Understand the types of employment income that are available to individual taxpayers, how these are taxed and the implications on your tax payable.
All income you have derived as an employee from your employment are taxable unless specifically exempted under the Income Tax Act or covered by an existing administrative concession.

Taxes on salaries

Generally, the salary you have received is taxable. The salary refers to the payment (in cash or other form) received for the services you have provided as an employee to your employer.

Taxes on bonuses

The bonus you have received from your employment is taxable. Bonuses may be contractual or non-contractual.

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A contractual bonus is paid in accordance with the terms of a contract of service and cannot be withdrawn by the employer without legal consequences.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

  • 13th month payment or annual wage supplement; and
  • 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.

Example 1: Taxable contractual bonus

You are given a contractual bonus (e.g. 13th-month bonus) in the year ended 31 Dec 2020 as stated in your employment contract. You received the bonus in Feb 2021.

This contractual bonus will be taxable in Year of Assessment 2021 because the bonus was paid for your services in 2020.

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.

Example 2: Contractual bonus contingent upon future conditions

Employer A implemented a contractual bonus plan for its employees for the year ended 31 Dec 2019. The following conditions are set out in the employee bonus plan:

  1. The bonus will be paid on 31 Mar 2020; and
  2. The bonus will not be paid to an employee who tenders his resignation before 31 Mar 2020.

An employee, Mr Tan, gave notice of his resignation on 15 Jan 2020. 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 Year of Assessment 2021 because the conditions were only met in 2020.

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.

Example 3: Contractual bonus paid in advance, subject to future conditions

Employer B has an existing contract to pay their employees an inducement bonus on 1 Jan 2018, with the condition that the employee returns the sum to Employer B on a pro-rata basis if he leaves employment before 31 Dec 2020.

In this example, the bonus is considered part of the employee's income for 2018 and is taxed in the Year of Assessment 2019.

If the employee left the company in 2019 and returns 50% of the inducement bonus in that year, the amount that he returns will be deducted against his employment income earned in 2019 (i.e. Year of Assessment 2020).

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.

Example 4: Discretionary bonus that subsequently becomes legally binding

Employer C has no legal obligation to pay any bonuses for 2019. On 31 Jan 2020, Employer C legally binds himself to pay a bonus to his employees for 2019 within 60 days from 31 Dec 2019. 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 2020 because the employer's liability to pay the bonus arises in 2020 and employees become entitled to it in 2020. Therefore, the bonus will be taxed in Year of Assessment 2021.

If due to cash flow problems, the bonus is not paid until 2 Jan 2021, the bonus will still be taxed in Year of Assessment 2021 as the employees become entitled to the bonus on 31 Jan 2020.

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.

Example 5: Taxable non-contractual bonus

Employer D informs his employees on 1 Dec 2019 of his decision to pay non-contractual bonuses for the year ending 31 Dec 2019 on 1 Feb 2020.

The employees become entitled to such non-contractual bonuses on 1 Feb 2020 when the bonuses are paid. The employees will be taxed on their bonus in Year of Assessment 2021.

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 (PDF, 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.

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 (AGM) 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.

Example 6: Director’s fees approved in arrears

The company voted and approved director's fee of $20,000 on 30 Jun 2020 to be paid to you for your service rendered for the accounting year ended 31 Dec 2019.

Your fee will be treated as income for 2020, even though the service you rendered was for 2019. You will therefore be taxed on the director's fee in Year of Assessment 2021.

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.

Example 7: Director’s fees approved in advance

An AGM held by the company on 9 Dec 2020 resolved that the amount of director's fees voted and approved for the accounting year ending 31 Dec 2021 was up to $100,000. The amount of director's fees voted and approved on 9 Dec 2020 was therefore approved in advance, and the directors were not entitled to the director's fees on 9 Dec 2020. This is because they have yet to perform the requisite services for the accounting year ending 31 Dec 2021.

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 the 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 (PDF, 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, please refer to the tax treatment of employee remuneration.

Taxable other employment income

  • Allowances such as transport allowance, meal allowance, etc.;
  • Benefits-in-kind such as club memberships provided by your employer in place of cash;
  • 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;
  • Salary in-lieu of notice/notice pay as compensation for early resignation or early termination of contract; and
  • Tax paid by employer - tax paid fully or partially by your employer. Please refer to Examples on how to compute tax-on-tax (PDF, 313KB) for details.

Non-taxable other employment income

  • Payments for restrictive covenants: These 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;
  • Compensation for loss of office; and
  • 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" basis from Year of Assessment 2016 (i.e. for accounting period ending in 2015) onwards. Employees of a service company that adopts the "cost plus mark-up" basis of tax assessment will not be able to enjoy the concessionary tax treatment after Year of Assessment 2015 (i.e. for accounting period ending in 2014).

Example 8: Employee has ceased Singapore employment at the time the contributions were made

Employee ceased employment in Singapore on 31 Jul 2020. On 15 Aug 2020, the employer made a contribution to his overseas pension plan for Jul 2020. As the contribution was made in respect of the employee's Singapore employment, the contribution is taxable in Singapore.

Example 9: Employer’s contribution to the mandatory overseas pension fund is not borne by or no deduction is claimed by any permanent establishment in Singapore

You have been posted from Japan to work for the Singapore employer on 1 Jan 2020. 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 the 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).

Example 10: You are an employee of a service company that adopts the "cost plus mark-up" basis of tax assessment

The 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 the 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.

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 the company's accounting period ending 2015 (i.e. basis period 1 Feb 2014 to 31 Jan 2015) and the company adopts the "cost plus mark-up" 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.

Example 11: Same information as Example 10, except that your employer decides to change its basis of tax computation from "cost plus mark-up" to "normal trading company" effective from Year of Assessment 2016 (i.e. basis period is from 1 Feb 2014 to 31 Jan 2015).

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 Income Tax Return

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

Your employer will submit your employment income details to us. Thus, you do not have to report 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 must 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 Income Tax Return.

3. You have more than 1 employment

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

FAQs

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 the company for breach of employment contract are 2 separate types of payment.

The employment income you received was for your services rendered to the company and is therefore taxable.

The amount you paid back to your company was compensation for breaching your employment contract. This payment is a personal expense that does not qualify for tax deduction.