NOR Scheme: Tax Exemption of Employers’ Contributions to Non-Mandatory Overseas Pension Fund or Social Security Scheme

The Not-Ordinarily-Resident (NOR) Scheme was introduced to make it attractive for individuals with global or regional business experience to live and work in Singapore.

The scheme grants favourable tax treatment to qualifying individuals for a period of five years of assessment, provided they meet the following criteria:

  1. They must not have been a Singapore tax resident in the three years of assessment  before the year he/she qualifies for the NOR scheme; and
  2. They must be a tax resident for the year of assessment in which they wish to qualify for the scheme.

If an individual is accorded the NOR status, he or she may enjoy the benefit of apportionment of his/her employment income and tax exemption on contributions made by the employer to an overseas pension fund for five consecutive years, subject to qualifying conditions.

Under the apportionment of Singapore employment income concession, the portion of the Singapore employment income that corresponds to the number of days the individual spent outside Singapore for business reasons, as a resident Singapore employee, is exempt from tax.

To enjoy the benefit of time apportionment of their employment income, an NOR taxpayer must:

  1. spend a minimum of 90 days outside of Singapore for business reasons; and
  2. must have a minimum Singapore employment income of $160,000.

The other concession under the NOR Scheme provides for tax exemption on employers’ contributions to a non-mandatory Overseas Pension Fund or Social Security Scheme.

In order to qualify for the tax exemption under this concession, the following conditions must be met:

  1. The NOR taxpayer is not a Singapore Citizen or Permanent Resident; and
  2. The NOR taxpayer’s employment income must be at least $160,000; and
  3. The employer must not claim a deduction made to the NOR taxpayer’s overseas pension or provident funds and social security schemes up to the NOR cap.

On 19 October 2018, the Inland Revenue Authority of Singapore (IRAS) provided further clarification that condition 3 is considered met where:

  1. the contribution is borne by a foreign company and is not charged or recharged to  the Singapore employer, as no deduction on the contribution is taken by the Singapore employer; or
  2. the employer is a tax-exempt body or representative office that is not required to file a tax return, as no deduction on the contribution is taken by the employer.

The above was revised from the previous clarification by IRAS that condition 3 is not satisfied if the contribution is not charged or recharged to any Singapore entity.

For further information, please refer to IRAS’ website.

Source: Inland Revenue Authority of Singapore

 

IRAS Revises Formula for Computing Car Benefits

The Inland Revenue Authority of Singapore (IRAS) has revised the formula for computing car benefits with effect from the Year of Assessment (YA) 2020 to simplify tax compliance, as well as to better indicate the value of the actual benefits enjoyed by employees.

Following the revision, employees are no longer required to log their private mileage travelled arising from the private usage of the cars, except in the case where a driver is provided.

The current formula up to YA 2019 and the new formula effective from YA 2020 for computing car benefits are as follows:

IRAS Revises Formula for Computing Car Benefits YA 2020

*
Or the remaining period from the date of purchase of the car to the date of expiry of the first COE or renewed COE.

^PARF refers to the Preferential Additional Registration Fee Rebate to be granted when the car is de-registered at the age of above 9 but not exceeding 10 years.

# Actual running and maintenance costs, include reimbursements made to the employee by the employer. Examples of such costs include road tax, petrol, car park charge, ERP charge, car insurance, repairs and maintenance, if any.

For further information, please refer to IRAS’ website

Source: Inland Revenue Authority of Singapore

IRAS Releases New e-Tax Guide on IPRs Valuation Report with Regards to Section 19B of the Income Tax Act

3 July 2018

The Inland Revenue Authority of Singapore (IRAS) released an e-Tax Guide on 28 June 2018 providing directions on when an independent valuation report on qualifying intellectual property rights (“IPRs”) is required for submission for the purposes of Section 19B of the Income Tax Act, as well as the necessary information required to be present in the valuation report.

This guidance is useful for companies that have incurred capital expenditure in acquiring IPR for use in its trade or business that qualify for writing-down allowances (“WDA”).

The document outlines the following:

  1. Requirement for the submission of a valuation report
  2. Information to be disclosed in a valuation report
  3. Record-keeping period

For more information, refer to IRAS’ Website.

Source: Inland Revenue Authority of Singapore

Singapore and Kenya Sign DTA Agreement

A comprehensive agreement for the Avoidance of Double Taxation (DTA) has been signed by Singapore and Kenya on 12 June 2018.

Some of the withholding tax rates under the DTA are as follows:

  • Dividends – 5%. Since Singapore’s domestic withholding rate for dividends is nil, dividends will be exempt from withholding tax in Singapore.
  • Interest – 10%. Exempted from tax if paid between the specified relevant government authorities of the contracting states.
  • Royalties – 10%


The DTA is currently awaiting ratification and does not have the force of law. The full text of the DTA is available on IRAS’ website.

Source: Inland Revenue Authority of Singapore

IRAS Withdraws Administrative Concession Relating to Withholding Tax on Related Party Services

Generally, local payers are required to withhold tax at the prevailing corporate tax rate of 17% on gross payments made to non-residents on services performed in Singapore that fall under Section 12(7)(b) and (c) of the Income Tax Act*.

As an administrative concession, companies are allowed to apply a lower withholding tax rate (i.e. lower than the prevailing corporate tax rate of 17%) on gross payment made for related party services performed in Singapore that fall under Section 12(7)(b) and (c) if certain conditions are met without the need to seek prior approval from IRAS.

This administrative concession will be withdrawn where the date of payment falls on or after 1 April 2018. 

The date of payment is defined as the earliest of the following dates:

  1. When the payment is due and payable based on the agreement or contract, or the date of the invoice in the absence of any agreement or contract (credit terms should not be taken into consideration).
  2. When payment is credited to the account of the non-resident or any other account(s) designated by the non-resident.
  3. The date of actual payment.

According to the Inland Revenue Authority of Singapore (IRAS), this administrative concession is being withdrawn due to low adoption.

 

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*Extract of Section 12(7) of the Income Tax Act: 

12(7)(b) any payment for the use of or the right to use scientific, technical, industrial or commercial knowledge or information or for the rendering of assistance or service in connection with the application or use of such knowledge or information;

12(7)(c) any payment for the management or assistance in the management of any trade, business or profession;

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Source: Inland Revenue Authority of Singapore (IRAS)