend to other countries are assessed taxes on the income relating to the time actually spent in Singapore. You must meet certain qualifying conditions and file a claim that the IRAS approves in order to qualify for the area representative basis of taxation.
Salary Earned from Working Abroad
Wherever the contact is made or the money is paid, the IRAS taxes remuneration received from working at a job in Singapore. This also includes non-Singaporean employment in which the service rendered is an extension of the individual employee’s Singapore employment.
Out of fairness, some employees working entirely out of Singapore, for example on an overseas assignment, are not subject to Singapore income tax.
Starting in assessment year 2006, an individual’s interest income is tax-exempt if it come from money deposited with a licensed finance company or approved bank. This also applies to interest from debt securities, starting in assessment year 2004.
But you must pay the tax if the interest comes through a Singapore partnership or from a profession, business or trade.
As of 1 January 2008, shareholders don’t pay taxes when receiving dividends paid by Singapore-resident companies, because these dividends fall under the one-tier corporate tax system.
If you collect rent for a Singapore property, you have to pay tax on it. You must declare each property’s gross rental income, including the money you get for furniture and fittings, as well as any service charges that the tenant has to pay. You can claim expenses incurred during the rental period, such as repairs and maintenance, fire insurance, mortgage interest, property tax — you get the idea.
Remittances of Offshore Funds
As of 1 January 2004, Singapore doesn’t tax any overseas income remitted by resident individuals. However, the tax break doesn’t apply to partnerships.
Capital Gains Tax
Singapore doesn’t tax capital gains and doesn’t grant deductions for capital losses.
Foreign Exchange Gains and Losses
Singapore doesn’t tax foreign exchange gains and doesn’t grant deductions for foreign exchange losses.
Deductions from Income
You can deduct expenses only if you incur 100 percent of them from income-producing activities, not from capital and not if statutes prohibit the deduction. Only a handful of deductions qualify.
Residents with particular personal circumstances in the year preceding the tax assessment may qualify for tax relief in the form of deductions from income. No relief is available for non-residents.
Here are some typical reliefs for the Year of Assessment 2015:
|Earned income relief
• below 55 years old
• 55 – 59 years old
• 60 years old and above
Spouse living with or maintained by taxpayer and income is not more than S$4,000.
|Qualifying child relief
Unmarried child and income is not more than S$4,000.
• living with taxpayer in the same household
• not living with taxpayer in the same household
|Supplementary Retirement Scheme (SRS) relief
• Singapore citizen / Singapore permanent resident
|capped at 12,750
capped at 29,750
Double Taxation Agreement
When Singapore signs an Avoidance of Double Taxation Agreement with another county, double taxation of the income earned by one country’s resident in the other country is prevented.
Countries that have the double taxation agreement with Singapore may grant credit on all or some of the foreign tax against the tax that Singapore assesses on foreign income. Dual residents have to go to a tiebreaker to figure out which is the country of residence under the treaty. If the individual is present in the country for less than 183 days in the tax year, most treaties provide for tax exemption of non-resident individuals from tax on employment income. However, certain conditions apply. Commonwealth or unilateral tax credits may be granted in the absence of a tax treaty.