Rules on tax residency in Singapore: Who is eligible, and why is it important?

The tax residency is a very important element in tax advice on expatriates working in Singapore. The status of your residence will dictate the amount of tax that you pay, what type of income is subject to taxation, and the ability to design tax efficient investments on behalf of expats Singapore.

Tax Residency in Singapore: What Is It?

Tax residency is calculated on the calendar-year basis in Singapore (1 January to 31 December). IRAS of Singapore categorizes individuals as either a tax resident or a non-resident with respect to physical presence and length of employment.

Who is a Tax resident?

You are a tax resident as a rule in the cases when:

·         You are Singapore Citizen or Permanent Resident (PR) in Singapore, but not temporarily out of Singapore.

·         A foreigner employee or remains in Singapore at least 183 days within a calendar year.

·         You work in Singapore on a basis of three years in a row, although you do not satisfy the 183-day requirement in every year.

·         Under some administrative concessions, you have to work in Singapore at least 183 days in two consecutive years.

·         The short-term visitors, consultants, or those staying less than 183 days in a year are normally considered as non-residents.

The Importance of Tax Residency in Expatriates

Tax residency has a direct effect on cash flow and wealth planning in the long term:

·         Lower Tax Liability

·         Progressive tax rates and reliefs tend to allow expats that qualify to be tax residents to pay less tax.

·         Availability of Tax efficient Investments.

The tax efficient investments for expatsSingapore can be better exploited by tax residents, who can enjoy:

·         No capital gains tax

·         No tax on most foreign sourced income not repatriated.

·         Favorable treatment of dividends.

Double Taxation Relief

As tax advice for expats, Singapore has Double Taxation Avoidance Agreements (DTAs) that could be advantageous to tax residents to avoid payment of taxes on the same income twice.

Retirement and Long-term Planning

Residency status will be a determining factor of CPF (when applying PRs), insurance-linked investments and estate planning strategies, which are important factors of tax efficient investments as an expat in Singapore.

Regular Residency Traps Expats Must Escape

·         Incorrect imaging of the days of stay, including weekends and public holidays.

·         In case of employment pass, it is assumed that one is a tax resident.

·         Failure to observe tax clearance requirements during exit of Singapore.

Final Thoughts

In the case of an expatriate, smart financial planning is the provisions of tax residency in Singapore. Proper classification enables fewer taxes to be paid, compliance and accessibility of tax efficient investments to expats in Singapore. Tax advice should be highly considered particularly in cross-border income and long-term investment planning.