Expatriate tax - Singapore

Singapore has stringent immigration rules and regulations in place to ensure employer compliance with the employment laws. In most instances, the Singapore employer will sponsor and apply for an applicable work permit or pass for the foreign employee in order to work in Singapore. The pandemic has presented a tightening of immigration requirements and stricter application processing. However, with the labour crunch and re-opening of borders, we see the government announcing updates to the EP application process, including quicker processing time and greater transparency. However, with the ever-changing landscape, immigration requirements in Singapore remain fluid.

Even though there are no monthly tax withholding requirements (except for tax clearance situation), employer should be aware of the payroll taxes requirements when a foreign employee is working in Singapore.

A foreign employee taking up employment in Singapore must hold a valid work pass (such as an S Pass or Employment Pass) before commencing employment in Singapore. A local sponsor, generally the employer or a host company in Singapore, is required to support such application for the foreign employee’s relevant work pass.

If the foreign employee’s spouse and dependent family relocates to Singapore together, they will also require the dependent's Pass(DP).

A work pass is typically tied to a single employer. However, there are a number of other work passes available that are not directly tied to an employer, including the:

-    Overseas Networks & Expertise (ONE) Pass for top talent in all sectors, 

-    Tech.Pass for tech entrepreneurs/leaders/experts, and
 
-    Personalised Employment Pass for high-earning Employment Pass holders and overseas foreign professionals.

The Ministry of Manpower (MOM) has recently updated the immigration application process for EPs effective September 2023, introducing a point-based system for this application, emphasising on qualifications and diversity of foreign talent hires on both the employer and employee. This would be a consideration for assignment planning to Singapore.

The Singapore tax year is based on calendar year from 1 January to 31 December and tax is levied on a preceding year basis. This means that income for the calendar year 2023 is taxable in the Year of Assessment 2024.

An individual deriving Singapore sourced income must file an annual income tax return by 15 April (via paper filing) or 18 April (via e-filing) with the Inland Revenue Authority of Singapore (IRAS) on their preceding calendar year’s income. Any request for extension of the time to file the annual tax return will be subject to the IRAS agreement. Grant Thornton Singapore can include clients in a bulk request for extension, which extends the filing date to 30 June.

An employer is required to issue MOM compliant payslips and ensure that statutory deductions and employer contributions (e.g., Skills Development Levy) are paid. They must also submit employer year end forms, Form IR8A/E and related appendices, by 1 March the following year on the employees’ income for the preceding calendar year. This means that Form IR8A/E reporting the employee’s income for calendar year 2023 needs to be filed to IRAS by 1 March 2024.

There is no payroll withholding requirements for tax purposes, except in a tax clearance situation which arises when a non-Singapore citizen employee ceases employment in Singapore, leaves Singapore permanently or for a period more than three months.

Singapore does not have a Self-Assessment tax system and therefore tax due for the assessment year is payable after the issuance of a tax assessment (i.e., Notice of Assessment - NOA) from IRAS. The taxpayer may either settle the tax liabilities in one lump sum within one month from the date of issuance of the NOA or through interest-free GIRO instalments (up to 12-months). Any objection to the NOA must be submitted within 30 days from the date of issuance.

Where a non-Singapore citizen employee ceases Singapore employment or leaves Singapore (permanently or for a period more than three months), the employer is usually required to file a tax clearance return (Form IR21) at least one month before the date of cessation of employment or departure from Singapore, whichever is earlier. The employer is also required to withhold any payments due to the leaving employee (such as salary, leave encashment, reimbursement of expenses, etc.) from the date the employer is aware of the leaving employee’s departure until a tax clearance directive is received from IRAS.

A tax clearance directive and NOA will be issued to the employer and leaving employee respectively upon the finalisation of the Form IR21. Final tax payment is to be paid and settled to IRAS before the stipulated payment deadline to avoid any enforcement actions imposed by IRAS.

Deemed exercise rule will apply where the non-Singapore citizen employee has Singapore sourced grants that remain unexercised stock options or unvested share awards upon their cessation of Singapore employment. This rule will result in a dry tax charge on unexercised/unvested equity, which will be payable together with the tax clearance assessment.

Reassessment of the deemed gains is available if the actual equity gain (upon actual exercise of stock options or vesting of shares) is lower. This is applied by the taxpayer within 4 years from the year of assessment following the year in which the deemed exercise rule is applied. E.g., if the deemed gain for year 2023 was assessed in Year of Assessment 2024, the reassessment application must be made by 31 December 2028). Please note that supporting documents may be requested by IRAS to support the application claim.

An alternative to the deemed exercise rule is the tracking option which allows an employer to track the income realisation event of the employee and report the gain to the IRAS at that point rather than applying the deemed exercise rule. An employer needs to meet stringent conditions to apply for the tracking option and the application is subject to the IRAS approval.

Resident rate for YA 2023

Non-resident

Income from employment is taxed at the higher of either flat rate of 15% or the progressive resident rates. Other income (such as rental income) is taxed at 24%.

Singapore adopts the territorial basis of taxation and tax is levied on an individual based on the income accrued in or derived from Singapore.

Foreign sourced income is generally not subject to tax in Singapore where the Comptroller is satisfied that the exemption will be beneficial to them unless it is received through a partnership in Singapore.

An individual will be regarded as a resident for Singapore tax purposes if that individual:

• Qualitative test: normally resides in Singapore (regardless of temporary absences), or
• Quantitative test: is physically present or exercises employment in Singapore for 183 days or more in a calendar year.

An individual could be tax resident from the outset of his/her employment in Singapore if this lasts continuously for 183 days over 2-3 years, by concession.

Otherwise, the individual will be regarded as a non-resident for Singapore income tax purposes.

A non-resident individual who exercises employment in Singapore for 60 days or less in a calendar year may be exempt from tax under the short-stay exemption. This exemption does not apply to director of a company, a public entertainer, or a professional in Singapore. This also does not alleviate the employer from their obligations.

Generally, all gains and profits derived by an employee from his or her Singapore employment are taxable, unless they are specifically exempt from income tax or are covered by administrative concessions. This is regardless of where the employment contract was concluded or where the payroll is administered.

Income arising from employment exercised in Singapore is Singapore sourced and subject to tax in Singapore. When the employee works overseas, these overseas workdays may still be treated as Singapore sourced if it is incidental to their Singapore source employment.

A dual employment contract is one where an employee has two employment contracts with two different employers covering the period of their employment.

Generally, companies implement dual employment contract arrangement for a number of commercial or economic reasons. This may include individuals who have different roles with multiple companies within a group that take them to different countries. However, such arrangement is often a contentious area with the tax authorities globally.

Whilst a dual employment contract arrangement can assist the employer and employee to mitigate double taxation risk arising on employment income, there is an inherent risk in the implementation due to overlapping/similar duties. Therefore, it is important that dual employment contract arrangement is properly set up and implemented on an ongoing basis to minimise any risk of challenge by the tax authorities.

As a tax resident, an individual is entitled to tax reliefs and rebates. Some tax reliefs and rebates are targeted at certain groups of taxpayers in order to promote specific social and economic objectives. Some common reliefs include:

Personal income tax relief cap of $80,000 applies to the total amount of all tax reliefs claimed for each Year of Assessment.

Expenses wholly and exclusively incurred in the production of income are tax deductible. In practice, there are limited type of deductions that can be claimed against employment income. Employees must be able to substantiate their deduction claim to the IRAS where the expenses incurred were necessary in performing their duties and such expenses were not reimbursed by the employer, and supporting documentation to this should be kept for at least 5 years. 

Other non-business-related deductions include those for donation or Self Help Groups (SHG) purposes

A Double Tax Agreement (DTA) between Singapore and another jurisdiction serves to prevent double taxation of income earned in one jurisdiction by a resident of the other jurisdiction. The agreements provide for reduction or exemption of tax on certain types of income. Singapore has one of the most comprehensive treaty networks, facilitating the framework for mitigating cross-border double taxation matters.

Where a resident taxpayer is subject to a foreign income tax on income that is already subject to tax in Singapore, double tax relief may be available to minimize / mitigate or exempt the income from Singapore tax completely, if Singapore has a DTA with the foreign country involved and stipulated conditions are met.

Treaty relief is not included within the Singapore income tax return and is a separate application made to the IRAS, assessed on a case-by-case basis.

There is no capital gains tax in Singapore. However, care must be taken when determining whether proceeds from a transaction are capital in nature or income arising from carrying on a trade. Income arising from a trade is taxable in Singapore.

Estate duty is a tax on the total market value of a person's assets (cash and non-cash) at the date of his/her death. It does not matter if the person has a will or not, the assets are still subject to estate duty. Estate duty has been abolished for deaths occurring on and after 15 February 2008.

There is no gift tax in Singapore.

Generally, investment income (with certain exceptions) is aggregated with other types of income and is subject to tax based on the tax rates set out above.

Interest earned on standard savings as well as current and fixed deposits with an approved bank or a licensed finance company registered with Monetary Authority of Singapore is exempt from tax in Singapore.

Dividends are profits you receive from your share of ownership in a company, which may be paid out to you in cash or in kind. Under the one-tier corporate tax system (except co-operatives), most dividends paid by Singapore tax-resident companies are exempt from tax.

Property tax is levied on properties located in Singapore. The property tax is generally based on the annual value of the property and the rate of tax is typically dependent upon on the category of the property (residential or commercial/industrial) and whether the property is owner occupied (for residential properties).

When property in Singapore is rented, the rental income less any allowable rental expenses is subject to tax.

Stamp duty is a tax on dutiable documents relating to any immovable property in Singapore and any stocks and shares. Dutiable documents typically include the following:

• Lease/tenancy agreements
• Transfer or mortgage documents for properties
• Transfer instruments of shares
• Mortgage documents for shares.

There are additional types of stamp duty that may apply for certain buyers and sellers of real estate in Singapore.

The Central Provident Fund (CPF) is the social security system in Singapore and it is a compulsory savings scheme instituted by the Singapore government for individuals who are Singapore citizens or Singapore permanent residents. Otherwise, no Singapore social security contributions are required by both employer and employee.

CPF contributions are payable at the prevailing contribution rates and vary depending on the age and immigration status of an employee. Singapore permanent residents in the first and second years of their permanent resident status are subject to lower contribution rate unless they jointly apply with their employer to contribute at higher CPF contribution rates.

Equity grants are considered Singapore sourced if they are granted in relation to a Singapore employment. If this is granted before / after or ultimately not in relation to a Singapore employment, this will not be Singapore sourced. Singapore sourced equity will be reportable and assessable to tax in Singapore generally when either the stock options are exercised and/or when the shares are vested.

Where a sales moratorium is imposed, the taxable event is when the moratorium is lifted. In addition, deemed exercise rule will apply on the unexercised stock options or unvested share awards upon cessation of employment in Singapore.

There is generally no tax on the date of grant of the stock options/share awards or on the proceeds upon the sale of the shares.