Payroll & Taxes In Singapore: What Business Owners Need To Know

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Setting up or expanding a business in Singapore means understanding the city's tax and payroll landscape. Make sure you know the territory...

Setting up or expanding a business in Singapore means understanding the city's tax and payroll landscape. Make sure you know the territory...

There are plenty of reasons to set up business in Singapore, not least its strategic location and favourable tax rates. Like any other part of the world, however, doing business in the city involves navigating unique rules and regulations - or facing non-compliance penalties.

As a foreign entity, there are currently several viable payroll options for your business. The solution you choose will depend on factors like the nationality of your employees, current tax legislation, and the resources you are able to dedicate to the process itself.

Payroll Basics

Grasping the fundamentals of Singapore's payroll administration may seem trivial but will help create a strong, effective solution for both your business and your employees. While details vary from business to business, important basics include:

• Salary: Although there is no minimum wage in Singapore, foreign workers need to receive a salary at a level corresponding to their immigration status.
• Tax: Although there is no tax withholding on the Singapore Payroll, tax clearing will need to be performed for foreign employees leaving their Singapore employer
• Payment Frequency: Singapore employees should be paid once a month. Payments should be made within seven days of the end of the salary period but there are caveats upon the end of employment. For local Singapore employees: resignation (last day of employment) or termination/dismissal (payment within 3 working days). For foreign employees the tax clearance directives need to be followed.
• Pay Slips: Singapore recently introduced legislation which requires all employees to receive itemised pay slips within three days of salary payment.

Payroll Solutions

So, broadly speaking, how can foreign companies choose to administer payroll?

• Internal: Registered branch offices or companies incorporated and registered in Singapore can administer payroll for employees based in Singapore. However the company will still have to adhere to the relevant Singaporean regulations and will require payments and filing to be done physically in Singapore. Whether this is the right solutions will depend on the available resources and/or the confidence and expertise to handle local regulations.
• External: Registered companies (or registered branch offices) may choose to engage an external company to handle their payroll. This can be a good solution for small local offices or those new to Singapore. Payroll service providers can not only administer payments, calculations and filing requirements, the better ones will also help the company build their own Singapore knowledge pool.

Taxes and Contributions

In Singapore income tax and other contributions are applicable to employees' salaries. Singaporean citizens and foreigners with at least 183 days in Singapore are treated as tax residents and pay income tax at a progressive rate, based on their salary. Non-residents pay income tax at 15% or, if it is higher, at the normal residency rate.

Salary deductions and contributions from Singaporean employee salaries include:

• Central Provident Fund: A retirement fund for working Singaporean citizens and permanent residents. The CPF contribution consists of employer and employee contributions calculated based on total monthly wages; different rates apply to one of and recurring payments.
• All employees who areSingaporean citizens or permanent residents must also contribute to various Social Funds based on ethnicity and religious affiliation. This is the reason why employers must collect data on race and religion of its Singaporean employees. This information can be found on the employee’s identity card.

• Skills Development Levy: A fund for supporting training and workforce upgrade programmes. Employers must make SDL contributions for all employees based in Singapore (regardless of immigration status) at a rate of 0.25% of monthly salary, capped at 11.25 SGD per month. SDL is paid as part of the CPF contributions.
• Foreign Workers Levy: Designed to regulate foreign employees with basic skills working in Singapore, mainly used for domestic helpers and construction workers, the FWL for foreign workers is calculated by the Ministry of Manpower (MoM), not Payroll, and is paid via direct debit from a local Singapore bank account.
• There is no tax with-holding on a Singapore payroll. In other words the employer does not have the obligation to withhold taxes during the monthly payroll.
• Tax Clearance: When foreign employees leave their Singapore employer, their salary must be withheld and their total earnings reported to the Singapore tax office. The tax office will then issue a directive to pay to the employer which will consist of one portion of tax to be paid to the tax office and the remainder or salaries to be released to the employee

New Legislation

When your business expands, your payroll needs will change. As a business owner, it pays to be aware of the financial landscape when you decide how to administer payroll. Payroll legislation changes frequently, so it's always essential you examine the latest rules and regulations yourself... nevertheless, building a compliant and cost effective payroll process is a crucial step on your business' path to success in Singapore.