Tax clearance — a procedure to check the tax status of a person that plans to leave Singapore. If your employee is going to stop working for you in Singapore, or transfers overseas, or leaves the country for more than 3 months, it is your responsibility to file Form IR21 with IRAS to seek tax clearance for him.
What is the process for tax clearance?
To process tax clearance, your accounting company in Singapore needs to submit the Form IR21 to IRAS. It is advised to file it electronically at myTaxPortal. The form must include:
- the employee income in the latest year and the year before
- shares or options of the company the employee owns
- exit bonus as per contract agreements
- Severance payments, as they might be not taxable, depending on the details you provide If you submitted the application online, IRAS will take 7 days to process it. The paper applications take 21 days on average. Once IRAS is ready, you can check your online account to receive either a Directive to Pay Tax or a Notification to Release Monies. A paper copy will be sent by post.
When should I submit tax clearance?
If you need to organize tax clearance for your employee, you need to fill in and file the Form IR21. It has to happen at least a month before
- The employee stops working for your Singapore company
- The employee starts working overseas
- The employee leaves the country for longer than 3 months
Who does not require tax clearance?
- Singapore Permanent residents that stay in the country after leaving your employment. Make sure you receive a Letter of Undertaking (LOU) from the employee ensuring he or she plans to stay in Singapore. You need to keep it in your company records. If the employee goes to work overseas, the tax clearance is required
- Foreigners who worked for 60 days or less, except the directors of a company, public entertainers, or professionals like coaches, consultants, etc.
- Foreigners who worked for 183 days or more earning less than S$21,000 per year. No tax clearance required unless the employee was previously employed in Singapore. If you are not sure what the previous situation was, inquire with IRAS.