Top Tips for Tax Clearance for Foreigners in 2025
- Published: 11 February 2025
- 9 min read
- Running a Business, Tax & GST
Heather Cameron
Business Writer
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
John Yap
Reviewer
John Yap, our Head of the Accounting Team in Singapore, brings over a decade of expertise in SFRS, corporate tax, and GST compliance. As a key blog reviewer, John ensures our accounting content is accurate and relevant, transforming complex concepts into actionable advice. With John's meticulous oversight, you can trust that our blog provides reliable and up-to-date information to help you navigate the intricacies of financial management and compliance in Singapore.
Tax clearance for foreigners is mandatory when leaving Singapore. It ensures all taxes are settled, avoiding legal issues and penalties. This guide covers the process, timing, employer roles, and important considerations.
Key Takeaways
- Tax clearance (IR21) is mandatory for foreign workers leaving Singapore for over three months, initiated by employers to settle outstanding tax liabilities.
- Employers must file Form IR21 at least one month prior to an employee’s departure, ensuring accurate information to avoid delays and penalties.
- Proper documentation and timely payment of tax liabilities are crucial to prevent significant penalties and consequences for both employers and employees.
What Is Tax Clearance for Foreigners?
Tax clearance, known as IR21, is a necessary process for foreign workers in Singapore to settle all taxes owed to the Inland Revenue Authority of Singapore (IRAS) before leaving the country. This process is mandatory for foreign employees who are ceasing employment or leaving Singapore for over three months, ensuring compliance with tax regulations and preventing future legal complications.
Employers play a vital role in the tax clearance process, initiating it for their foreign employees and addressing any outstanding tax liabilities before departure. Failure to complete tax clearance can result in significant penalties imposed by IRAS, impacting both the employer and the employee.
Understanding filing tax clearance is key for legal compliance and preventing issues from unsettled taxes, ensuring that tax clearance for foreign employees leaves Singapore without any unresolved obligations.
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When Do You Need to Seek Tax Clearance?
Foreign employees must seek tax clearance when leaving Singapore for over three months or permanently. This includes situations where an employee is ceasing employment or going on an extended overseas posting. Employers are required to file Form IR21 at least one month before the employee’s departure to ensure timely processing.
Initiate the tax clearance process as soon as the employee’s departure is known to avoid last-minute rushes and ensure accurate and timely completion of all paperwork. Employees should check with their employers to confirm that Form IR21 has been filed before they leave Singapore.
Employers must notify IRAS about the employee’s departure at least one month in advance, allowing IRAS to prepare and settle any outstanding taxes promptly. Employees should also ensure they start the tax clearance process at least one month before their departure date to avoid any delays.
Employer Responsibilities in Filing Form IR21
Employers must withhold payments from employees during the tax clearance period to cover any outstanding tax liabilities. This requirement applies to all work pass holders, including those holding a Personalised Employment Pass (PEP). Employers must file Form IR21 for each foreign employee leaving or ceasing employment, providing accurate details of employment and income earned.
Employers must ensure that accurate employee information, such as salary details and the last working day, is included when filing Form IR21. Additionally, employers are responsible for withholding sufficient amounts from the final payment to cover any outstanding taxes. This includes all payments due from the date they are notified of the employee’s departure.
Employers must file Form IR21 at least one month before the employee leaves or ceases employment to ensure compliance. Failure to do so can result in penalties and complications for both the employer and the employee. Employers should also notify their foreign employees about their tax clearance obligations upon cessation of employment.
How To File Form IR21
Form IR21 can be filed electronically through the myTax Portal, the preferred method due to its efficiency. Employers need to gather necessary information, including income details and employment history, which tools like Payboy HR Software can facilitate. After submitting the form electronically, employers receive an immediate confirmation message.
Alternatively, Form IR21 can be mailed to IRAS at 55 Newton Road, Singapore 307987, though this method takes longer, with processing times extending beyond 21 days. Employers should ensure that all information is accurate and complete to avoid delays in processing.
Employers can file an Amended Form IR21 if changes or updates are needed after submission. To withdraw the form, necessary information must be emailed to IRAS. Both online and paper submissions require careful attention to detail to ensure a smooth tax clearance process.
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Processing Time and Deadlines
Processing time for Form IR21 varies by submission method. E-filed forms are processed within 7 working days, while paper-filed forms take over 21 days, potentially delaying tax clearance. Therefore, it’s advisable to use the e-filing option through myTax Portal for quicker results.
To ensure timely processing and avoid penalties for late filing, employers should submit Form IR21 at least one month before the employee’s departure. Delays can occur if the information is incomplete or requires further clarification. Timely and accurate submissions help avoid these delays and ensure a smoother tax clearance process.
Taxable Income Considerations
Accurate tax clearance requires understanding what constitutes taxable income, including salary in lieu of notice, gratuity for past services, and existing share options or awards. Employees’ income tax must be reported for each calendar year in Form IR21, ensuring all earned income is accounted for.
Gains from Employee Share Options (ESOP) and Employee Share Ownership (ESOW) plans are taxable when the options are exercised or shares vest, irrespective of the employee’s current employment status. For non-Singapore citizens, a deemed exercise rule applies, meaning tax is due when employment ends, even if options are not exercised.
Documents Required for Tax Clearance
Accurate documentation is critical for smooth tax clearance. Employers must provide income statements detailing earnings during the employment period to help accurately calculate taxes owed. Employment contracts should also be included, as they outline the terms of employment and cessation.
Details regarding share options must be documented to assess their tax implications. All these documents are essential for filing Form IR21 and ensuring that the tax clearance process is completed accurately and efficiently.
Proper documentation aids in faster tax clearance and helps avoid delays or penalties.
Consequences of Not Settling Tax Clearance
Failing to settle tax clearance can lead to serious repercussions for both employers and employees. Employers who do not file Form IR21 on time can face fines of up to $1,000, and a 5% late payment penalty applies to unpaid taxes. These penalties can escalate to b for each offense, leading to significant financial burdens.
The repercussions extend beyond financial penalties. IRAS has the authority to appoint agents to recover unpaid taxes from individuals. Travel restrictions may also be imposed, preventing individuals from leaving Singapore until their taxes are settled. This can result in prolonged legal battles, reputation damage, and additional costs for those who fail to comply.
Failure to obtain tax clearance can limit future work, business, or investment opportunities in Singapore, and individuals may face scrutiny and delays at immigration checkpoints. Therefore, it is crucial to ensure that all tax obligations are settled before leaving Singapore to avoid these serious consequences.
Special Cases and Exemptions
Certain cases do not require tax clearance. Singapore Permanent Residents (SPR) are exempt if they are not leaving Singapore permanently after employment and submit a Letter of Undertaking. A Singapore permanent resident employee working in Singapore for 60 days or less in a year is also exempt, excluding company directors and public entertainers.
Exemptions also include employees on overseas postings for up to six months who continue to be paid by their Singapore employer and foreign students on compulsory industrial attachments receiving only subsistence allowances.
These exemptions help streamline the tax clearance process for specific groups of employees.
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Updating Personal Information with IRAS
Updating personal information with IRAS ensures smooth communication and tax processing. Foreigners can modify their mailing address via myTax Portal under ‘Update Contact & Notice Preferences’, ensuring all correspondence reaches the correct address. Changes in marital status should also be communicated to IRAS with supporting documents like marriage or divorce certificates.
Foreigners can update personal contact details using the ‘Update Contact Details’ e-Service at myTax Portal or by emailing IRAS, ensuring all information is current to avoid delays or issues during tax clearance. Accurate information is crucial for timely and effective communication with IRAS.
Paying Your Tax Bill
Once IRAS determines an employee’s tax liability, a Directive to Pay Tax is issued, and payments must be made within 10 days. If the monies withheld are insufficient, the employee must pay the remaining balance. Employers must ensure that all payments are quoted with the Payment Slip number or employee’s Tax Reference Number for accurate processing.
Prompt tax bill payment is crucial to avoid penalties or legal actions. Lump sum payments, overtime pay, and leave pay must be accounted for in the final tax bill. Ensuring that all taxes are paid on time helps in achieving faster tax clearance and releasing any withheld monies.
Employers should notify IRAS of the payment and provide all necessary documentation to support it, ensuring a smooth and timely tax clearance process.
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Summary
Tax clearance is a crucial process for foreign employees leaving Singapore. It ensures that all tax obligations are settled, preventing legal complications and financial penalties. Employers play a significant role in this process, from filing Form IR21 to withholding payments and ensuring accurate documentation.
Understanding the tax clearance process and complying with all requirements helps in achieving a smooth transition for foreign employees. Timely filing, accurate documentation, and prompt payment of tax bills are essential for avoiding any issues. By following the guidelines outlined in this guide, both employers and employees can navigate the tax clearance process with confidence and ease.
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
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FAQ
What is the processing time for most Forms IR21?
Most Forms IR21 are processed within 21 days.
What types of income are assessed to tax by IRAS during tax clearance?
IRAS assesses various types of taxable income during tax clearance, including employment income such as salary in lieu of notice, gratuity for past services, and existing share options or awards. It is essential to understand these components to ensure accurate tax reporting.
Can I leave Singapore before income tax clearance?
No, it is strongly advised against leaving Singapore before obtaining income tax clearance. Failure to do so can result in significant penalties, including fines and potential legal action.
Is income tax clearance required for S Pass holders?
Yes, Income Tax Clearance is generally required for S Pass holders when they are leaving Singapore.
Can my employer withhold my salary for tax clearance?
Yes, under certain circumstances, your employer may withhold a portion of your salary to ensure that your income tax obligations are met before your departure. This is usually done to cover any outstanding tax liabilities.
What is an Income Tax Clearance Certificate?
An Income Tax Clearance Certificate is an official document issued by IRAS confirming that all income tax obligations for a particular individual have been settled. This certificate is crucial for departing foreigners as it demonstrates tax compliance.
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