All Legal Things Considered ' Common Pitfalls Prior To An International Transfer
| Law Firm | Withers LLP |
| Subject Matter | Employment and HR, Tax, Family and Matrimonial, Contract of Employment, Retirement, Superannuation & Pensions, Employee Benefits & Compensation, Family Law, Sales Taxes: VAT, GST, Divorce |
| Author | Mr Kwong Wing Leon |
| Published date | 25 May 2023 |
Corporate clients today increasingly expect their global migration counsel to advise them not only on the types of visas and work permits available to their employees, but also to warn them of tax, labor, social security, and sometimes even family law issues involved in the international movement of employees. In short, clients expect advice on all aspects of global mobility. We discuss how to navigate expectations and address these issues from a high-level, international perspective while also providing insight into considerations unique to Singapore.
Leon Kwong Wing examines the considerations for Singapore. The following is based on his Singapore paper for the 2023 AILA/GMS Annual Global Migration Forum.
Tax
Tax residence
An individual employed in Singapore for 183 or more days in the calendar year is a tax resident. In practice, once the pass to work in Singapore is issued, the individual is treated as employed in Singapore until the work pass is cancelled.
- An individual on a work pass for 183 days across two calendar years is tax-resident for both years.
- An individual on a work pass across three calendar years is tax-resident for all three years.
Tax rates
A tax resident enjoys better tax rates than a non-resident. The latter pays personal income tax at 15 per cent or at the resident's rates, whichever gives the larger amount of tax. The rates for residents are as follows:
|
Chargeable income |
Marginal rate |
Tax payable |
Effective rate |
|
First $20,000 |
0% |
0 |
|
|
First $30,000 |
|
$200 |
0.7% |
|
First $40,000 |
|
$550 |
1.4% |
|
First $80,000 |
|
$3,350 |
4.2% |
|
First $120,000 |
|
$7,950 |
6.6% |
|
First $160,000 |
|
$13,950 |
8.7% |
|
First $200,000 |
|
$21,150 |
10.6% |
|
First $240,000 |
|
$28,750 |
12.0% |
|
First $280,000 |
|
$36,550 |
13.1% |
|
First $320,000 |
|
$44,550 |
13.9% |
|
First $500,000 |
|
$84,150 |
16.8% |
|
First $1,000,000 |
|
$199,150 |
19.9% |
No tax on investments abroad
Whether or not they are resident in Singapore, individuals pay no tax in Singapore on gains and income from their investments outside Singapore. There are no tax implications to bringing foreign investment gains and income into Singapore.
Equity remuneration
Shares, share options, etc granted or awarded to employees before they take up employment in Singapore are not taxable. So long as the grant or award is made in the course of the individual's employment outside Singapore, there are no tax implications even if the grants or awards vest and/or are exercised after the individual has moved to Singapore. There is also no tax should the employee sell such shares while in Singapore.
The flip side of the coin is that shares, share options, etc granted to individuals in the course of their employment in Singapore are liable to tax. One month before an individual ceases employment, he becomes liable to tax on adeemed vesting and exercise of any outstanding options and shares granted in the course of the employment in Singapore. This, then, is a "pitfall" of the tax regime for foreigners on work passes in Singapore ' that upon leaving an employment, the employee has to find the money to pay the tax on any equity remuneration awarded during the employment in Singapore, even if there has been no actual gain because the award or the shares have not vested, have not been exercised or have not been sold.
- The tax on the deemed vesting and/or exercise is a final tax The individual's actual, eventual gain may be larger than the notional gain on which he was taxed, but there will be no additional tax.
- That being said, in the event that the individual's actual gain turns out to be less than the notional gain on which he paid tax, he can apply for a reassessment and refund within the limitation period (which is five years from the end of the year in which the vesting and/or exercise was originally deemed to occur.
Tax compliance
Employers have the obligation to report their employees' remuneration each year. The employer reports the employee's remuneration for each calendar year to the Inland Revenue Authority of Singapore (IRAS) in March the following year.
- Employees are responsible for paying their own income tax employers do not withhold or deduct tax.
- After reporting by their employers in March, employees will typically receive their tax assessments from the IRAS in April or May. If they have given a GIRO authorisation to their banks, their tax will be deducted in 12 monthly instalments; otherwise they must pay their tax in full within one month of assessment.
- In summary, Singapore has a preceding-year tax system. The income of one year is only reported in the following year, and then the tax is paid...
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