Singapore Taxation When Employed By Non-Resident Company
This article provides clarification on Singapore residents’ tax liability when they are employed by a non-resident Singapore company.
Non-resident Singapore companies include:
- Representative Offices (ROs) that are registered with International Enterprise Singapore.
- Companies that are incorporated outside Singapore such as Singapore branch office setups
Tax liability for employees of a non-resident Singapore company
- According to Singapore income tax law, employees will be liable to Singapore tax on all income earned during the employment period in Singapore, irrespective of the fact that the income is not paid in Singapore and that the employer is a non-resident Singapore company.
- Taxable income includes salary, bonus, allowances, per diem allowance, housing allowance, transport allowance, meal allowance, and other benefits-in-kind. Note that taxable income also includes any allowances received from the local sponsoring company.
- The general taxation rules for non-residents and residents as outlined above will apply. In other words,
- The employment income of non-residents who work in Singapore for 60 days or less in a calendar year is exempt from tax.
- The income of non-residents who work in Singapore for 61-182 days in a calendar will be taxed at 15% or at the progressive resident rates, whichever gives rise to a higher tax amount.
- Individuals who work in Singapore for 183 days or more in a calendar year will be considered as tax residents and their income will be taxed at the progressive resident rates.
- Employees who are not Singapore citizens and are employed by a non-resident employer must submit to the Inland Revenue Authority of Singapore (IRAS), a letter of guarantee from a local bank or an established limited company in Singapore to cover their tax liability for a given Year of Assessment (YA). In the absence of a letter of guarantee the IRAS will issue an advance assessment based on their estimate of the individual’s income for the given tax year.
- The non-resident employer must comply with all Singapore tax clearance requirements by submitting a duly completed tax clearance form for all non-resident employees to the IRAS, at least one month prior to the employee’s cessation of employment or departure from Singapore. Note that all non-resident employees must pay all their taxes befor leaving Singapore.
Reducing tax liability for employees of a non-resident Singapore company
Foreign employees of a non-resident Singapore company can reduce their tax liability if they qualify for:
- The Area Representative Scheme; or
- Exemption under Avoidance of Double Taxation Agreement (DTAs).
Area Representative Scheme
The Area Representative Scheme allows time apportionment of employment income, subject to qualifying conditions, for foreign employees who travel and work in Singapore during the course of their employment with a non-resident Singapore company. In other words, only that portion of the employment income that is attributable to the number of days spent in Singapore will be subject to Singapore tax. Note however that all benefits-in-kind provided in Singapore are fully taxable. To qualify for this scheme the employee must satisfy the following criteria:
- The individual must be employed by a non-resident employer;
- The employee must be based in Singapore for geographical convenience;
- The employee is required to travel outside Singapore in the course of his/her duties; and
- The employee’s remuneration is paid by the foreign employer and not charged directly or indirectly to the accounts of any company in Singapore.
Exemption under Avoidance of Double Taxation Agreement (DTAs)
If the foreign employee is a resident of a country with which Singapore has a Double Taxation Agreement that provides for exemption from Singapore income tax in respect of Dependent Personal Services rendered in Singapore, (s)he can apply for a tax exemption. For this purpose, a completed Certificate of Residence that is duly certified by the tax authority of the foreign employee’s home country will have to be submitted to the IRAS.