Highflying Expats Working in Singapore Enjoy Big Tax Savings Under NOR Scheme
Singapore has been reinforcing its reputation as an international business centre by carefully fine-tuning all aspects of the business landscape that are essential for fostering a vibrant enterprise environment. Singapore is home to 7000 multi-national companies in diverse sectors including finance, engineering, IT, media, communications and oil and gas. The clean, green and low-crime environment of the island state has attracted expatriates to work here. Alongside a world-class local workforce, the government understands the significance of drawing international talent to its shores.
Tax is an important element in this matrix and Singapore’s tax regime is one of the most competitive in the world. Besides maintaining a very attractive corporate tax regime, the Singapore tax department is also carefully calibrating the personal tax rates. For this it has looked beyond nurturing an ideal environment to live, work and play; it has focused on the tax implications on the earnings of the expatriates. Expatriates are now posted on shorter stints and they do not have an elaborate package nowadays. Singapore has attractive tax incentives for highflying expatriates posted in Singapore, Not Ordinarily Resident (NOR) Scheme is one among them.
Personal Tax Rates in Singapore
Singapore citizens, permanent residents and foreigners, who have stayed and worked in Singapore for more than 183 days in the year before the YA is regarded as residents for the purpose of tax. Their incomes are subjected to resident tax rates ranging from 0% to 22%, depending on the amount of chargeable income. This is considered to be very low as against that of other developed countries. The OECD has an average rate of 41.7% and Asia has an average rate of 26.9%.
Tax rate for non-residents
The employment income of Non-residents is subject to a flat rate of 15% or a progressive residential tax rate, whichever results in higher tax amount and no deductions are allowed.
It must be noted that director’s fees, net consultation fees and all other incomes such as rental income, royalty and interest will be subjected to 22% from YA 2017.
When you are considered non-resident?
If you are a foreigner and have stayed in Singapore for period of 61-182 days you will be considered a non –resident. If you are employed for 60 days or less you will be still regarded as non-resident , but your income from such short-term employment of 60 days or less in Singapore will be exempted from tax. However company directors, entertainers and professionals are not entitled to this exemption. If the absence from Singapore is incidental to Singapore employment the exemption is not applicable.
What is the Not Ordinarily Resident (NOR) Scheme?
The scheme was launched in 2002, mainly targeting expatriates in Singapore with regional roles. The scheme taxes only that portion of the Singapore employment income that corresponds with the days the qualifying expatriates spend in Singapore. The portion of the income earned during the days that the taxpayer spends outside Singapore is exempted from tax. In the absence of the scheme, the entire employment income of such expatriates will be subjected to resident tax rate.
The objective of the scheme is to promote international companies to base the hub of their regional operations in Singapore. The favourable tax treatment of the expatriates’ income is effective in attracting top international talent that complements the local workforce and in turn brings investment and capital.
Qualifying criteria for NOR status
- Must be a resident of Singapore for tax purposes for the relevant YA in which he applies for NOR status
- Must be a non-resident in the three consecutive YAs immediately before the first relevant YA
- You have to apply to the IRAS for NOR status with relevant application form by 15 April (18 April if you are e-filing) of the YA in which you have qualified
- The favourable tax treatment under the scheme can be availed for five consecutive years
- Except for the first YA, for which the NOR taxpayer must be a resident, there is no requirement on the NOR taxpayer to be resident of Singapore, during the 5 year qualifying period
- However in order to enjoy the tax concessions available under the NOR scheme for any YA during the 5-year qualifying period, the NOR taxpayer must be a resident by virtue of section 2(A) of SITA. Residency status derived via 3-year administrative concessions will not fulfil this criterion.
- An individual who is a resident under Administrative concession will be treated as a resident for the purpose of determining his eligibility for NOR status.
- An individual can be accorded NOR status more than once as long as the qualifying conditions are met
- While assessing your eligibility for the NOR status for a subsequent 5-year period, any YA for which you were a non-resident, that may fall within the previous 5-year qualifying period for which you were accorded NOR status will still be taken into account
- A NOR taxpayer can enjoy one or both of the following concessions
- Time apportionment of employment income
- Tax exemption on employer’s contribution to non-mandatory overseas pension funds or social security scheme
|YA||Calendar Year||Residency||NOR Status||NOR Concession|
|2013||2012||Non – Resident|
|2014||2013||Non – Resident|
|2016||2015||Resident (more than 183 days)||NOR Status for YA 2016 to YA 2020||From YA 2016 to YA 2020|
|2016||2015||Resident (under administrative concession)||NOR Status for YA 2016 to YA 2020||From YA 2017 to YA 2020|
|2016||2015||Resident under 3-year administrative concession but opts to be treated as Non-Resident||NOR Status for YA 2017 to YA 2021||From YA 2017 to YA 2020|
Time Apportionment of Employment Income
An NOR taxpayer will be exempted from tax on that portion of his Singapore employment income that corresponds with the number of days spent outside Singapore for reasons pursuant to his Singapore employment.
Qualifying conditions for tax concession
- In the year preceding the YA, you must have spent at least 90 days outside Singapore for business reasons
- You must earn a minimum of S$160,000 (for computing the minimum income threshold, any share based gains under equity remuneration and contributions made to overseas contribution schemes can also included)
- If the tax payable on the apportioned income is less than 10% of the total employment income, the individual will be subjected to a tax of 10% of the total employment income by re-grossing the apportioned income.
- Director’s remuneration and tax paid by the employer cannot be apportioned.
- For computing the travel days the departure day is treated as a day spent outside Singapore and arrival day is treated as day spent in Singapore. If you depart and arrive on the same day then the day is treated as a day in Singapore.
- The Singapore employer must certify that the days spent outside Singapore were for performing duties pursuant to his Singapore employment.
- If the NOR tax payer has worked for two employers during the year and there is no overlap in the employment period, the number of days of employment for each employer and number of days spent outside Singapore pursuant to each employment must be aggregated respectively. If there is an overlap, for calculating the aggregated the employment period and days spent outside Singapore, any overlapping employment period and days spent outside Singapore for employment purpose should be counted for one employment only.
Mr. John, a Singapore non-resident for tax purposes in YA 2013 to YA 2015, started working in Singapore from 01 January 2015 and was accorded NOR status in YA 2016. His annual Singapore employment income is S$450,000. He travels out of Singapore for work frequently; in 2015 he spent 100 days out of Singapore. He has an earned income relief of S$1,000 for that YA. Tax payable by Mr. John, with NOR tax concession and without the concession in YA 2016 is as below.
- Singapore employment income = S$450,000
- Time apportioned income = ((365-100)/365)*$450,000 =S$326,712.33
|With NOR Status Time Apportioned Tax||Without NOR Status @ Resident Tax Rate|
|Less: Earned income relief||1,000||1,000||Less: Earned income relief|
|Chargeable income||325,712.33||449,000||Chargeable income|
|Tax on first S$320,000||42,350||42,350||Tax on first S$320,000|
|Tax on balance S$5,712.33||1,142.47||25,800||Tax on remaining S$ 129,000|
|Total tax payable*||43,492.47||68,150||Total tax payable|
|Tax after re-grossing income*||44,800|
|Tax savings with NOR status: S$23,350|
* Total tax payable S$43,492.47 is less than 10% of the total employment income. The income must be re-grossed to compute the minimum tax payable under the time apportionment tax concession.
|** Minimum tax payable is 10% of total employment income|
|10% of S$450,000||= S$45,000|
|Tax payable on S$320,000||= S$42,350|
|S$42,350 + (S$X * 20%)||= S$45,000|
|Re-grossed apportioned income||= S$320,000+13,250 = S$333,250|
Tax Exemption for Employer’s Contribution to Non-Mandatory Overseas Pension Scheme
The contribution made by employer to non-mandatory overseas contribution schemes that is not mandatory is subjected to tax and such contributions are deductable for the employer in the year of contribution. But under the concession made available under the NOR scheme such contributions are exempted from tax. However the employer cannot claim tax deduction for such contribution.
- NOR taxpayer must not be a Singapore citizen or Singapore Permanent Resident
- Must meet the minimum income threshold of S$160,000
- The employer must not claim deductions for contributions made to non-mandatory overseas pension funds or social security schemes up to the NOR cap. However the contributions in excess of the NOR cap is tax deductible.
The NOR cap is computed based on Central Provident Fund (CPF) capping rules as if the employer had made the contribution to the CPF for a Singapore citizen as required under the CPF Act. The NOR cap is determined based on total contributions made to the approved mandatory overseas schemes and non-mandatory overseas schemes.
- If the contributions are made to approved mandatory schemes and it is higher than the NOR cap the contributions are fully exempted. Any additional contribution made to non-mandatory schemes will be taxable.
- If contributions are made only to non-mandatory schemes, exemption will be allowed on contributions up to the NOR cap. Contributions in excess of NOR cap will be taxed.
- If contributions are made to both non-mandatory and approved mandatory overseas schemes the aggregate is taken into consideration
- If the aggregate is less than the NOR cap then both contributions will be fully exempted.
- If the aggregate is more than NOR cap, where the mandatory contributions is equal to or exceeding the NOR cap, it will be fully exempted from tax. The non-mandatory contribution will be taxed.
- If the aggregate is more than the NOR cap where the mandatory contribution is less than the NOR cap it will be exempted from tax. The Non-mandatory contributions up to the remaining NOR cap will be exempted from tax.
Contribution made to approved mandatory overseas scheme = X
Contribution made to non-mandatory overseas scheme = Y
Where X ≥ NOR Cap
Where Y≤ NOR cap
Non – Taxable
Where Y>NOR cap, Partial Y (Y-NOR cap)
|Contribution made to both X &Y|
|IF (X+Y) ≤ NOR cap
|IF (X+Y) > NOR cap
Where X ≥ NOR cap
|IF (X+Y) > NOR cap
Where X <NOR cap
Partial Y [Y – (NOR cap-X)]
Where X = 0
IF Y ≤ NOR cap
IF Y > NOR cap, Partial Y (NOR cap – Y)