Whether you are a foreigner working here, a company that has hired or seek to hire foreigners, it is important to know about the tax obligations in Singapore, as managing Singapore’s tax compliance obligation has become more complex, especially with ever-increasing cross-border transactions. It is, therefore, important for taxpayers to understand the mechanism of individual tax to avoid penalties and minimise tax burdens.
“Acquiring basic knowledge of the tax environment goes a long way in helping expatriates settle down in Singapore, and for employers staying compliant.”
Tax resident
Tax liability is dependent on a person's tax residency status. An individual is regarded as a tax resident if he/she fulfils these conditions:
- Stays or works in Singapore:
- for at least 183 days in a calendar year; or
- continuously for three consecutive years
- Works in Singapore for a period of two calendar years and their total period of stay is at least 183 days
If an individual is issued with a work pass that is valid for at least one year, they will also be treated as a Singapore tax resident. If an employment is ceased, this tax residency status will be reviewed at the point of tax clearance. If the individual's stay in Singapore is less than 183 days in a calendar year, he/she will not be regarded as a tax resident.
Non tax resident
Employment income of individuals who are non-Singapore tax resident will be taxed at the flat rate of 15% or the progressive resident tax rates, whichever is the higher tax amount. All other incomes (e.g. director’s fee, consultation fees, etc.) will be taxed at a flat rate of 22%.
A non-resident director’s remuneration does not qualify for the reduced rate, and withholding tax at 22% must be deducted from remuneration paid to a non-resident director.
Benefits for tax resident
Singapore tax residents are entitled to personal reliefs and/or deductions subject to meeting the stipulated criteria. Individual’s income will also be subject to graduated tax rate ranging from 0 to 22 per cent.
Tax reliefs are available and common deductions include allowable expenses, donations, reliefs and rebates. For employees, tax deductions can be claimed on allowable employment expenses 'wholly and exclusively' incurred in earning your income in Singapore. This is when you use your own money to pay for expenses that are necessary to your employment, such as subscriptions for professional bodies, travel, and entertainment expenses. These expenses may be deducted from your employment income as long as they are allowable expenses.
Other tax deductions for foreigners include donations and rental expenses, as well as deductions under the Angel Investors Tax Deduction Scheme (“AITD”). To qualify for this, you must have invested in qualifying start-up companies between 1 March 2010 and 31 March 2020; you must have invested at least S$100,000 of qualifying investment in a qualifying start-up company within 12 months from the date of your first investment in that company; and you hold such investment for a continuous period of two years from the date of last qualifying investment. There are also other tax reliefs and rebates available, such as course fees or a spouse relief.
Tax clearance
Tax Clearance is a process of ensuring that your non-citizen foreign employee (i.e. Singapore PRs, Employment Pass, S Pass, Work Pass, etc.) pays all his/her taxes when he/she ceases employment with you in Singapore or plans to leave Singapore for more than three months.
Step-by-step guide on seeking tax clearance
Step 1 - Notify Inland Revenue Authority of Singapore (“IRAS”) via Form IR21 after Determining at IR21 is required.
Step 2 - Withhold Payment Due to Your Employee
Step 3 - IRAS Processes Tax Clearance.
Step 4 - Receive Clearance Directive from IRAS
Step 5 - Employee Receives Tax Bill (Notice of Assessment)
Withholding tax
Withholding tax is another type of tax that foreigners working in Singapore should be aware of. The law in Singapore states that a person (the 'payer') who makes payment(s) of a specified nature (e.g. royalty, interest, technical service fee, etc.) to a non-resident company or individual (the 'payee') is required to withhold a percentage of that payment and pay the amount withheld to IRAS. This amount that is paid is known as withholding tax.
There are only certain types of payments that qualify for withholding tax: payments for services, interest, royalty, or payments to non-resident directors, professionals, public entertainers and international market agents.
The amount of the withholding tax varies, depending on the nature of the payment. Click here for more details on withholding tax rates. Withholding tax needs to be filed electronically to IRAS by the payer by the 15th of the second month from the date of payment to the non-resident.
We have a team that specialises in meeting basic to complex accounting and accounting-related requirements. We are equipped with requisite knowledge and experience on the range of tax reliefs and deductible allowable expenses, while providing absolute confidentiality and timely delivery of services.
Contact us for a complimentary consultation.