EXPATLAND PERSONAL TAX Salvi Yamin CST Tax Advisors Singapore

Transcription

1 EXPATLAND PERSONAL TAX Salvi Yamin CST Tax Advisors Singapore

2 Introduction: Located at the tip of the Malay Peninsula, Singapore has a population of 5.7M and is recognised as one of the best places in the world for expatriate life. When considering a move to Singapore, we find that common questions our clients ask us are: 1. What type of tax system does Singapore have? 2. How does the residency system work? 3. What is the tax rate in Singapore? 4. What are the ways for me to save tax? 5. If I were to leave Singapore, what are the exit tax implications? This chapter will take you through the Singapore tax systems to provide you with an understanding on how Singapore tax systems work and enable you to plan for your tax whilst living in Singapore.

3 The Singapore Tax System - General Singapore follows a territorial basis to taxation. You are taxed only on Singapore sourced income (i.e. income that you earned in Singapore). Foreign income is generally not taxable even if it is remitted to Singapore (for example, rental income from property outside of Singapore, interest income from overseas bank account). However, if you are carrying on a business in Singapore (for example as sole trader or partnership), all of your trade income is subject to tax in Singapore even if it is foreign income. Singapore does not have a capital gains tax or an estate tax. The Inland Revenue Authority of Singapore (IRAS) administers the Singapore tax system. Tax Residency Status and Tax Rates It is very important to determine the status of your tax residency in Singapore as this will affect not only the amount of tax that you pay but also the types of exemptions and reliefs that you can claim. The term relief describes a range of reductions to your taxable income (e.g. earned income relief, spouse relief, child relief etc). The residency in Singapore is determined by both qualitative and quantitative test. Qualitative test: Social and economic ties such as family ties, permanent place of stay, frequency and purpose of visit to Singapore, employment. Quantitative test: Physical presence in Singapore.

4 For the purpose of this chapter, we will only be looking at the quantitative test. You are either a resident or non-resident based on the below:- A. Tax Residents (183 days or More) You are a tax resident if you stay or work in Singapore for: a. at least 183 days in a calendar year or b. at least 183 days for a continuous 2 years or c. Continuously for three consecutive years If you have worked in Singapore for a continuous 3 years period, then regardless of your days in year 1 and year 3, you are likely to be a tax resident. For example, Mr and Mrs Smith arrived in Singapore on 1 October 2016 and left on 31 March This is how their tax residency status will be viewed. Year 1 (2016): 1 October Dec 2016 (92 days) Tax resident Year 2 (2017): 1 Jan Dec 2017 (365 days) Tax resident Year 3 (2018): 1 Jan March 2018 (90 days) Tax resident Since both Mr and Mrs Smith worked/stayed in Singapore continuously for three consecutive years,they will be regarded as a tax resident for all the three years even though their days is Singapore is less than 183 days in year 1 and year 3. As a Singapore tax resident, you will be taxed on a progressive tax rate. There is no tax if your income is less than $20,000 and the top tax rate of 22% applies for incomes above $320,000. In addition, you can also claim reliefs, subject to meeting qualifying conditions. Let us look at a sample tax calculation below involving Mr and Mrs Smith.

5 Mr Smith s annual income for the year 2017 was SGD400,000 and Mrs Smith s annual income was SGD90,000. They have 2 children aged 8 and 10. Mr Smith Salary Amount (SGD) 400,000 Less: Earned income relief (1,000) Child relief (1 st child) (4,000) Child relief (2 nd child) (4,000) Taxable income 391,000 Tax on first 320,000 Tax on next 22% Tax payable Mrs Smith Salary 44, , , ,000 Less: Earned income relief (1,000) Taxable income 89,000 Tax on first 80,000 3, Tax on next 11.50% 1, Tax payable 4, For child relief, it can only be claimed once for each child. Since Mr Smith is on the higher rate of tax, it is beneficial to claim the child relief against his income. B. Non-tax Residents (183 days or less) If you were present in Singapore for less than 60 days, you will be exempt from tax on your employment income unless your absences from Singapore were incidental to your work.

6 If you are present in Singapore between 61 to 182 days, You will be taxed at a flat rate of 15% (shown as B in the example below) or the resident rate (shown as C in the example below) whichever is higher; Director fees are taxed at a flat rate of 22% (shown as A in the example below); and As non-tax residents, you will not be able to claim reliefs. For example, Mr Jones is a director of a Singapore company, X Co. His director s fee was $75,000. He is also an employee of Y Co and he earns $250,000 for the year. He is in Singapore for 65 days in As his stay is less than 183 days, he is treated as nonresident and his tax calculation would be as follows:- Amount (SGD) Director fee Tax 22% (A) Salary Tax payable (non-resident 15% (B) Tax payable (resident 19.5% (C) The tax payable is B because this is higher than C In this example, the total tax payable is based on A (SGD16,500) + the higher of B or C (SGD37,500) 75,000 16, ,000 37,500 30,505 37,500 54,000 Taxable and Non-taxable Income As a general rule, all income earned in or derived from Singapore is chargeable to income tax unless it is exempted from tax. For example:

7 For example: Employment income e.g. salary, bonus, allowances, benefits-in-kind (housing, stock options, motor vehicle) Trade and business income (e.g. sole trader, partnership) Rental income from Singapore property Overseas income earned/derived outside Singapore (e.g. foreign investment income), Singapore dividends and bank interest are tax exempt in Singapore. Tax Planning Tips Here are some common tax planning techniques that we find useful for some clients. a. Maximise the use of eligible tax reliefs b. Consider whether you qualify for the Not Ordinarily Resident (NOR) Scheme (see further below) c. Consider whether you qualify for Area Representative Scheme d. Review your country s Double Tax Agreement with Singapore to check what income may be exempt in Singapore A. Not-Ordinary Resident (NOR) Scheme Under the NOR Scheme, if you travel for more than 90 days for business purpose, your employment income can be apportioned based on the number of days spent outside of Singapore for work, subject to a minimum Singapore tax rate of 10%. Please note that under the NOR Scheme you can also claim tax exemption for employer contributions to overseas pension funds up to a cap. Once you are granted the NOR status, it will be valid for 5 years.

8 To be eligible, you must:- Be a non-resident in Singapore for tax purposes in the past three years of assessment (for example, if your Singapore employment start in the year 2018, you must not be a Singapore tax resident for the 2015 to 2017 year), and; Be a tax resident of Singapore in the year of claiming the NOR concession, and Earn at least $160,000 in total taxable income. For example, Mr Muller moved to Singapore on 1 January In the year 2017, his total employment income is $650,000. His wife is not working. Mr Muller has 2 children aged 15 and 17 years old who are studying full time. Mr Muller has heard of the NOR Scheme and would like to know if he is eligible and what the tax savings may be. Through the discussion with Mr Muller, it was determined that: This is his first Singapore employment He travelled for 100 days for business purposes in 2017 Based on the above information, Mr Muller qualifies for NOR status as he fulfils the qualifying criteria: 1. He was a tax resident in He was not a tax resident in the year 2014 to 2016 (2017 is his first Singapore assignment) 3. His remuneration is more than SGD160, He travelled for more than 90 days for business purposes Using the above information, Mr Muller s tax position and likely tax savings are as follows:

9 Amount (SGD) Total Renumeration Less: Reliefs Taxable Income Tax Payable (without NOR) 650,000 (11,000) 639, , NOR Tax Treatment Since Mr A qualifies for NOR status, his taxable income will be apportioned based on the days he is in Singapore. Business days outside of Singapore: 100 days No of days in Singapore: 265 days Apportioned income (650,000 x 265/365 days) Tax payable (with NOR) Tax savings on NOR (SGD114,730 SGD 75,551.96) 471,918 75, , B. Area Representative Scheme If you work for a foreign employer and operate from a base in Singapore to perform your regional functions and duties, you may enjoy time apportionment of employment income, subject to meeting qualifying conditions. C. Double Tax Agreements Singapore has an extensive set of Double Tax Agreements which may apply to certain sources of income. Depending on the provisions of the Agreements, you may be exempt from tax in your home jurisdiction or Singapore. A common example is the residency article which dictates which country has taxing rights on income.

10 Here is an example from the Australia Singapore agreement which tips the balance in favour of Australia for the following reasons:- Mr Jones is employed by an Australian company. In 2017, Mr Jones was working on a project in Singapore for 4 months. Due to his length of stay in Singapore, he is deemed to be a non-tax resident (period of stay between 61 to 182 days) and he is deemed to have a Singapore sourced income for the 4 months period. This means that he will have to pay Singapore tax on the short term income earned in Singapore. During the discussion with Mr Jones, he mentioned to us that the project was for the Australian company and during the project period, all of his remunerations were being paid by the Australian company. Based on the above information, we then looked at the double taxation agreement between Australia and Singapore. Under Article 12, we were able to apply for an exemption for Mr Jones from being taxed in Singapore due to the following: 1. Mr Jones was not present in Singapore for period of more than 183 days in The project was performed on behalf of and for the benefit of the Australian company and 3. The cost of his remuneration was borne by the Australian company This highlights the importance of understanding relevant double taxation agreement between Singapore and your home country.

11 Filing Taxes 1. The general filing deadline is 15 April each year. The tax year is from January to December of the relevant year. For example, the income tax return for the period from 1 January to 31 December 2017 will need to be filed by 15 April There is no withholding tax system for employment income - your salary will be paid to you on a gross basis. Generally speaking, you only need to pay your tax after receiving your tax bill (called Notice of Assessment) between May to September. The IRAS also allows payments to be made on monthly installments with direct debits from a Singapore based bank account. 3. There is also no joint tax filing system for couples. Departing or changing jobs in Singapore If you are planning on returning home or moving to another part of Expatland, you are required to obtain tax clearance. Your employer is required to notify IRAS at least one month in advance of the date of your termination and withhold all monies due to you from the time that they become aware of your impending cessation of employment. Once received, IRAS will then issue a notice of assessment and seek payment directly from your employer. Your employer shall then use the funds they have withheld to remit the taxes payable. Any excess from the withheld amount will then be released to you. Similarly, if the withheld amount is insufficient to settle the outstanding tax, you will need to make the payment of the balance to IRAS. Also note that changing jobs in Singapore means the above procedure will apply.

12 AT A GLANCE Understand your tax residency status as this will affect the tax treatment of your Singapore income. Maximise the claim for the eligible relief. Remember to claim NOR if you are eligible as you cannot amend prior years for NOR claims. Consider looking into relevant Double Taxation Agreement to determine whether Singapore or your home country has the taxing right. Ensure that tax is filed and paid on time to maintain good standing with IRAS. Consider saving up a lump sum ahead of exiting, to cover the exit tax for deferred stock options.