Employment Income (Salary, Bonus, Director’s Fees, Commission, etc.)

Types of employment income available to individual taxpayers, how these are taxed and implications on your tax payable.

Taxable Employment Income

All income derived by an employee from his employment are taxable unless specifically exempted under the Income Tax Act or covered by an existing administrative concession.

Taxes on Salaries

Salary refers to the payment (in cash or other form) received or granted for the services an employee provides to his employer. Salary is taxable.

Taxes on Bonuses

Bonus received from employment is taxable. Bonuses may be contractual or non-contractual.

Tax Implications of Contractual and Non-Contractual Bonuses.

A. Contractual Bonus

A contractual bonus is paid in accordance with the terms of a contract of service and cannot be withdrawn by the employer without legal consequences. Examples of a contractual bonus are:

  1. 13th month payment or annual wage supplement; and
  2. bonus paid under a "deferred bonus plan" or "retention bonus plan".

For contractual bonus, you are entitled to such bonus in the year specified in the contract or bonus plan. This is usually the year in which you render service.

You are given a contractual bonus  (e.g. 13th-month bonus ) in the year ended 31 Dec 2016 as stated in your employment contract. You received the bonus in Feb 2017.

This contractual bonus will be taxable in YA 2017 because the bonus was paid for your services in 2016

Where the employer's liability to pay bonus is contingent upon conditions to be met in the future, you become entitled to such bonus only when these conditions are met.

Employer A implemented a contractual bonus plan for its employees for the year ended 31 Dec 2015. The following conditions are set out in the employee bonus plan:

  1. The bonus will be paid on 31 Mar 2016; and
  2. The bonus will not be paid to an employee who tenders his resignation before 31 Mar 2016.

An employee, Mr Tan, gave notice of his resignation on 15 Jan 2016. Hence, he is not entitled to the bonus. The other employees are entitled to the bonus when they satisfy both conditions.

This contractual bonus will be taxable in YA 2017 because the conditions were only met in 2016.

However, if such bonuses are paid in advance before the conditions are met, the bonuses are taxable at the time of payment . Subsequently, if the conditions are not met and the employee returns the bonus in full or in part, the amount returned is considered as an adjustment of income in the year the amount is returned.

Employer B has an existing contract to pay their employees an inducement bonus on 1 Jan 2014, with the condition that the employee returns the sum to Employer B on a pro-rata basis if he leaves employment before 31 Dec 2016.

In this example, the bonus is considered part of the employee's income for 2014 and is taxed in the YA 2015.

If the employee left the company in 2015 and returns 50% of the inducement bonus in that year, the amount that he returns will be deducted against his employment income earned in 2015, i.e. YA 2016.

For discretionary bonuses that subsequently become legally binding, such bonuses are taxable at the time when the employer contractually binds himself to pay the bonuses and the employees become entitled to the bonuses.

Employer C has no legal obligation to pay any bonuses for 2015. On 31 Jan 2016, Employer C legally binds himself to pay a bonus to his employees for 2015 within 60 days from 31 Dec 2015. This bonus is not subject to conditions and cannot be rescinded without legal consequences.

In this example, the bonus is considered to be the employees' income for 2016 because the employer's liability to pay the bonus arises in 2016 and employees become entitled to it in 2016. Therefore, the bonus will be taxed in YA 2017.

If due to cash flow problems, the bonus is not paid until 2 Jan 2017, the bonus will still be taxed in YA 2017 as the employees become entitled to the bonus on 31 Jan 2016.

B. Non Contractual Bonus

On the other hand, non-contractual bonus means the employer can withdraw or cancel it at any time before the actual payment of the bonus without legal consequences. This bonus is taxable based on the date on which the bonus is paid.

Employer D informs his employees on 1 Dec 2015 of his decision to pay non-contractual bonuses for the year ending 31 Dec 2015 on 1 Feb 2016.

The employees become entitled to such non-contractual bonuses on 1 Feb 2016 when the bonuses are paid. The employees will be taxed on their bonus in YA 2017.

For more information on the tax treatment of bonuses from employment, please refer to the e-Tax Guide on Tax Treatment of Director's Fees and Bonuses from Employment (327KB).

Taxes on Director's Fee

Generally, director's fees are sourced in the country where the company is resident. This is because all the functions of the directors in determining and controlling activities to earn the profits of the company are carried out in that country.

 Tax Implications of Director's Fee

 A. Taxable Director's Fee

Where director's fee is taxable in Singapore, it will be treated as income of the year in which you are entitled to the fee. This is usually the date of the company's annual general meeting or when the director's fee is approved by the board of the company.

 i. Director's Fees Approved in Arrears

For director's fees approved in arrears, the director has already rendered the requisite services for the accounting year concerned. However, the director's fees must be disclosed to and approved by members of the company before they can be paid to him. Hence, the earliest date on which the director is entitled to the director's fees, is the date the fees are voted and approved at the company's AGM. 

The company voted and approved director's fee of $20,000 on 30 Jun 2016 to be paid to you for your service rendered for the accounting year ended 31 Dec 2015.

Your fee will be treated as income for 2016, even though the service you rendered was for 2015. You will therefore be taxed on the director's fee in YA 2017. 

ii. Director's Fees Approved in Advance

For director's fees approved in advance, the director may not have rendered the requisite services for the accounting year concerned when the fees are approved at the company's AGM. Hence, the earliest date on which the director can be entitled to the director's fees, is as and when he renders his services.

An AGM held by the company on 9 Dec 2016 resolved that the amount of director's fees voted and approved for the accounting year ending 31 Dec 2017 was up to $100,000. The amount of director's fees voted and approved on 9 Dec 2016 was therefore approved in advance, and the directors were not entitled to the director's fees on 9 Dec 2016. This is because they have yet to perform requisite services for the accounting year ending 31 Dec 2017.

B. Non-Taxable Director's Fee

As a general rule, director's fee derived from a company that has no presence in Singapore is not liable to Singapore tax, even if the directors may, on some occasions, conduct their meetings in Singapore. This is because director's fee is generally sourced in the country where a company is resident. However, only fee attributable to attending board meetings in Singapore is not liable to Singapore tax. All other payments made for discharging duties carried on within Singapore will be taxable.

For more information on the tax treatment of director's fees, please refer to the e-Tax Guide on Tax Treatment of Director's Fees and Bonuses from Employment (327KB).  

Taxes on Commission

Commission refers to payment you receive in return for service provided.

Commission is taxable. If you receive the commission from your employer, it will be taxed as employment income. If you receive the commission as a self-employed individual, it will be taxed as trade income.

Taxes on Other Employment Income

Other employment income may include allowances and benefits-in-kind given by your employer. For more information, refer to the tax treatment of employee remuneration .

Other Employment Income that is Taxable

  1. Allowances such as transport allowance, meal allowance, etc.
  2. Benefits-in-kind such as club memberships provided by your employer in place of cash
  3. Contributions made by employer to pension / provident fund constituted outside Singapore on employment exercised in Singapore, even if you had ceased employment in Singapore at the time the contributions were made
  4. Salary in-lieu of notice/notice pay as compensation for early resignation or early termination of contract
  5. Tax paid by employer - tax paid fully or partially by your employer. Please refer to Examples on how to compute tax-on-tax (313KB) for details.

Other Employment Income that is Not Taxable

  1. Payments for restrictive covenants;
    Payments for restrictive covenants refer to payments received from your employer for entering into a covenant or contractual agreement that restricts your rights. These are not taxable as they are considered capital receipts.
  2. Compensation for loss of office; and
  3. Benefits-in-kind granted administrative concession or exempt from Income Tax.

Some examples of benefits-in-kind include sponsored group outings and outpatient treatment.

Concessionary Tax Treatment on Overseas Pension / Provident Fund Contributions

As a tax concession, employer's contributions to an overseas pension / provident fund are not taxed provided that all the following conditions are satisfied:

  1. Contributions are mandatory under social security schemes operated, regulated and supervised by the employees' home country government even though the employees are working outside their home country; and
  2. Contributions are not borne by, or no deduction is claimed by, any permanent establishment  / company in Singapore.

Other Conditions on Concessionary Tax Treatment

  1. If you are employed by an investment holding company, a tax-exempt body, a representative office or a foreign company not registered in Singapore, you would not be able to enjoy the concessionary tax treatment on your employer's contribution to an overseas pension / provident fund on or after 1 Jan 2014. Hence, you will be taxed on your employer's contributions as long as they were made in respect of your employment in Singapore.
  2. If you are employed by a service company, you will continue to enjoy the concessionary tax treatment provided your company prepares its tax computation based on "normal trading company" ("NTC") basis from YA 2016 (i.e. for accounting period ending in 2015) onwards. Employees of a service company that adopts the "cost plus mark-up" ("CM") basis of tax assessment will not be able to enjoy the concessionary tax treatment after YA 2015 (i.e. for accounting period ending in 2014).

Employee ceased employment in Singapore on 31 Jul 2016. On 15 Aug 2016, the employer made a contribution to his overseas pension plan for Jul 2016. As the contribution was made in respect of the employee's Singapore employment, the contribution is taxable in Singapore.

You have been posted from Japan to work for the Singapore employer on 1 Jan 2016. Your salary and allowances of $200,000 is borne by your Singapore employer. In addition, your employer contributed $2,000 to your overseas pension fund. The contribution is mandatory under social security schemes operated, regulated and supervised by your home country government even though you are working outside your home country. The contribution is borne by the Japan company and not charged/recharged to the Singapore company. Your employer did not claim a deduction for the contribution.

You would be able to enjoy the concessionary tax treatment on your employer’s contributions to the mandatory overseas pension fund i.e. you would not be taxed on the contribution of $2,000.

Your company's accounting period ends on 31 Jan. Your employer contributed $2,000 and $1,000 to your overseas pension fund on 31 Jan 2014 and 31 Aug 2014 respectively. The contributions are mandatory under social security schemes operated, regulated and supervised by your home country government even though you are working outside your home country. Your employer did not claim a deduction for the contribution.

Explanation

You can enjoy tax exemption on the contribution of $2,000 made on 31 Jan 2014. However, as the contribution of $1,000 on 31 Aug 2014 was made during your company's accounting period ending 2015 (basis period 1 Feb 2014 to 31 Jan 2015) and your company adopts the "cost plus mark-up" ("CM") basis of tax assessment, you would not be able to enjoy the concessionary tax treatment on the contribution of $1,000. Hence, you will be taxed on the contribution of $1,000.

In this case, you can enjoy the concessionary tax treatment on the contribution of $1,000 made on 31 Aug 2014 and hence you will not be taxed on the total contribution of $3,000.

Reporting Employment Income in Your Tax Return

1. Your employer is participating in the Auto-Inclusion Scheme (AIS)

Your employer will e-submit your employment income details to us. Thus, you do not have to declare your employment income as it will be automatically included in your tax assessment.

Find out if your employer is a participant of the Auto-Inclusion Scheme.

2. Your employer is not participating in the AIS

You have to declare your employment income including allowances, benefits-in-kind, commission and all other gains or profits from employment (before deduction of CPF contribution) under 'Employment Income' in your tax form.

3. You have more than one employment

You only have to declare your employment income from the employer who does not participate in the AIS.

  • I have breached my employment contract and I was ordered to pay back the company the income that I earned. Why am I still being taxed on the income that I paid back to the company?

    Employment income and payback to company for breach of employment contract are two separate types of payment.

    The employment income that you received was for services you rendered when you were still employed by the company and is therefore taxable.

    The amount you pay back to your company is its compensation when you breached your employment contract. This is considered as liquidated damages. Liquidated damages are not tax deductible as an expense and it cannot be offset against your employment income. 

RATE THIS PAGE

  • Strongly Disagree
  • Strongly Agree

Information is easy to understand.

Information is useful.

Information is easy to find.

Please email us if you would like us to respond to your enquiries.