Citizenship Based Taxation in Singapore?
1. An individual who is a resident of Singapore for tax purposes is taxable on his income derived from Singapore as well as income from overseas remitted to Singapore. A non-resident individual is taxable on his income derived from Singapore only.
2. A Singaporean who goes on his own or is sent by his employer to work overseas is treated as a tax resident during the period of his overseas employment because he intends to return to Singapore.Consequently, he is taxed in Singapore on that portion of his overseas employment income which he remits to Singapore. Should his overseas employment be already taxed there, credit for the foreign tax is allowed if the country he works in has a tax treaty with Singapore or is one of the countries where credit for foreign tax is allowed without a tax treaty.
3. To remove any disincentive for Singaporeans to work abroad, IRAS has, as an administrative practice, been allowing individual taxpayers the choice of being treated as non-residents for any year of assessment where they have been employed abroad during the whole of the year preceding the year of assessment. In this way, they are not taxed on the foreign income which they remit to Singapore during the year of absence.
4. As companies in Singapore expand their business operations overseas, there will be more cases where the period of foreign employment is less than a whole year. IRAS has, therefore, decided to extend the practice of allowing the choice of being treated as a non-resident to any individual whose overseas employment is for a period of at least 6 months in any calendar year. Under this extension, a Singaporean who satisfies the 6 month overseas employment criterion can choose to be treated as a non-resident for the year of assessment following the year of his overseas employment.
For example, if a person’s overseas employment stretches from 1 April 93 to 31 Oct 93, he will be allowed the choice of being treated as a non-resident for the year of assessment 1994. With this extension, an individual will effectively not be taxed on his overseas employment income. This administrative concession takes effect from the year of assessment 1993.
5. If a Singaporean who avails himself of this administrative concession to be regarded as a non-resident has any other income derived from Singapore for the same year of assessment, eg house rental or Singapore dividends, the tax on his other Singapore income will not be computed on the flat rate applicable to nonresidents, but as if he were a resident. This is known as being allowed the relief under section 40 of the Income Tax Act.
6. As this is an administrative concession, IRAS will continue to treat a Singaporean where period of overseas employment in any year is longer than 6 months as a resident if he does not wish to avail himself of this concession.
CHANGES ARE COMING
On 6 August 2019, IRAS announced that the administrative concession that allows Singaporeans to elect to be assessed as nonresidents will lapse as it is no longer relevant in furthering its objective of removing any disincentive for Singaporeans to work overseas.
The change takes effect from Year of Assessment 2021 (calendar year 2020).
This change will place overseas-based Singaporean employees at a disadvantage as compared to overseas-based non-Singaporean employees.
Nevertheless, there are other tax benefits of being treated as a nonresident, as noted below.
NOT ORDINARILY RESIDENT (”NOR”) Taxpayer Scheme
An individual may be able to qualify for the time apportionment of employment income concession under the NOR taxpayer scheme upon repatriation to Singapore, if he meets the qualifying criteria of being a Singapore nonresident for three consecutive Years of Assessment immediately before repatriation (i.e., re-establishing residency in Singapore) and would spend at least 90 days outside Singapore in a calendar year pursuant to his Singapore employment.
However, the NOR scheme will be abolished after 2019, which means that individuals becoming tax residents in 2020 onwards will no longer qualify for the scheme. The election for nonresident treatment for this purpose will also no longer be relevant effective from 2020.
BUSINESS TRAVELERS TO SINGAPORE
Section 13(6) of the Act provides for a tax exemption on income derived from employment exercised in Singapore for not more than 60 days in a year by nonresident individuals (other than as company directors and public entertainers). Hence, under current rules, if a Singapore citizen working overseas opted to be assessed as a nonresident and limited his business trips to Singapore to not more than 60 days in a calendar year, the income relating to the business trips in Singapore would be exempted from tax.
On the other hand, as tax residents, if Singaporeans employed overseas make a return visit to Singapore and perform services in Singapore pursuant to their overseas employment, regardless of the number of days spent in Singapore, the income attributable to the services in Singapore would be regarded as Singapore-sourced taxable income. Such income would need to be reported on the Form IR8A (Return of Employee’s Remuneration) by the overseas employing entity. Generally, if certain treaty conditions are met, double taxation may be avoided by claiming a foreign tax credit / exemption.
In this connection, Singaporeans working overseas should avoid extending personal home trips into work-days in Singapore. Additionally, employers and/or employees would need to keep track of the work-days spent in Singapore to help ensure tax reporting requirements are complied with.