As expatriate employees leave Singapore for their home locations, what legal compliance measures should HR practitioners be aware of? Dennis McEvoy of KPMG demystifies the legislation know-how.
Many companies are reorganising their global workforce to manage costs in the current economic slowdown. This has led to the repatriation and retrenchment of expatriates, and following that, the need for proper tax clearance for departing non-Singaporeans ceasing employment in Singapore.
This can be daunting for companies as foreign employees often receive remuneration and benefits-in-kind from various sources and few companies have access to all the required data through a single payroll or human resource system. What possible legislation pitfalls should HR practitioners know about?
Dennis McEvoy, executive director of International Executive Services at KPMG demystifies the legislation know-how.
For employers, what tax issues have to be managed when expatriate staff depart?
The Inland Revenue Authority of Singapore (IRAS) requires employers to file Form IR21 Notification of a Non-citizen Employee’s Cessation of Employment or Departure from Singapore at least one month before a non-Singaporean employee leaves employment.
If the employee is a Singapore permanent resident who is not leaving Singapore permanently, tax clearance is not required. The employer must instead obtain a letter of undertaking from the employee to confirm that he is not leaving permanently.
What are employers required to do when non-resident staff depart?
For tax clearance, employers are required to withhold all monies due to the employee from the day he ceases employment, when the employer terminates the employment or the employee is posted overseas. Employers should not release these payments to the employee until tax clearance is given, or upon the expiry of 30 days after the IRAS has been notified through Form IR21, whichever is earlier.
What can happen if employers do not comply?
If an employer is unable to provide one month’s notice to the IRAS, an explanation must be furnished with the filing of Form IR21 unless the IRAS has accepted a shorter notice period.
If an employer fails to withhold any monies and does not give valid reasons, he may be held liable for the tax that is owed by the employee.
What happens if the foreign employee has unexercised stock options or share awards?
Non-Singaporeans ceasing employment with unexercised stock options and/or unvested share awards granted on or after 1 January 2003 may be subject to tax under the ‘deemed exercise’ rule.
The gain is generally computed based on the open market value of the share one month prior to the date of cessation less what the employee may pay to acquire the shares. For some expatriates, this can create issues affecting their cash-flow since no transaction may have actually occurred which provides funds to settle the tax due.
If actual gains are later found to be less than the deemed exercise gain, the employee may apply for a reassessment of tax within four years. Employees are therefore encouraged to maintain adequate records supporting any planned refund claim.
How can companies be better prepared?
Companies should instead re-visit their payroll processes regularly to ensure compliance with the tax clearance regime. This is a more cost effective alternative to being liable to unrecoverable taxes and fines.
