How Does Singapore Tax System Affect Your Payroll

In Singapore, all gains and profits derived by an employee in respect of his or her employment are taxable, unless they are specifically exempt from income tax or are covered by an existing administrative concession. These maybe in money or otherwise.

Thus, employers have to declare the benefits-in-kind unless these are found in the list of granted administrative concession or exempt from income tax. An employer offering the flexible benefits scheme would have to make a distinction between taxable and non-taxable benefits. Employers have to keep track of the taxable items so that the taxable benefits are reported in the Form IR8A.

Consider the following when you manage your payroll:

• Accommodation and related benefits, including hotel accommodation provided to employees during their employment in Singapore, are part of employment income and subject to income tax.

• Benefits relating to corporate events, social and recreational facilities, in-house training, loans, gifts, insurance premium, transport benefits, medical and dental care, lump sum payments, child-care, or cars, maybe be taxable or non-taxable depending on their nature.

• In Singapore, the tax treatment of taxes paid by the employer as a benefit to employees makes it very clear that such benefits are taxable, and a tax-on-tax is computed.

• Gains and profits arising from Employee Share Options (ESOP) and other forms of Employee Share Ownership (ESOW) are subject to tax in Singapore. So, an employee who is granted share options by an employer will be taxed on any gains or profits arising from the exercise of the share option. And an employee who is granted ESOW by the employer is subject to tax on any gains or profits when the ESOW plan vests on the employee. The gains are taxable in the year when the shares are granted.

• Similarly, recreational allowance and contributions made by the employer to any pension/provident fund outside Singapore is taxable.

Outsource your payroll services to us to understand all the critical benefits and expenses to keep in mind while calculating taxes.