Quick Guide To Understanding Singapore Tax Clearance

singapore tax clearance

Setting up a business in Singapore has its advantages, but it also has its share of tax requirements. The Singapore tax clearance is one of the numerous forms you will likely fill out especially when you employ non-Singapore citizens. Failing to submit it on time might result in significant penalties.
This guide presents an overview of the Singapore tax clearance, detailing its background information, requirements, and when you could be required to submit one.

Background About Singapore Tax Clearance

The Singapore tax clearance is a tax clearing process where you, as an employer, must notify the Inland Revenue Authority of Singapore (IRAS) in case your foreign employee:

  • Ceases their employment;
  • Goes on a posting abroad; or 
  • Departs Singapore for a period of more than three months. 

You can do this by filling out Form IR21 with IRAS at least one month in advance as employers are responsible for filing the clearance form.

Aside from notifying IRAS, you must withhold all payments owed to the employee starting from the day you learn of their anticipated termination of employment or departure from Singapore. You can only release the withheld payments once IRAS has cleared the employee.

All workers with work passes, including those with Personalized Employment Pass (PEP), are subject to the Singapore tax clearance. However, note that it is not an annual requirement and only applies to foreign employees, including Singapore Permanent Residents.

What Are The Requirements For Singapore Tax Clearance?

To obtain a Singapore tax clearance for your foreign employee, you must electronically submit Form IR21 at myTaxPortal for a quicker tax-clearing process. Your organization must first authorize you, via the Singapore Corporate Access (Corppass), to use this e-Service.

When completing Form IR21, it is required to indicate the employee’s income. These include the following:

  • Income earned the year of termination or departure
  • Income earned from the prior year (if, at the time of tax clearance, it has not yet been electronically notified to IRAS)

Note: Severance pay for job termination may not be subjected to taxation, but you should still provide IRAS with the information it needs to assess. On the other hand, payments made to employees for compensation in place of notice and gratuities for previous services due at the end of the contract are taxable.

Additionally, you must withhold all payments owed to your employee beginning the day you become aware of their probable departure from Singapore or end of employment. These payments include:

  • Leave pay
  • Overtime pay
  • Reimbursements
  • Allowances
  • Lump sum payments
  • Gratuities

If you cannot withhold the whole amount from your employee, please indicate the reason to IRAS in Form IR21. If not, you could be responsible for paying the employee’s tax debt.

When Is Singapore Tax Clearance Not Required?

The following situations and employee categories are exempt from filing for Singapore tax clearance:

  • Singapore citizens
  • Singapore Permanent Residents (SPR) who will not leave the country permanently after quitting their job
  • Non-Singapore citizens who:
    • Worked in Singapore for three consecutive years or more and earned less than S$21,000 per year
    • Worked continuously for more than 183 days in the previous two years and made less than S$21,000 per year.
    • Worked for more than 183 days in one year and made less than S$21,000 yearly.
    • Worked for 60 days or fewer in a calendar year, except for public entertainers, company directors, and those working in a similar profession or vocation
  • Foreign employees relocated to another company in Singapore because of
    • Merger or takeover
    • Restructuring 
  • Foreign employees are away for three to six months due to:
    • Business purposes 
    • Training

When Should I File the Singapore Tax Clearance (Form IR21)?

If your employee needs a Singapore tax clearance, you must file Form IR21 at least a month before the foreign employee:

  • Leaves your company; 
  • Starts a new job abroad; or
  • Leaves the country for a period of more than three months.

What Are The Penalties for Late Filing or Failure to File for Singapore Tax Clearance?

If you fail to file the Singapore Tax Clearance within the deadline, you may be liable to a fine of up to S$1,000. The court may also summon you as an employer, including sole proprietors, partners, and directors of a company. Fortunately, IRAS will likely grant a grace period of 10 days for you to file Form IR21.

If you fail to provide a one-month notice, you must explain to IRAS by indicating your reason in the Form IR21. You might be held responsible for potential fines unless you provide valid reasons, such as for the immediate resignation of your foreign employee.

How can we help?

Filling out tax forms and submitting the right information can be time-consuming. Not only that, but there is also a chance that you may lose money from penalties.
Need help with Singapore tax clearance? Save time and trust a professional corporate services provider. At Premia TNC, we will make sure you stay on top of all requirements. Our one-stop tax services take care of all the documents you might otherwise have to juggle on your own.
Premia’s taxation services provide you with an end-to-end approach to help you manage your tax compliance for foreign employees. Our professional team will walk you through every step of the way so you can focus on growing your business in Singapore. Contact us today for more information.

Frequently Asked Questions

How long does IRAS take to process the Singapore tax clearance?

IRAS typically processes 80% of Form IR21 electronic filings in 7 business days. IRAS processes 80% of paper-filed forms in less than 21 days.
However, if IRAS requests for additional information or if the information provided in Form IR21 is insufficient, processing time might be extended.

What documents will I receive once I file the Singapore tax clearance?

IRAS will send you a Clearance Directive once they have cleared your taxes. You will either receive the following:
-Directive to Pay tax, which tells you how much money you need to send to IRAS; or
-Notification to Release Monies instructing you to release the withheld funds to the employee.

What should I do if there is additional income payable to my employee?

Before giving your employee the additional income, you must complete an Additional/Amended Form IR21 to get additional tax clearance. Refrain from reporting the additional income via Form IR8A or Auto-Inclusion Scheme in the following year.

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