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Do I Need To File Income Tax in Singapore for My Employees Working Remotely Due to COVID-19?

It’s that time of the year where we review how much personal income tax you and your employees are subjected to. However, since the entire world has been in a spiral due to travel restrictions caused by COVID-19, there are some grey areas surrounding this topic.

What happens if your non-resident foreign employee was on a short-term business trip to Singapore and is unable to return to his/her original country? How about overseas-based Singaporeans who are currently working remotely in Singapore? Will they be subjected to tax in both Singapore and the country they were employed to work in?

In this article, we answer a few questions that are probably on your mind. Furthermore, if you need additional guidance in how to calculate other forms of taxes, our experienced accountants can assist you.

For Situation 1 & 2, the Inland Revenue Authority in Singapore (IRAS) will classify these employees as not exercising employment in Singapore.

Situation 1: Singaporeans and Singapore PRs Employed by Overseas Companies but Are Now Working Remotely in Singapore

Samantha (a Singaporean) is an employee of Japan Holdings, an overseas company based in Tokyo. She has been working for Japan Holdings and was supposed to exercise overseas employment. It just so happens that Samantha was back in Singapore for a short period. However, due to COVID-19, Samantha is unable to fly back to Japan and has to work remotely from Singapore.

Q: Will Samantha be subjected to income tax in Singapore, and then again in Japan?

A: No, she does not have to pay income tax in Singapore if she meets the conditions below.

If Samantha’s stay in Singapore did not extend past 31 December 2020, she has to meet the following conditions so that she will not have to pay income tax in Singapore:

  1. Her employment contract remains the same before and after her return to Singapore.
  2. Her stay in Singapore is only because of travel restrictions due to COVID-19.

If Samantha’s stay in Singapore extended till 2021, she has to meet the following conditions so that she will not have to pay income tax in Singapore:

  1. Her employment contract remains the same before and after her return to Singapore.
  2. Her stay in Singapore is only because of travel restrictions due to COVID-19.
  3. The work she is doing during her stay in Singapore would have been done overseas if not for COVID-19.
  4. She will leave Singapore for Japan when she is able to before 30 June 2021. This clause will not apply if the COVID situation in Japan worsens and she cannot return to Japan.
  5. She will be taxed in Japan for the income she earned during her stay in Singapore.

Samantha stayed in Singapore till 2021. If she meets all five conditions as listed, her income up to 30 June 2021 will not be taxable in Singapore. In other words, she will only pay the tax in Japan for the income earned during her Singapore stay.

On the other hand, if Samantha only meets points (1) and (2), but has stayed in Singapore till 2021, only her income earned till 31 December 2020 will not be taxable. This means that she will have to pay normal tax in Singapore for the stay from 1 January to 30 June 2021.

If you have employees in this situation, please remind them to keep supporting documents to prove that they qualify for the above conditions. These documents can include proof that they will be taxed in the overseas country, that they are unable to travel due to a worsening condition in the overseas country, or proof that a flight was cancelled and other possible reasons. The employee will have to present them to IRAS when requested to.

Situation 2: Non-Resident Foreigners Employed by Overseas Companies on Short-Term Business Assignments in Singapore

Anderson, an employee with American Insurance, a US company, has been tasked to conduct a series of seminars in Singapore. He flew in before the COVID-19 situation in Singapore escalated. Flights back to the US were cancelled, and cases in both Singapore and the US were increasing by the day, causing Anderson to be ‘stranded’ in Singapore.

Q: Will Anderson be subjected to income tax in Singapore?

A: No, he does not have to pay income tax in Singapore if he meets the conditions as below. However, if he did not meet the below conditions, he will be subjected to normal tax rates in Singapore.

  1. He did not stay in Singapore for more than 60 days.
  2. The work done during his extended stay was not related to the business assignment and he would have returned to the US if he could have.

Anderson entered Singapore on 5 June 2020. He conducted his seminars for 10 days and ended the business assignment on 15 June. He was supposed to take a flight back to the US the next day but realised that his flight was unfortunately cancelled because of COVID-19.

This means that Anderson’s extended stay was from 16 June to the date he will depart from Singapore.

During this time, Anderson continued to work remotely for American Insurance. Let’s say his stay in Singapore from 16 June to his departure date (both days inclusive) is not more than 60 days, and the work he did whilst in Singapore could have been done in the US if not for COVID-19.

This would mean that he will not be considered as exercising employment in Singapore and will not be taxed for the income he earned during this extended stay. Note that if the business assignment was completed within 60 days, foreigners will not be taxed for the employment income for that business assignment.

On the flip side, what if Anderson was given another assignment by American Insurance during his extended stay? For instance, he was tasked to conduct another series of seminars that lasted for three months, making the period of his business assignment a total of 70 days.

In this case, the employment income for the period of Anderson’s entire stay in Singapore to complete both assignments will be subjected to normal tax rules. This is because he would have flouted the second condition to be exempted from income tax.

Normal tax rules for non-residents on short-term business assignments are as follows:

  • If the entire period of the business assignment is less than 60 days in a calendar year, you do not have to pay tax for the income you earn.
  • If the entire period of the business assignment is more than 60 days but less than 183 days in a calendar year, you will be taxed at 15% or the resident rates (whichever is higher).

Anderson’s colleague, James, also entered Singapore on 5 June 2020. James worked on his business assignment for 20 days and extended his stay by 90 days due to travel restrictions. Will he be subjected to tax?

He will be if he had worked remotely from Singapore for his overseas company during his extended stay of 90 days after completing his business assignment. He will be taxed for 110 days - the entire period of his stay in Singapore.

He will not if he did not do any work for his overseas company after the 20 days business assignment was completed.

Situation 3: Singapore Resident Individuals Starting New Employment With an Overseas Employer but Working Remotely in Singapore

Benjamin has been employed with Hokkaido Food Holdings, a Japan-based company in 2020. He was supposed to relocate to Japan for work but was asked to work in Singapore remotely due to the COVID-19 travel restrictions. Can Benjamin be exempted from tax in Singapore?

Benjamin will need to provide the following details to IRAS through myTax, and the result will be determined on a case by case basis.

  • Copy of employment contract
  • Job responsibilities and scope
  • Name of person whom the employee is reporting to
  • Nature of work to be performed from Singapore
  • Whether this is a temporary work arrangement due to travel restrictions
  • Relevant supporting documents

Situation 4: Singapore-Based Foreigners Who Are Unable To Return to Singapore and Currently Working Remotely Overseas

Lawrence is a foreign employee who is working for OCFC Bank, based in Singapore. He is now unable to enter Singapore because of travel restrictions. He is now situated in Korea. While in Korea, he continues working remotely for OCFC Bank. As there are no flights in and out of Singapore, Lawrence is unable to fly and is considered ‘stranded’ in Korea. Will OCFC Bank need to file the Form IR21/tax clearance for him, if he is stranded for more than six months?

OCFC Bank will not need to file Form IR21/tax clearance if an employee is unable to return to Singapore to work because of COVID-19 travel restrictions. However, this is also subjected to some conditions.

OCFC Bank does not have to file the Form IR21/tax clearance if:

  1. Lawrence is still employed by the company.
  2. Lawrence’s salary is continuously paid by the company.
  3. Lawrence is still holding a valid work pass to work in Singapore from OCFC Bank.
  4. Lawrence will continue to work for OCFC Bank once he returns to Singapore.

It is only when Lawrence has been terminated or resigned from OCFC Bank, then the company must comply with the tax clearance obligations.  

To conclude, your employees can be exempted from income tax, but only if they meet the conditions under each situation. For more information and FAQs, you can refer to the list of questions and answers provided by IRAS to avoid any complications while filing tax statements for your employees. If you have more complex situations regarding accounting or Singapore income taxes for yourself and your employees, or even questions on how to get an employment pass in Singapore, send us a message, we’d love to hear from you.

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