How To Complete Income Tax Clearance In Singapore

Employers in Singapore enjoy certain perks while bearing a fair number of duties regarding taxation matters. For instance, among the many tax forms, companies need to complete form IR21, representing income tax clearance in Singapore. Just like many other tax obligations, failure to comply as stipulated can mean paying a hefty price.

Income tax clearance in Singapore, filed through form IR21, is a process that checks the tax standing of a person planning to leave the city-state. This requirement arises when a company’s non-Singapore citizen employee ceases employment in Singapore, goes on an overseas posting or plans to leave Singapore for more than three months. The company must file IR21 with the Inland Revenue Authority of Singapore (IRAS) to get the employee’s tax clearance Singapore.

Income Tax Clearance Singapore: What Are The Penalties?

If the company fails to give notice of their tax clearance Singapore within one month, it must include its reason in the form IR21 submitted to IRAS. A valid reason, such as the immediate resignation of the employee, is generally accepted by IRAS. Otherwise, the late filing of IR21 makes the company liable to pay a fine of SGD 1,000 or less.

When Is It Required?

Companies must file the Form IR21 at least one month before:

• The employee ceases to work in Singapore;
• The employee starts an overseas posting; or
• The employee leaves Singapore for any period exceeding three months.

Who Is Eligible For Exemptions?

When the staff fits one of the scenarios or categories listed below, the firm does not need to file form IR21 for tax clearance Singapore. Still, the company must present the employee’s earnings to IRAS through the Auto Inclusion Scheme or form IR8A by March 1.

Singapore citizens

Singapore permanent residents not leaving the city-state after resigning.

In this case, the company needs to get a Letter of Undertaking for safekeeping from the resigning employee that states they have no intention of leaving Singapore permanently. 

Non-Singapore citizens

The exemption applies only to non-Singapore citizens who:

Scenario 1: Worked for two months or less within a year

This scenario excludes company directors, public entertainers, and individuals carrying out a vocation, profession, or work of a similar type.

Scenario 2: Employed for at least 183 days within the calendar year with $21,000 or less as annual earning

Scenario 3: Worked for at least 183 days within an unbroken period connecting two years, and earning below $21,000 annually

This two-year concession is solely applicable to overseas employees who entered Singapore starting January 1, 2007. It also is not applicable for company directors, entertainers, and persons working for a profession or any similar type of work. 

Scenario 4: Worked continuously for at least three years and earned below $21,000 annually

Those under these scenarios need not file form IR21 when a different employer has not previously employed the worker in the city-state the year before or during the cessation year. However, for companies unsure of their employee’s past work records, it is advisable to e-File at myTax portal a form IR21. In this way, the company will receive immediate virtual notification about whether a tax clearance Singapore is required for the employee.

Transferred to a different company in the city-state due to (1) company takeover or merger; or, (2) posting or restructuring within the same company group

When this is the case, the firm must let IRAS know of such assignment through myTaxMail of myTaxPortal. In this way, IRAS gets to make changes in the employee’s work records. In the email, it must specify the inquiry nature as “Tax Clearance/Form IR21.”

The email must also have an attachment of the Waiver of Tax Clearance. A template of this form is available on the IRAS website. The company must also ensure that the employment income of the employees involved, from both the new and former employers, are equally stated via form IR8A to IRAS by March 1 of the succeeding year. On the other hand, tax clearance Singapore is required if the employee subsequently stops working with the latest employer in the transitional annum.

Away from the city-state for a quarter or two of a year for (1) training, (2) overseas posting, or (3) business purposes

Companies can use the Tax Clearance Calculator to know if a tax clearance Singapore is required. For overseas posting, exemption on tax clearance stays granted upon meeting the following requirements:

• The period spent out of Singapore is six months or less;
• The employee returns to Singapore and remains working for the same company. So, this means the employee continues to possess a legal work pass with the same company during the period of being out of Singapore; and, 
• The employer in Singapore continues to give the employee salary during the said period.

This rule of tax clearance in Singapore applies to foreign postings starting January 1, 2016, which remain related to Singapore employment. Therefore, tax clearance Singapore stands required in cases wherein services rendered abroad are not related to the jobs in Singapore.

The Process Of Income Tax Clearance In Singapore

To process a tax clearance Singapore, the firm in Singapore has to submit form IR21 electronically through myTaxPortal to IRAS. The employee’s current and previous years’ earnings are attached to the form. The filing must be done at least 1 month before the employee leaves.

Meanwhile, the company must continue withholding all employees’ pending payments, including overtime pay, allowances, lump-sum disbursements, gratuities, reimbursements, leave pay, and many others. 

1. For fast tax clearance Singapore, complete and submit IR21 electronically via myTaxPortal in the IRAS website after logging in using the CorpPass credentials of the company;
2. Once in, proceed by entering the employee’s income during the departure year;
3. When done, give IRAS around seven working days to go through the e-filed form IR21. Note that paper-filed forms take about three weeks to process;
4. Once the form is processed, company will receive either a Directive to Pay Tax or a Notification to Release Monies. When sent by post, it takes about an average of six working days to be delivered; and,
5. If the directive is to “Pay Tax,” the company must remit the payment within ten days to IRAS. Otherwise, a “Notification to Release Monies” will be received, which means the company must give the worker the withheld monies.