Pro – An important, and generally positive, implication for becoming a PR is the mandatory participation in Singapore's social security system, known as the Central Provident Fund (CPF). Extensive changes have been proposed recently that would refine the scheme, making it more relevant in today's global economy. Nevertheless, the main purpose of the CPF is to provide a comprehensive social security savings system that offers its members/participants financial security in retirement. Additionally, CPF savings help to meet the needs of families in terms of health care, home-ownership, family protection, and asset enhancement.
The CPF is a fully-vested scheme whereby all contributions made by the employer and the employee 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 The monies in the CPF account can be withdrawn by the participant before retirement to invest in certain approved personal and real properties and approved expenditures. The current CPF contribution rates are 20 percent for the employee (who is 55 years old or less) and 16 percent for the employer, subject to certain wage ceilings. Mandatory contributions made by the employer are not subject to tax in the hands of the employee and the employee's share of the contributions are allowable as a tax relief. Income accruing to the CPF account (such as interest and gains from sale of investments using CPF funds) are not subject to tax. Dividends received are taxable at the individual participant's tax rate, unless the company is subject to the one-tier corporate tax system as proposed under Singapore's 2002 budget, in which case the participant would receive the dividends tax-free.
There are phase-in rates of mandatory contributions for a PR. Lower rates in the first and second years of obtaining PR status would be applicable, unless both the employer and employee prefer to contribute the full rates, in which case they can apply jointly to the CPF Board.
The CPF contributions and accumulated earnings are also tax-exempt when they are withdrawn by the PR at retirement or withdrawn upon the permanent departure of a PR. (Note that a PR who has not reached retirement age cannot withdraw the CPF monies unless he or she gives up PR status and leaves Singapore permanently. In addition, he or she has to settle all outstanding taxes before the PR status can be given up).
Singapore tax savings would be achieved because the individual would benefit from the ability to deduct his or her mandatory CPF contributions for tax purposes. Furthermore, the mandatory employer's contributions, which are tax exempt, would augment the individual's CPF account balance. The simple illustration below reveals how the savings would flow to the PR and his or her participation in the CPF.
Illustration: Scenario of Jane Expat who becomes a Singapore PR (the detailed tax computations are not shown in the illustration).
Summary (details provided below)
| |
As if Expatriate
(non PR) |
As if
Singapore PR |
Tax &
CPF Savings |
| Singapore tax liability |
S$144,218 |
S$138,868 |
S$5,350 |
| CPF contributions by employer |
S$0 |
S$40,576 |
S$40,576 |
Total income tax & CPF savings
per year |
|
S$45,926 |
Details
|
Profile of Ms. Jane Expat
- Married with two dependent children; non-working spouse.
- Not tax equalized.
- Annual compensation package:
| |
S$ |
| Salary |
400,000 |
| Bonus |
200,000 |
| COLA |
15,000 |
| School fee |
36,000 |
| Car allowance |
39,000 |
| Home leave |
30,000 |
| Total |
720,000 |
Housing accommodation provided by the employer.
Housing rental paid by employer is S$80,000 p.a., with taxable furnishing value imputed at S$3,000 p.a.
As if Singapore PR: Mandatory CPF contributions made by employee and employer are calculated as follows (the full CPF rates were used):
| |
|
Employee
(20%) |
Employer
(16%) |
| - Ordinary wages |
[(S$6,000 x 12 months)
@ 20% or 16%] |
14,400 |
11,520 |
| - Additional wages |
[S$454,000 1
@ 40% @ 20% or 16%] |
36,320 |
29,056 |
| |
|
50,720 |
40,576 |
Notes:
1. The CPF income cap on bonus is comprised of salary, COLA, and
car allowance.
|
|
Con – All (temporary) foreign persons (i.e., non-citizens and non-permanent residents) are exempted from participation in the CPF. Any contributions by a foreigner and his or her employer to the CPF are considered voluntary contributions and as such do not qualify for tax relief on the foreigner's Singapore individual tax return. In addition, the employer's contribution would be taxable to the foreigner, if he or she is exercising an employment in Singapore.
What if the employee were a U.S. citizen or U.S. green card holder (resident alien)? From a tax planning perspective, to the extent a U.S. citizen's or U.S. resident alien's Singapore taxable income is reduced, the amount of tax savings may be diminished by the increase in U.S. tax (due to decreased foreign tax credits). The increase in U.S. tax, however, is generally not in proportion to the decrease in Singapore tax. If the U.S. citizen/resident alien were tax equalized, any incremental tax savings would accrue to his or her employer.
(Detailed calculations and what-if scenarios should be performed, because of the variety of situations that cannot be covered in this article.)
Children's Schooling
Pro – Generally, the child of a Singapore PR has a more convenient route of entry into local Singapore schools. Furthermore, the school fees charged by local Singapore schools are significantly subsidized for citizens and PRs.
Con – The rates charged for foreigners sending their children to school in Singapore can be very high.
Buying Real Property
Pro – In practice, only Singapore PRs may be given permission to buy certain restricted properties (see discussion under Con).
Con – Based on the Residential Property Act, non-Singapore citizens are only allowed to buy residential property classified as condominiums or apartments in buildings that are at least six stories. Non-Singapore citizens wishing to buy landed property must apply to the Controller of Residential Property for permission.
Cessation of Employment
Pro – As a concession, employers are generally not required to give notification to the Inland Revenue or withhold monies from a Singapore PR employee who is not leaving Singapore permanently, e.g., PR employees who change jobs in Singapore.
Con – An employer is required to notify the Inland Revenue if a non-Singaporean employee (expatriate) ceases or is about to cease employment in Singapore. In addition, the employer is required to withhold all monies due to the expatriate for clearance of tax. The notification must be lodged no later than one month before the expatriate's cessation of the employment. The employer can only release funds due to the expatriate upon receiving permission from the Inland Revenue or until 30 days after notification of the employment cessation was made, whichever is earlier.
"Deemed Exercise" Rule
Pro – A Singapore PR who is not leaving Singapore permanently would generally not be subject to the "deemed exercise" rule in relation to the taxation of certain stock options and Employee Share Ownership Plan (ESOW) shares, which is otherwise applicable to non-PRs and non-Singaporeans.
Con – Under Singapore's 2002 Budget, the non-PR or non-citizen expatriate is deemed to have derived a final gain in respect of all unexercised employee stock options under an Employee Stock Option Plan (ESOP) and/or unvested/restricted ESOW shares at the time he or she ceases employment. The downside is that the affected non-PR or non-citizen expatriate would have to fund the tax liability prior to the exercise and sale of the shares. The "deemed exercise" rule would apply to any stock options or ESOW shares granted on or after January 1, 2003.
National Service (NS)
Con – In general, the first generation PR is exempt from NS; however, the male children who are granted PR status under their parents' application are liable for NS upon reaching 16½ years old. They will be enlisted for two or two and a-half 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 every year until the age of 50 years (for officers) or 40 years (for non-officers).
Pro – Children of non-PR or non-citizen expatriates are not required to submit to NS.
Home Leave
Con – A PR does not receive the tax concession on home leave (described below).
Pro – As a concession, the taxable value of home leave passage for a non-PR and non-Singaporean expatriate and his or her family is restricted to 20 percent of one return fare each for the expatriate and his or her spouse, and 20 percent of two return fares for each child, for trips to the expatriate's home country.
Summary
The table below summarizes the discussion above.
| Pros |
Cons |
- Singapore personal income tax savings relating to Central Provident Fund (CPF) contributions
- Children's schooling – More convenient entry to and lower fees in Singapore schools compared to non PR
- Buying real property – Allowed to buy low-rise or landed properties, subject to the relevant authority's approval
- Cessation of employment – The tax clearance procedures are not applicable to a PR who is not leaving Singapore permanently
- "Deemed exercise" rule on certain stock options/restricted ESOW upon cessation may not be applicable to a PR
|
- National Service - National Service liability for male children
- Home leave – Removal of 20-percent tax concession on leave passage
- Negative cash flow (until withdrawal at retirement or upon permanent departure from Singapore of a PR who has not retired and gives up the PR status) due to contribution by employee to CPF
|
On the face of it, there appear to be more pros than cons of obtaining Singapore PR status. However, in making a decision about making one's stay in Singapore permanent or not, there are many variables for foreigners to consider, many of which are personal. Depending on one's facts, circumstances, and life goals, the weighting of the pros and cons will tip the balance either in favor of PR status or a return to the home country. Detailed "what-if" scenarios should be examined before any final decision is made.
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