- Singapore: MOM Clarification Helps Resolve Tax Issues Arising From Employment Pass Salary Disclosures
- September 10, 2010
- Law Firm: Fragomen Del Rey Bernsen Loewy LLP - New York Office
The Singapore Ministry of Manpower (MOM) recently confirmed that an employment pass applicant will be considered to be on local payroll for immigration and tax purposes if his or her salary is fully re-charged to the sponsoring employer in Singapore. The clarification means that sponsoring employers can declare a local payroll source in qualifying employment pass applications and avoid the need to submit a letter guaranteeing payment of a beneficiary’s Singapore income tax obligation, normally a requirement when a foreign national is paid from a foreign source. The MOM’s clarification followed discussions with Fragomen and the Inland Revenue Authority of Singapore (IRAS).
As a general matter, employers submitting employment pass applications to MOM must declare whether the foreign beneficiary will be paid from a local or a foreign source. The MOM provides information on the source of employment pass holders’ salaries to the IRAS. If the salary of an employment pass holder is paid from a foreign source, the IRAS usually requires the sponsoring employer in Singapore to submit a letter of guarantee, in case the foreign national leaves Singapore without paying his or her taxes. If the employer fails to provide a letter of guarantee, the IRAS can require the foreign national to pay his or her anticipated Singapore taxes in advance.
Impact for Employers
In light of the MOM’s recent clarification, employers should follow these general guidelines:
- If a foreign national’s salary will come fully from a Singapore source, or if it will come from a source outside of Singapore and then be fully re-charged to the sponsoring employer in Singapore, the sponsoring employer in Singapore should select “LOCAL” in Section B ¿ Salary Details of the employment pass application. This will help avoid having to submit a letter of guarantee to the IRAS.
- If a foreign national’s salary will be partially paid from a source in Singapore, or partially re-charged to the sponsoring employer in Singapore, “BOTH LOCAL AND OVERSEAS” should be selected in Section B ¿ Salary Details of the employment pass application. The IRAS may request a letter of guarantee for salary that will come from the foreign source.
- If a foreign national’s salary is fully paid from a source overseas, “OVERSEAS” should be selected in Section B ¿ Salary Details of the employment pass application. The IRAS will typically require a guarantee in such cases.
Employers should confirm payroll arrangements before completing the employment pass application. While it is advantageous to avoid having to provide a letter of guarantee, providing false or misleading information to the MOM can lead to significant sanctions.
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