Singapore continues to be a choice location for expatriate professionals and entrepreneurs to work and live in. Attributes such as the vibrant economy, stable political climate, strong and efficient governance, good public infrastructure and clean and safe environment contribute to a high quality of life.
An expatriate individual can apply to become a Singapore Permanent Resident (SPR) if he wishes to stay in the country for the long term. One of the main advantages of obtaining SPR status is that it allows an individual to live and work in Singapore for a period of at least five years. This article provides a general overview of the tax and other non-tax implications to be considered when taking up permanent residence in Singapore.
The normal schemes available for the expatriate to file an application to become a SPR are broadly as follows:
- Professional/Technical Personnel and Skilled Workers Scheme (PTS) for employment pass holders working in Singapore
- Global Investor Programme (GIP) for entrepreneurs and investors
- Financial Investor Scheme (FIS) for high net-worth individuals1
- Foreign Artistic Talent Scheme for first-class practitioners in specified fields of arts.
Each scheme has its own rules and requirements. The approval process for SPR application has become more stringent as the country tightens its criteria for granting permanent residence and professional assistance should be sought when applying.
Central Provident Fund (CPF) Participation
An important and generally positive implication for becoming a SPR is the mandatory participation in the CPF which is the same for Singapore citizens.
The primary purpose of the CPF is to provide its members with financial security in old age. Additionally, CPF savings help to meet the needs of families in terms of healthcare, home ownership, family protection and asset enhancement.
The CPF is a fully-vested scheme whereby all contributions made by the employee and the employer are credited to the account of the participant. The monies in the CPF account can be withdrawn by the participant before retirement to invest in certain approved investments, real properties and approved expenditures. The general CPF contribution rates are 20 percent for the employee and 16 percent for the employer on a maximum monthly ordinary wages of $5,000 and yearly total wages not exceeding $85,000. Lower contribution rates apply to older employees.
There are phase-in rates of mandatory contributions for a new SPR. Lower rates in the first and second years of obtaining SPR status would also be applicable, unless both the employee and employer elect to contribute using the maximum rates. For first-year SPRs, the employee and employer contribution rates are 5 percent and 4 percent respectively; and 15 percent and 9 percent respectively in the second year.
The SPR who has not reached retirement age cannot withdraw the CPF monies unless he or she gives up SPR status and leaves Singapore and West Malaysia permanently, with no intention of returning for further employment or residence. In addition, the SPR has to settle all outstanding taxes before the SPR status can be given up. Malaysian citizens who are SPRs and who leave Singapore permanently to reside in West Malaysia are generally only allowed to withdraw the CPF monies under certain specific conditions (e.g. attainment of age 55 years or older, physical or mental incapacitation, etc.).
Mandatory contributions by the employer to the CPF are exempted from income tax in Singapore. The employee is allowed a tax relief deduction for his or her mandatory contributions. Income accruing to the CPF account (such as interest and gains from sale of investments using CPF funds) is also not subject to tax.
The CPF scheme however may not be recognised under the SPR’s home country tax laws as a qualified retirement plan. For example, an expatriate SPR who is also a U.S. citizen is generally subject to tax on the employer’s CPF contributions (i.e. no tax deferral or exemption is generally allowed).
Supplementary Retirement Scheme (SRS)
The SRS is a voluntary scheme that allows individuals to save for retirement with certain tax benefits. The maximum deductible SRS contribution in any year is $29,750. However, Singapore citizens and SPRs can only contribute and deduct up to $12,750 because of their participation in the CPF.
Income Tax Clearance
In general, tax clearance is required when an expatriate employee ceases employment in Singapore, notwithstanding that the expatriate is merely changing jobs. Tax clearance refers to the process whereby the expatriate employee must settle all taxes upon cessation of employment. During the process, employers are generally required to notify the Inland Revenue Authority of Singapore (IRAS) of the employee's cessation of employment and withhold monies payable to the employee.
However, as an exception, tax clearance is not required for a SPR who is not leaving Singapore permanently. As such, the SPR may continue to settle his taxes in arrears in the normal manner of either by lump sum payment or interest-free instalment payment.
Deemed Exercise Rule for Taxation of Stock Option and Share Ownership Plans
The SPR employee who is not leaving Singapore permanently and is exempted from tax clearance would also generally not be subjected to the deemed exercise rule. This is in relation to the taxation of any gains from certain stock options under an Employee Stock Option Plan (ESOP) and shares under an Employee Share Ownership (ESOW) plan.
Under the law, a non-citizen or non-SPR expatriate is deemed to have derived a final gain based on a deemed exercise price in respect of all unexercised stock options under an ESOP and/or unvested/restricted ESOW shares at the time he or she ceases employment. The deemed exercise rule also applies to SPRs leaving Singapore permanently. A potential downside of the deemed exercise rule is that the affected expatriate would have to fund the tax liability prior to actual realisation of any gains from the options and shares. The deemed exercise rule would apply to any ESOP options or ESOW shares granted on or after 1 January, 2003 in respect of Singapore employment. On the other hand, the deemed exercise rule may cap any additional gain that would otherwise be recognised when the actual exercise price is higher than the deemed price. Also, as a concession, the deemed exercise rule permits a re-assessment of excess tax should the actual share price be lower than the deemed price.
Home Leave Tax Concession
As a concession, the taxable value of home leave passage benefit for a non-SPR and non-Singaporean expatriate is restricted to 20 percent of one return fare each for the expatriate and his or her spouse. The expatriate's children are also entitled to 20 percent of two return fares for each child for trips to the expatriate's home country. A SPR employee however will not enjoy this tax concession.
Overseas Pension Contribution Tax Concession
In general, any employer's contribution to an expatriate employee's non-mandatory overseas pension plan is regarded as taxable compensation in Singapore. Expatriates who qualify as Not Ordinarily Resident (NOR) taxpayers may however obtain a limited tax exemption subject to certain capping rules. However, SPR employees will not enjoy the concession.
National Service (NS)
In general, male SPRs who are granted SPR status under the first generation Professional/Technical Personnel and Skilled Workers Scheme (PTS) are exempt from NS. However, male children who are granted SPR status under their parents’ application are required to register for NS upon reaching 16 ½ years old. They will generally be enlisted for two years of full-time NS immediately upon reaching 18 years of age, unless deferment from enlistment to a later date is granted. They are also required to serve 40 days of Operationally Ready National Service (i.e. reservist duty) every year until the age of 50 years (for officers) or 40 years (for non-officers). Children of non-SPR or non-citizen individuals are not required to register for NS.
The healthcare system in Singapore comprises both public and private healthcare. SPRs generally enjoy lower subsidised charges at government outpatient clinics and public hospitals than expatriates. SPRs would also automatically participate in the country's national medical savings and insurance schemes.
In general, even if the parent is a Singapore citizen or SPR, the child will be regarded as a foreign student unless the child is a Singapore citizen or SPR. Under the country's education system, public school fees are generally subsidised and hence lower for SPR students than for foreign students.
Buying Residential Property
Under the Residential Property Act, an expatriate (including SPRs) is generally allowed to acquire non-restricted properties only (e.g. condominium apartments). Expatriates (including SPRs) who wish to purchase of restricted properties (e.g. vacant land, landed properties, etc.) would require the permission of the Singapore Land Authority (SLA). However, unlike an expatriate, an SPR is eligible to purchase from the resale market public housing flats developed by the Housing and Development Board (HDB).
In 2011, an Additional Buyer's Stamp Duty (ABSD) on the purchase of residential property in Singapore was enacted, in addition to the normal stamp duty rates. For any expatriate buying residential property in Singapore, the ABSD rate is 10 percent of the purchase price of the property. For SPRs, the ABSD rate is reduced to 3 percent and would only apply where the SPR is buying a second and subsequent property. SPRs, who are nationals and permanent residents of specified countries with which Singapore has a Free Trade Agreement (e.g. USA), would only be subject to the reduced 3 percent ABSD if they buy a third and subsequent property.
Human Organ Transplant Act (HOTA)
HOTA generally allows for the organs of Singapore citizens and SPRs to be removed in the event of death for the purpose of transplantation. It applies to non-Muslim individuals between the ages of 21 and 60 years unless the individual opts out of it.
In conclusion, there are indeed many variables for the expatriate individual to consider before making a decision to apply for SPR status; many of which are personal. Depending on one's circumstances, and life goals, before becoming a SPR, it is wise to look before you leap.1. With effect from 15 April 2012, the FIS has been abolished as the Monetary Authority of Singapore (MAS), which administers the FIS, will not be accepting any more applications.