Tax Clearance is a process of ensuring that your non-citizen foreign employee pays all his taxes when he ceases employment with you in Singapore or plans to leave Singapore for more than three months. Tax clearance obligations apply to all work pass holders including PEP holders.
As an employer, it is your responsibility to notify IRAS and seek tax clearance for the affected foreign employees.
Tax Clearance Calculator
Use the Tax Clearance Calculator (68KB) to check whether tax clearance is required.
When to seek tax clearance
You must seek tax clearance by filing Form IR21 at least one month before the non-citizen employee:
- ceases to work for you in Singapore; or
- is on overseas posting; or
- leaves Singapore for any period exceeding three months.
If you are unable to give 1 month's notice, please state your reasons when you file the Form IR21. Unless the Comptroller accepts a shorter notice, employers who do not comply may be liable to a fine up to S$1,000.
When is tax clearance not required
Tax Clearance is not required for:
- Singapore Citizens
- Singapore Permanent Residents (SPR) who are not leaving Singapore permanently after they have ceased employment with you. This administrative concession does not apply to overseas postings. You may obtain a Letter of Undertaking (28KB) from the SPR employee if he has no intention to leave Singapore permanently at the point of cessation of employment with your company.
- Non-Singapore Citizens who
- worked 60 days or less in a calendar year (Scenario 1). This does not apply to directors of a company, public entertainers or individuals exercising a profession, vocation or employment of a similar nature.
- worked 183 days or more within a calendar year and earned less than S$20,000 annually (Scenario 2).
- worked 183 days or more within a continuous period straddling two years and earned less than S$20,000 annually (Scenario 3). This two-year * administrative concession is only applicable to foreign employees who have entered Singapore on or after 01 Jan 2007. It does not apply to directors of a company, public entertainers or individuals exercising a profession, vocation or employment of a similar nature.
- worked for three continuous years or more and earned less than $20,000 per year (Scenario 4).
- are transferred to another company in Singapore due to merger, takeover, or restructure (within the group).
- are away from Singapore for training or business purposes (excluding overseas posting) for three to six months.
What to do pending tax clearance
How much do I need to withhold
You are required to withhold all monies (including salary, bonus, overtime pay, leave pay, allowances, gratuities, lump sum payments, etc.) due to your employee from the day:
he notifies you of his intention to cease employment/depart Singapore or
you decide to terminate the employment or
you decide to post the employee to an overseas location.
How long should I withhold the monies from my employee
You are required to withhold any payment of monies to the employee for a period of 30 days from the day you notified IRAS through the Form IR21, or until the tax clearance directive is issued by IRAS, whichever is earlier.
If you are unable to withhold monies from your employee, please state the reasons in the Form IR21. Generally, you will not be held liable for your employee's tax if you could not withhold monies due to circumstances such as immediate resignation, abscondment etc.
However, if there is no valid reason for not withholding your employee's monies, you may be held liable for the tax that is owed by the employee.
Find out more on how to estimate your employee’s tax.
Regardless of the notice period, the employer should start withholding monies at the point of resignation (in this scenario, 1 Sep 2011). The employer is required to inform IRAS of the impending departure and seek tax clearance for the relevant period, up to the date of cessation. Where there are adjustments to be made to the income after filing the original Form IR21, the employer can file an amended or additional Form IR21.
There will be a 10-day grace period granted for you to meet the tax filing obligations. If you are unable to give 1 month’s notice, please state the reasons when you file the Form IR21. Generally, IRAS accepts late notification with valid reasons such as immediate resignation.
Yes. You should seek tax clearance at the start of the gardening leave. Where there are adjustments to be made to the income after filing the original Form IR21, the employer can file an amended or additional Form IR21.
When your SPR employee notifies you of the cessation of his employment, find out whether he has the intention to leave Singapore permanently.
(a) If he has no intention to leave Singapore permanently, you are not required to give notification or seek tax clearance for him.
(b) If he is leaving Singapore permanently, you are required to seek tax clearance.
Q6. How can I be sure that my SPR employee is not leaving Singapore permanently upon cessation of employment?
If his decision to leave Singapore was not made known to you at the point of cessation of employment with your company, you will not be held responsible for his tax clearance.
Yes, tax clearance is required as the administrative concession for waiver of tax clearance does not include overseas postings.
Tax clearance is not required as long as the SPR employee has no intention to leave Singapore permanently at the point of cessation of employment with your company.
The SPR employee should report his annual income in his tax return. If he has not received a tax return by 15 March and his income has exceeded $22,000, he has to request a form from IRAS.
Employers should check with IRAS on the taxability of the payments once the retrenchment package has been finalised by providing the details below via fax to +65 6351 2707:
a) the circumstances why the staff are leaving the company
b) detailed breakdown of the package and state the basis of arriving at each component
c) the number of employees affected (breakdown to be given for Singaporeans and Foreigners)
d) the name and contact number of the person administering the payout
IRAS will confirm the taxability of each component.
After getting confirmation from IRAS, employers should report only the taxable components and indicate the reason and basis of arriving at the compensation payment in Section F 'Item 4e' of the form.
Generally, employers are not required to seek tax clearance for foreign students from educational institutions such as universities and colleges if:
- they are required to undergo practical or industrial attachment with a local organisation as a compulsory part of their educational programme, and
- they are only paid subsistence allowance to meet their daily expenses and board and lodging in Singapore.
However, if the foreign student enters into employment contract and is remunerated for services rendered for the organisation in Singapore, the remuneration paid will be subject to tax in Singapore. In such instance, tax clearance will be required.
An employer is not allowed to deduct a portion of his or her foreign employee's monthly salary in order to accumulate sufficient monies for tax clearance under the Employment Act. Find out more in Payment of Salary
at the MOM website.