Tax Changes Impacting Expats and Employee Retirement Plans (SG)

This article provides information on important changes to employee retirement plans in Singapore and what employers can do to ensure tax efficiencies and that there are no surprises in the near term.

  • The Inland Revenue Authority of Singapore (IRAS) has recently made changes that may affect the tax treatment of employer retirement contributions for expat employees.

  • This note provides more information on these changes and what employers can do to ensure tax efficiencies and that there are no surprises in the near term.

Continue reading the article below to learn more.


Overview

The Inland Revenue Authority of Singapore (IRAS) has established more favourable rules for the Not Ordinarily Resident (NOR) Scheme* which grants qualifying expats tax exemptions on contributions made by the employer to a non-mandatory overseas pension or provident fund for five consecutive years.

In summary, these are:

  1. A relaxation in the eligibility criteria for individual employee tax relief on employer contributions to non-mandatory overseas pension plans; and
  2. A new opportunity for individuals to claim this tax relief if they are employees of service and investment companies moving to the "normal trading company" basis of tax under recent corporate tax changes.
  3. However, the Minister of Finance announced in the 2019 budget speech that new applications for the NOR Scheme will not be accepted after (YA) Year of Assessment 2020 (i.e. for income earned in calendar year 2019). Therefore, these opportunities are time-limited with the last concessions being available YA 2024 for individuals granted NOR status prior to 2020.

Further Information

(1) A five-year tax exemption has long been available to expats qualifying for the NOR Scheme in respect of employer contributions (subject to a cap) to a non-mandatory overseas pension or provident fund (e.g. Hong Kong ORSO plan). In a welcome move, IRAS has withdrawn the requirement for the employer’s contributions to be charged/ recharged to a Singapore entity for the tax concession to apply, opening the exemption to a wider population of expats.

Furthermore, there is the opportunity for NOR-filing expats to revisit their position for prior years where this requirement had previously prevented a claim. Taxpayers who have not already claimed the concession for Year of Assessment (YA) 2017 and 2018 may be able to apply to the IRAS for it within the next 4 years.

Note that this tax concession does not apply to employees of investment holding companies or service companies that adopt the ‘cost plus mark-up’ (CM) basis** of assessment. For these companies, the employer’s contributions are taxable and reportable in the employer’s tax return for the employee’s remuneration. (Note this is also the case for employer premiums/contributions to group insurance plans/overseas mandatory schemes (e.g. Hong Kong MPF) respectively, where administrative concessions do not apply).

(2) In a separate corporate tax move, IRAS has tightened the scope of companies eligible to be taxed on the ‘cost plus mark-up’ (CM) basis, meaning many investment holding and service companies are required to transition to the ‘normal trading company’ (NTC) basis, by the latest in YA 2020.

If the NOR qualifying conditions are met, the employer’s contributions to non-mandatory overseas schemes (e.g. Hong Kong ORSO) could be exempt from tax. However, the amount remains reportable by the employer in the employer’s tax return of the employee’s remuneration (as the employee would need to apply for the NOR tax concession together with their annual tax returns filing each year).

(3) The Minister for Finance, Mr. Heng Swee Keat, in his Budget Statement for the Financial Year 2019 (delivered in Parliament on Monday, 18 Feb 2019) announced that the NOR scheme will phase out after YA 2020. This means the tax exemption of employers’ contributions to non mandatory pension funds and mandatory social security schemes will be lost over the coming years.

The NOR Scheme was introduced in the 2002 Budget with the objective of attracting talent with regional and global responsibilities to relocate to Singapore. The Minister of Finance periodically reviews the relevance of tax schemes. With the lapse of the NOR Scheme after YA 2020, the last such NOR status will be granted for YA 2020 and expire in YA 2024. Individuals who have been accorded the NOR status will continue to be granted NOR tax concessions until their NOR status expires, provided they continue to meet the conditions of the concessions.

Impact on Employers

(a) Employers who bear their expat employees' tax burdens through tax equalisation should assess the financial impact of: (i) claiming the tax concessions for a wider population of expats because of the changes and so reducing tax costs versus (ii) the longer-term phase-out of the relief.

They should link in with their tax compliance advisers and communicate to affected expats to ensure that all possible exemptions are claimed, including retroactively where possible.

(b) Employers who do not tax equalise (and will not therefore directly recognise a saving because of these changes) should nonetheless:

  • review their recharge and tax accounting arrangements, and
  • consider communicating any potential individual savings opportunities to affected employees.

Aon does not provide tax advice; before decisions are made or plans are implemented, employers should seek professional tax advice.


* Not Ordinarily Resident (NOR) Scheme qualifying criteria:

  • The individual is a Singapore tax resident for the income year in which the claim is made;
  • The individual is not a Singapore citizen or Permanent Resident;
  • The individual must have Singapore employment income of at least S$160,000 in that income year;
  • The employer must not claim a deduction on the contributions made up to the NOR cap.

** Going forward, the ‘cost plus mark-up’ basis will strictly apply only to service companies providing routine support services to related parties at a markup of five percent only.


APAC RetirementAPAC.Retirement@aon.com


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The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Important Tax, Administration and Financing Changes Affecting Employee Retirement Plans (HK)

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