As an employer, one of your responsibilities is filing Form IR21 for your employees. This form details their employment and income up until their last working day or the day before they leave Singapore. It’s also your duty to withhold funds from non-Singaporean employees for tax clearance purposes upon their departure.
Given the complexity of the process, we recommend using a comprehensive HR software solution in Singapore to make filings more accurate. Adaptive Pay provides a robust HRMS platform equipped with an advanced payroll module designed to ease the complexities of tax filing. This cloud-based software simplifies tax-related processes while boosting your overall operational efficiency. With features encompassing leave and claims management, attendance tracking, and employee appraisals, Adaptive Pay ensures that your HR tasks are managed effectively and efficiently.
Understanding IR21 and the tax clearance process is vital for compliance with Singapore's local regulations. This guide aims to equip you with the latest information and insights on these topics, ensuring you stay compliant and informed.
Understanding tax clearance in Singapore
Tax clearance is a mandatory process for employers with non-Singapore citizen employees (this includes Singapore Permanent Residents and foreign employees).
Employers must notify the Inland Revenue Authority of Singapore (IRAS) and withhold any payments owed to these employees when they are about to end their employment or if they plan to leave Singapore for more than three months, including if they are relocating for an overseas assignment.
However, there are specific scenarios where tax clearance isn't required:
If the employee was in Singapore for no more than 60 days within the calendar year. This exemption doesn't apply to company directors, public entertainers, or professionals in similar roles.
If the employee has been working in Singapore continuously for more than 183 days over two years and their annual earnings have not exceeded $21,000. This is relevant for foreign employees who arrived in Singapore from January 1, 2007, onwards.
If the Non-Singapore Citizen employee has worked in Singapore for at least 183 days in a calendar year and earns less than $21,000 annually.
If the employee has been with your company for three consecutive years, with an annual salary below $21,000.
Payments to withhold from Non-Singapore Citizen employees
As an employer, you must withhold all monies, including reimbursements, allowances, overtime and leave pays, lump sum payments, and gratuities due to the employee from the date you become aware of their impending departure from Singapore or termination of employment. If you're unable to withhold these payments for some reason, you must clearly state your reasons on Form IR21. Failing to do so could make you responsible for any taxes the employee owes to the IRAS.
It's important to note that the Employment Act prohibits employers from deducting parts of an employee's monthly salary to cover tax clearance funds.
What is Form IR21?
IRAS requires employers to file Form IR21 for all non-Singapore citizen employees. This form reports the employee's income and employment details up to their last day of work or the day before they leave Singapore.
Filing Form IR21 helps prevent foreign tax defaulters. It ensures that employees pay any taxes they owe before leaving Singapore.
To ensure a smooth exit process for your employee, you should file Form IR21 at least one month before any of these events:
They end their employment with your company in Singapore.
They leave Singapore for a period exceeding 3 months.
They depart for an overseas work assignment.
Submitting Form IR21
Use IRAS' myTaxPortal for a quicker tax clearance process. This online service requires authorisation through your company's Corppass login.
To avoid delays, you need to make sure that the information on your employee's Form IR21 is accurate:
Include all your employee's income earned during the year they are leaving or their cessation year. If you did NOT electronically report their income from the previous year using the Auto-Inclusion Scheme (AIS), include that as well.
Provide details on any severance payments offered as compensation for loss of office. IRAS will determine if these payments are taxable.
Use your HR software (if applicable) to confirm the amount of gratuity your employee receives for past services. Remember, gratuity and any salary payments made in place of notice are taxable income and should be reflected on the form.
These are just some of the things you must know about Form IR21 and tax clearance. Request a demo of Adaptive Pay today to see how HR software in Singapore can help you with the tax clearance process.
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