When your foreign employee ceases to work for you in Singapore, you need to ensure that he has paid all his taxes before leaving Singapore. This process is known as Tax Clearance.
Step 1: Check whether tax clearance is required
Use the Tax Clearance Calculator (68KB) to check whether tax clearance is required. STEP 2 to STEP 4 are not required if tax clearance is not required.
Step 2: Notify IRAS via Form IR21
Complete Form IR21 at least one month before your non-citizen employee ceases employment in Singapore. If you are not able to give one month's notice, please provide reason(s) in the Form IR21. Unless the Comptroller accepts shorter notice, employers who fail to comply may be liable to a fine of up to $1,000.
Note:
- If you are e-filing Form IR21, please refer to the user guide or i-help at myTax Portal. For paper filing, please download the Form IR21.
- The tax assessed will include the income the employee earned in the year of departure as well as that earned in the preceding year, if that has not been transmitted to IRAS at the point of tax clearance.
- If your employee receives severance payments in the nature of compensation for loss of office, then such payment may not be taxable. You should provide IRAS with the necessary information for evaluation.
- Any gratuity for past services payable at the end of contract is taxable.
- If you pay the employee salary in-lieu of notice, such payment is taxable.
- If the employee has any existing share options or stock awards on hand which have yet to be exercised or vested, they will be deemed to have derived gains from these at the point of tax clearance. This also applies to those with selling restriction. Refer to "What to do if there are unexercised stocks options?" for more information and complete the relevant appendix.
Step 3: Withhold any payment of monies due to your employee
You are also required to withhold any monies (including overtime pay, leave pay, allowances for transport, entertainment, gratuities and lump sum payments, etc.) due to your employee from the day he notifies you of his intention to cease employment or when you decide to terminate the employment or post the employee to an overseas location. If you are unable to withhold monies, please state the reason in the Form IR21. If an employer fails to comply, he may be liable for the tax that is owing by the employee.
Step 4: IRAS processes tax clearance for your employee
Generally, IRAS takes about 7 days to process the e-filed Form IR21. For paper filing, it will take about 21 days to process. You can check the status of tax clearance via myTax Portal.
If you need to make changes to the original filing, please complete another Form IR21 by indicating "Amended" or "Additional" as appropriate.
Step 5: You will receive the Clearance Directive
IRAS will send a Clearance Directive to your company once your employee's tax liability is determined. You can also view the electronic copy via myTax Portal. The Directive will tell you to release monies to your employee or to remit the taxes assessed to IRAS within 10 days.
Step 6: Your employee will receive the tax bill (Notice of Assessment)
IRAS will also send the tax bill to your employee. The employee will be informed to pay the difference if the amount withheld by you is not sufficient to pay his taxes. He can also view the electronic copy via myTax Portal using his SingPass or IRAS Pin.