Demystifying IR21 & Tax Clearance: A Comprehensive Guide for Foreigners in Singapore
As an employer, one of your responsibilities is filing Form IR21
for your employees. This form details their employment and
income up until their last working day or the day before they leave Singapore.
It’s also your duty to withhold funds from non-Singaporean employees for tax
clearance purposes upon their departure.
Given the complexity of the process, we recommend using a
comprehensive HR
software solution in Singapore to make filings more accurate. Adaptive
Pay provides a robust HRMS platform equipped with an advanced payroll module
designed to ease the complexities of tax filing. This cloud-based software
simplifies tax-related processes while boosting your overall operational
efficiency. With features encompassing leave and claims management, attendance
tracking, and employee appraisals, Adaptive Pay ensures that your HR tasks are
managed effectively and efficiently.
Understanding IR21 and the tax clearance process is vital for
compliance with Singapore's local regulations. This guide aims to equip you
with the latest information and insights on these topics, ensuring you stay
compliant and informed.
Understanding tax clearance in Singapore
Tax clearance is a mandatory process for
employers with non-Singapore citizen employees (this includes Singapore
Permanent Residents and foreign employees).
Employers must notify the Inland Revenue
Authority of Singapore (IRAS) and withhold any payments owed to these employees
when they are about to end their employment or if they plan to leave Singapore
for more than three months, including if they are relocating for an overseas
assignment.
However, there are specific scenarios where
tax clearance isn't required:
·
If the employee was in
Singapore for no more than 60 days within the calendar year. This exemption
doesn't apply to company directors, public entertainers, or professionals in
similar roles.
·
If the employee has been
working in Singapore continuously for more than 183 days over two years and
their annual earnings have not exceeded $21,000. This is relevant for foreign
employees who arrived in Singapore from January 1, 2007, onwards.
·
If the Non-Singapore Citizen
employee has worked in Singapore for at least 183 days in a calendar year and
earns less than $21,000 annually.
·
If the employee has been
with your company for three consecutive years, with an annual salary below
$21,000.
Payments to withhold from Non-Singapore
Citizen employees
As an employer, you must withhold all monies, including
reimbursements, allowances, overtime and leave pays, lump sum payments, and
gratuities due to the employee from the date you become aware of their
impending departure from Singapore or termination of employment. If you're
unable to withhold these payments for some reason, you must clearly state your
reasons on Form IR21. Failing to do so could make you responsible for any taxes
the employee owes to the IRAS.
It's
important to note that the Employment Act prohibits employers from deducting
parts of an employee's monthly salary to cover tax clearance funds.
What is Form IR21?
IRAS requires employers to file
Form IR21 for all non-Singapore citizen employees. This form reports the
employee's income and employment details up to their last day of work or the
day before they leave Singapore.
Filing Form IR21 helps prevent
foreign tax defaulters. It ensures that employees pay any taxes they owe before
leaving Singapore.
To ensure a smooth exit process
for your employee, you should file Form IR21 at least one month before any of
these events:
·
They end their
employment with your company in Singapore.
·
They leave
Singapore for a period exceeding 3 months.
·
They depart
for an overseas work assignment.
Submitting Form IR21
Use IRAS' myTaxPortal for a
quicker tax clearance process. This online service requires authorisation through
your company's Corppass login.
To avoid delays, you need to
make sure that the information on your employee's Form IR21 is accurate:
·
Include all
your employee's income earned during the year they are leaving or their
cessation year. If you did NOT electronically report their income from the
previous year using the Auto-Inclusion Scheme (AIS), include that as well.
·
Provide
details on any severance payments offered as compensation for loss of office.
IRAS will determine if these payments are taxable.
·
Use your HR
software (if applicable) to confirm the amount of gratuity your employee receives
for past services. Remember, gratuity and any salary payments made in place of
notice are taxable income and should be reflected on the form.
These are just some of the things you must know about Form IR21 and tax clearance. Request a demo of Adaptive Pay today to see how HR software in Singapore can help you with the tax clearance process.
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