Hiring an overseas professional is often the quickest way to fill a skills gap, but it brings tax and payroll questions that do not arise with local hires. This article sets out the key tax considerations when bringing in foreign talent to your Singapore company, so that employers can plan the cost of a hire properly and avoid filing surprises with IRAS and MOM.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
Many employers focus on the work pass and overlook what follows once the employee starts work. Understanding the tax considerations when bringing in foreign talent early helps you budget accurately, set up payroll correctly and keep your corporate secretarial and tax records in order.
Who this applies to
This guide is relevant to any Singapore-incorporated company, and to a foreign company with a Singapore branch, that employs non-Singaporean staff. That includes holders of an Employment Pass, S Pass or Work Permit, as well as Dependant’s Pass holders with a Letter of Consent who take up employment.
- Founders and directors who relocate to Singapore to run a newly incorporated company
- Companies hiring specialists, managers or technical staff from overseas
- Groups seconding employees from a related company abroad
- Employers who are unsure whether an overseas employee is a tax resident
Key rules and requirements in Singapore
Employer obligations on salary and the work pass
Salaries paid to foreign employees are generally deductible business expenses, provided they are incurred wholly and exclusively in producing the company’s income. Work pass fees and foreign worker levy payable for S Pass and Work Permit holders are also commonly treated as deductible, subject to the usual tests.
Tax residency of the employee
IRAS treats a foreigner as a tax resident if he or she stays or works in Singapore for 183 days or more in a calendar year. A resident is taxed on employment income at progressive rates, after reliefs. A non-resident employee is taxed at a flat rate of 15% or at the resident rates, whichever produces the higher tax. The employee’s residency status therefore affects the cost to the employee, and often shapes salary negotiations.
CPF and Skills Development Levy
CPF contributions are mandatory only for Singapore Citizens and Singapore Permanent Residents. Employment Pass, S Pass and Work Permit holders do not attract CPF contributions. However, the Skills Development Levy (SDL) is payable on the remuneration of all employees, including foreigners, subject to the prescribed monthly minimum and maximum.
Benefits in kind and allowances
Housing, relocation, home leave, school fees and similar benefits are common in expatriate packages. Many of these are taxable in the hands of the employee and must be reported by the employer. Some items, such as certain relocation costs, may be treated differently depending on the facts, so each component should be reviewed individually.
Annual employee tax reporting
Employers file employment income information for each employee through the IRAS myTax Portal, normally by 1 March each year, using Form IR8A and the relevant appendices. Employers with five or more employees are required to use the Auto-Inclusion Scheme (AIS).
Tax clearance when the employee leaves
If a foreign employee is leaving Singapore or ceasing employment, the employer must notify IRAS using Form IR21 at least one month before the last day of work. The employer is required to withhold monies from the employee’s final payments until IRAS issues tax clearance.
Step-by-step process
- Confirm the correct work pass category with MOM and check the eligibility criteria, including salary thresholds, before making an offer.
- Estimate the employee’s likely tax residency status based on the planned period of stay in Singapore.
- Structure the employment contract clearly, separating basic salary, allowances and benefits in kind.
- Register the employee for payroll, including SDL and, where applicable, foreign worker levy.
- Keep supporting documents for allowances and relocation costs so that deductions can be substantiated.
- File IR8A and appendices accurately each year through the IRAS myTax Portal.
- Diarise the Form IR21 deadline well before any planned departure or cessation.
Common mistakes to avoid
- Assuming that CPF applies to a foreign employee, or that no levy of any kind is payable.
- Treating all allowances as non-taxable without checking their nature.
- Overlooking Form IR21 when an employee resigns at short notice.
- Paying an overseas director or consultant through the Singapore payroll without considering whether withholding tax applies to payments made to a non-resident.
- Failing to update the company’s registers and ACRA BizFile+ records when a foreign employee is also appointed as a director.
- Not reviewing whether a secondment from an overseas group company creates additional tax exposure for either entity.
Practical examples
A software engineer on an Employment Pass
A technology start-up hires an engineer from overseas on a monthly salary of SGD 8,000. No employer CPF is payable, but SDL is. If the engineer expects to remain in Singapore for the full year, he is likely to be a tax resident, and the company files his IR8A through the myTax Portal as part of the annual cycle.
A short-term assignment
A company brings in a specialist for a four-month project. Because the stay is well under 183 days in the calendar year, the specialist may be taxed as a non-resident. The employer should confirm the employee’s status in advance and apply the correct reporting.
A departing employee
An S Pass holder resigns with one month’s notice. The employer submits Form IR21, withholds the relevant sums until IRAS issues clearance, and then releases the balance to the employee.
How a corporate secretary can help
A corporate secretary in Singapore does more than file annual returns. Where the foreign hire is also a director, we ensure the appointment is lodged with ACRA within the prescribed time and that the registers of directors and officers are kept current. Raffles Corporate Services can also support your payroll set-up, accounting records, corporate tax filings and IRAS correspondence, so that the cost of hiring overseas talent is properly recorded and reported. Our team will review your circumstances and recommend the right approach, rather than relying on general rules alone.
Frequently Asked Questions
Do I need to pay CPF for an Employment Pass holder?
No. CPF contributions apply to Singapore Citizens and Singapore Permanent Residents only. SDL, however, is payable for all employees.
How is a foreign employee’s tax residency decided?
IRAS generally looks at whether the individual stays or works in Singapore for 183 days or more in a calendar year. The facts of each case should be checked against current IRAS guidance.
Is a foreign worker levy tax deductible?
It is commonly treated as a deductible expense where the worker is employed in the production of the company’s income, subject to the usual conditions.
What is Form IR21 and when is it needed?
It is the tax clearance form an employer files for a non-citizen employee who is leaving Singapore or ceasing employment. It should be submitted at least one month before the last day of work.
Are housing and relocation benefits taxable?
Often they are, either partly or wholly, depending on the nature of the benefit. Each element should be reviewed and reported correctly.
Key takeaways
- Tax residency, generally decided by the 183-day test, drives how a foreign employee is taxed.
- Employment Pass, S Pass and Work Permit holders do not attract CPF, but SDL still applies.
- Allowances and benefits in kind need careful review and accurate reporting through the myTax Portal.
- Form IR21 must be filed at least one month before a foreign employee leaves.
- Early planning with a corporate secretary and tax adviser reduces costly errors.
Requirements may change, so always check the latest guidance from ACRA, IRAS or MOM, or consult a professional adviser.
If you would like to find out more about how Raffles Corporate Services can assist with your company’s compliance and corporate secretarial requirements, please get in touch with the team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services
Disclaimer: This does not constitute legal advice. If you require legal advice, please contact a lawyer.