Personal Income Tax Liability When Employed by Non-Resident Companies
Singapore residents have slightly different tax responsibilities when their employer is not a resident company. It’s important for taxpayers to understand the difference as Singapore’s competitive nature makes it an attractive location for overseas firms looking to establish a foreign office.
Non-resident companies can include Singapore branch office set-ups of companies incorporated outside the country, or Representative Offices (ROs) registered with International Enterprise Singapore. You will be considered a resident for tax purposes if you are a citizen or a permanent resident residing in the country, or a foreigner who has worked within Singapore for 183 days or more of the year before the current Year of Assessment, but can also be taxed under other circumstances.
The criteria for and nature of Singapore tax liability
Employees are liable for all income earned during an employment period in Singapore, regardless of the place of origin of the income and the residential status of the employer, i.e. tax is payable on any salary, allowance – including per diem, housing, transport and meal allowance, bonus, or other benefits-in-kind. Tax liability extends to any allowances received from the employee’s local sponsoring company as well.
How much tax you pay and when will depend on your purpose and length of stay in the country. Non-residents working in the country for 60 days or fewer within a calendar will year will be exempt from tax on their employment income. Non-residents working in Singapore for between 61 and 182 days will have their employment income taxed at either 15 per cent or at the progressive resident rates, to be determined based on whichever option results in a higher tax amount. As described above, residents working and residing in Singapore for more than 183 days in a calendar year will be considered residents for the purpose of taxation and will be taxed at the full progressive resident rates.
Employees who are not Singapore citizens and are working in Singapore for a non-resident employer will be required to submit a letter of guarantee to cover their tax liability to the Inland Revenue Authority of Singapore (IRAS). This letter must come from an established limited company or local bank, and the absence of it will result in the IRAS issuing an advance assessment of the individual’s tax obligations based on an estimate of their income to be settled in full ahead of time.
It is the responsibility of a non-resident employer to ensure that they comply with all regulations and legislation related to tax clearance for an employee ceasing employment in Singapore or leaving the country for more than three months. The tax clearance form must be submitted a minimum of one month prior to the employee’s leaving Singapore or ceasing employment. All non-resident employees must ensure that their taxes are paid in full before leaving Singapore.
Methods of tax liability reduction for employees of non-resident companies
The tax liability of a foreign employee of a non-resident company can be reduced if they qualify for an exemption under Avoidance of Double Taxation Agreement (DTAs) or the Area Representative Scheme.
Employees who are resident of a country which has a Double Taxation Agreement with Singapore that makes provision for income tax exemption with respect to Dependent Personal Services can apply for a tax exemption once a completed Certificate of Residence certified by the tax authority of the home country of the employee has been received by IRAS.
Area Representative Scheme
This scheme allows non-resident workers based in Singapore for geographical convenience and employed by a non-resident company to only be taxed on the amount of pay attributable to their time spent in Singapore. To qualify employees must be required by their position to travel outside of Singapore and any income from the position must be paid directly by a foreign employer; not charged to any company in Singapore directly or indirectly.