Current legislations make it difficult for foreign talent to stay for the long-term. What can companies do to stem the expat departure?

What does the Not Ordinarily Resident scheme entail?
The Not Ordinarily Resident (NOR) Sheme was introduced by the Singapore Government in 2002 in order to attract foreign talent to Singapore. Where certain conditions are met, an NOR taxpayer can benefit from two tax concessions which when combined, can significantly reduce the tax bill to as low as 10% (which may be up to a 50% reduction for very high earners).

In order to benefit from the scheme, the individual must not have been a resident in Singapore for the three years prior to the claim and he must make an initial claim (with his first resident tax return) and then an annual claim each year with his tax returns. The major saving is related to business travel outside of Singapore - the taxpayer can 'time apportion' his income and may only pay tax on income relating to Singapore work days (where he travels for 90 or more business days per year). In addition, the taxpayer may be able to continue within a foreign pension plan and, subject to CPF limits, may enjoy tax favoured employer contributions.

Why does it discourage top talent from staying in Singapore in the long term?

Tax clearly isn’t the only factor for internationally mobile staff when making the decision to stay in or to leave Singapore, and a number of other factors including family, lifestyle and career will also play a large part.

However, when faced with an increase in tax (The NOR status is only available for five years) the employee is faced with a difficult choice. Indeed, the opportunity to benefit from tax incentives offered by other countries (for example, Hong Kong offers time apportionment of income for expatriates without any time limit) may be enough to lure our top talent away from Singapore even where the individual has a number of personal reasons for staying in Singapore.

What impact does NOR have on a locally-paid expatriate?

Although the locally-paid/locally-employed expatriate can still benefit under the NOR scheme, the provision relating to foreign pension contributions is highly unlikely to apply to him given that there may not be a suitable overseas pension vehicle as his company in Singapore is the main employer. This is especially true where the employee is a new hire directly into Singapore, as there will be no links with any home country pension scheme within the company.

What should companies do to stem their expatriate talent from leaving?

To suggest that a pension scheme on its own would dramatically reduce attrition rates may not be entirely correct, however it is true that a combination of more friendly tax rules and more pro-active employers would mean that locally employed foreigners could save for their retirement in a tax efficient manner.

Currently, employment pass holders cannot contribute to CPF and so without any employer sponsored schemes, they are left on their own to save enough for retirement.

Why would a pension scheme be effective in preventing their talent from leaving?

Employers have a degree of flexibility when designing pension schemes which are approved under section 5 of the Singapore Income Tax Act. They may, for example, make contributions to the scheme on behalf of an employee which 'vest' over a number of years. In order to benefit from the contributions, one of the conditions may be 'continued employment' and so employees may be reluctant to leave their job if their pension partially depends on continued service.

What legislations must be changed to help stem the flow of talent from leaving?

The current legislation is very effective in attracting foreign talent. However, if the NOR scheme was extended beyond five years and the tax law in relation to section 5 pension schemes was relaxed (currently 100 percent of the final pension payment is taxable which includes an effective tax on investment growth) and brought in line with, say, the supplemental retirement savings scheme (SRS) which only taxes 50% of the final payment, then this may help to 'retain' the foreign talent beyond the traditional three to five year period.

Why is preventing top talent from leaving so important?

In PwC’s recently published 11th Global CEO Survey, a staggering 89% of CEOs had ‘people issues’ as a top agenda item with attraction, retention and development of talent being one of their greatest concerns. In short, if companies cannot retain the talent they need in Singapore to support their business objectives, they will need to move somewhere else where the talent is more readily available.

James Coleman, senior manager
PricewaterhouseCoopers International Assignment Services Singapore
www.pwc.com