How Does Singapore Income Tax Work?

Knowing how income tax works in Singapore can help employers, founders, and payroll managers manage their obligations and mitigate tax complications, ensuring accurate and timely tax reporting.

If you’re a business owner, you can use Deel to hire and pay workers in Singapore, including real-time payroll capabilities for faster, more accurate G2N calculations.

This guide will cover everything from tax rates to the tax reporting process, and guide you on how to navigate Singapore's income tax system compliantly. You’ll learn how tax residency status can influence your employees’ income tax liabilities and the types of compensation considered taxable.

Singapore income tax basics

All personal income derived from sources in Singapore is taxable, including cash payments and benefits-in-kind received as compensation for employment services rendered within the country, such as:

• Salaries and wages
• Bonuses and commissions
• Pensions and retrenchment benefits
• Leave pay
• Allowances
• Directors’ fees
• Gains from employee share plans
• Employer-provided automobiles, housing, and kids’ school fees

This tax treatment applies regardless of whether the income is paid in Singapore or elsewhere. Foreign-sourced income received in Singapore is generally not taxable except in specific instances, such as when it is earned by a resident individual from an overseas employer or through a partnership in Singapore.

Singapore charges personal income tax at a progressive rate from 0%–24% for tax residents, meaning that higher income earners will pay more tax than their counterparts who earn less.

Tax assessments are based on an individual’s tax residency status, applicable deductions, and chargeable income received in the previous calendar year, from January 1 to December 31.

Tax residents with an annual income below SG$20,000 are exempted from paying tax. However, everyone is generally expected to file an income tax return with the Inland Revenue Authority of Singapore (IRAS) via myTax Portal, regardless of their income level, unless they receive a letter or SMS exempting them from filing returns.

Employer tax compliance responsibilities

In Singapore, both domestic and foreign employers are required to fulfill specific duties and practices to comply with tax regulations from IRAS and labor laws outlined in the Employment Act. These include:

Maintaining accurate records

You’ll need to keep clear records of employee pay and related expenses. These records help ensure accurate staff earnings reports and support your business’s tax filings. Make sure you’re tracking key information and documents like:

• Payslips, receipts, invoices, and bank statements
• CPF contributions
• Employee age, gender, and address
• Dates of resumption and termination of service
• Working hours, break duration, leave passages, and public holidays taken
• Employee National Registration Identity Card (NRIC) or Work Pass number and expiry date

Withholding payroll taxes

While you are not mandated to withhold employment income tax for your employees, as they are responsible for filing their taxes, you must calculate, pay, and withhold other payroll taxes and contributions on behalf of your workers, as follows:

Central Provident Fund (CPF)

The CPF is a federal pension scheme, designed to help workers in Singapore save towards retirement. Employers must make mandatory contributions amounting to 17% of the employee’s monthly salary and also withhold 20% of each employee’s monthly earnings to be paid into the fund.

Employer and employee CPF contributions are capped at a wage ceiling of SG$6,800. CPF contributions are deducted at a reduced rate for employees over 55 years old or earning below SG$700.

Foreign Worker Levy (FWL)

If your employee is working in Singapore with an S Pass or work permit, you will be liable to pay FWL at a rate dependent on your industry, the worker’s qualifications, and the ratio of foreign to local staff employed by your company in Singapore.

Skill Development Levy (SDL)

The SDL is a compulsory monthly tax used to fund training grants and worker upskilling programs. You are required to pay SDL for all employees, including foreign workers, at a rate of 0.25% of their monthly wage. The minimum SDL payable for each employee is SG$2 and the maximum is SG$11.25.

Note that you may also need to make additional withholdings for certain workers to cover student loan repayments, child support payments, or court-ordered garnishments.

Preparing necessary forms

Employers must report earnings for local and foreign employees in Singapore for the respective tax year by submitting relevant forms to IRAS to ensure the correct personal income tax rate and associated levies are applied:

• Form 1R8A: For all full-time, part-time, or non-resident employees, pensioners, company directors, board members collecting board/committee member fees, and former employees who received income in the reporting tax year
• Appendix 8A: For employees who were provided with benefits-in-kind
• Appendix 8B: For employees who earned profits or gains from employee stock option plans or other types of employee share ownership plans
• Form IR8S: If you made excess CPF contributions and/or claimed or intend to claim a refund on the surplus amount

Staying up-to-date with tax regulations

Changes are regularly being made to existing tax schemes, incentives, reliefs, rates, reporting deadlines, and filing procedures. It’s imperative to continuously monitor Singapore’s work and tax policies to maintain strict compliance and avoid penalties that may arise from a breach of regulations.

Employee income tax rates and taxable income

An employee’s tax residency status determines their Singapore income tax rate. To qualify as a resident for tax purposes in Singapore, an employee must be:

• A Singapore citizen or permanent resident whose normal residency is in Singapore, except for temporary absences.
• A foreigner who physically resides or maintains employment in Singapore other than as a director of a company for at least 183 days in the respective calendar year and three consecutive years on a continuous basis, even if the period of residence in Singapore is less than 183 days in the first and/or third year
• A foreigner who has exercised employment, not including company directors, public entertainers, and professionals, in Singapore for a continuous period across 2 calendar years with a total physical presence of at least 183 days.

The table below shows the tax rates for resident employees from 2024 onwards based on their income bracket:

Learn more about Singapore’s most recent income tax rates.

Tax treatment of employment benefits

Any other remuneration or benefits that you provide to employees in addition to their normal wages are considered taxable income, unless specifically exempted from Singapore income tax or covered by an existing administrative concession. This includes:

• Residential accommodation
• Company cars
• Overtime payments
• Subscriptions and memberships
• Medical reimbursements for dependents
• Meal, transport, and clothing allowances
• Salary in lieu of notice for early termination of contract

Examples of employment-related benefits that are treated as non-taxable or granted administrative concessions include:

• Compensation for loss of office
• Payments for restrictive covenants
• Club entrance and membership fees used for official purposes
• Overtime meal allowance and reimbursements
• Awards for excellent service that do not exceed SG$200 in value
• Work laptops, phones, tablets, and notebooks
• Sponsored employee outings, corporate dinners, and gifts
• Death gratuities, disability payments, and workmen compensation

Personal income tax deductions and reliefs

Employees may reduce their tax bill by taking advantage of certain allowances and deductible expenses, such as:

• Donations: Employees can claim a 250% tax deduction for money or items donated to approved institutions and charitable organisations
• Life insurance: Employees can deduct their life insurance premium payments from their income tax as long as their CPF contributions are below SG$5,000
• Course fees relief: If an employee spends money on enhancing their skill via courses, conferences, exams, or seminars, they can claim it on their tax returns up to SG$5,500
• Supplementary retirement scheme (SRS) relief: Contributions to SRS are voluntary and eligible for tax deductions
• CPF relief: Contributions made by employees to their own or a family member's CPF account can be deducted from their income.
• Reliefs for personal circumstances: Being a parent, spouse, working mother, caregiver to a grandparent, or a provider for a parent or handicapped sibling entitles an employee to further tax reliefs provided they meet the qualifying conditions

Learn more about tax treatments in Singapore.

Employer responsibilities for tax withholding and reporting

As an employer in Singapore, you’re obligated to fulfil certain reporting and withholding obligations to ensure employees offset their employment income tax burdens on time and accurately. The two main duties you’re charged with include:

Enrolling in the auto-inclusion scheme for tax filing

If your organization has five or more employees, you must register for the AIS to report your workers’ income information and relevant deductions to IRAS. You are also required to join the AIS if you have received a “Notice to File Employment Income of Employees Electronically under the AIS,” regardless of the size of your workforce.

Participating in the AIS streamlines the tax filing process, saving you the trouble of handing out hard copies of tax forms and appendices to employees every tax season, since reporting and filing are done online.

Similarly, your employees will not need to declare their employment income as long as you are enrolled in the AIS. These details will be automatically pre-filled in their personal income tax return from your report. All they have to do is verify the information, add other income they may have received from other sources, claim personal reliefs or rebates they want to use to reduce their tax liabilities, and submit their returns.

Enrolling in AIS is voluntary if your company has fewer than five employees. However, IRAS recommends that you do. Otherwise, your employees must report their employment income themselves when filing their returns.

Processing tax clearance for foreign workers

Singapore-based companies are responsible for obtaining a tax clearance certificate for foreign employees following their exit from the organisation. This is to ensure the employee settles any outstanding tax bills they may have before moving to another company or leaving the country.

To secure tax clearance, you will need to submit a completed Form IR21 to IRAS as soon as you are made aware of the employee’s intention to terminate service or at least one month before the end of employment or departure from Singapore. You must also begin withholding any monies due to the employee until IRAS notifies you and the employee of their final tax bill.

If the amount you withheld is more than the tax due, the balance should be returned to the employee. However, if the withheld amount is insufficient to cover the tax bill, the employee must pay the remaining sum before tax clearance will be granted.

Key deadlines and penalties for non-compliance

The tax reporting season in Singapore typically runs from March 1 to April 18 for income earned in the preceding calendar year. Understanding when filings and payments are due and respecting deadlines is crucial to avoid getting penalized for late or non-filings and payments. Here is a breakdown of important deadlines to note:

Failing to submit income reports and tax returns by the due date is an offence that may result in:

• Fines of up to SGD5,000 per offence in lieu of prosecution
• An estimated tax bill that may be higher than the actual tax liability
• Legal actions, further fines or penalties, and potential jail time

You are required to make CPF and SDL contributions for each month on the 14th of the following month, or the next working day if the 14th falls on a weekend or public holiday.

FWL payments are due on the 17th of the month for the previous month or the next working day if the due date falls on a weekend or public holiday. If you fail to remit these payments when due, the following penalties will apply:

Once employees receive a Notice of Assessment from IRAS containing their tax bill, they have one month from the date of receipt to pay their taxes in full unless they have applied for and been granted leave to make installmental payments through GIRO.

IRAS may take the following steps as a consequence for late or non-payment of income tax:

• Imposing a 5% penalty on the unpaid tax and an additional 1% penalty per month up to a maximum of 12% if the tax remains unpaid for 60 days after the first penalty was imposed
• Appointing your company or other agents, such as banks or tenants, to recover the unpaid tax from defaulting employees
• Restricting the employee from travelling outside of Singapore
• Taking legal action against the employee

Where the late filing or payment is due to a legitimate reason, such as family emergencies, overseas travel, or hospitalisation, an appeal for a waiver, an extension to file/pay, or a reduction of penalties can be submitted.

Additional considerations for employers

Employees who do not meet the tax conditions for tax residency in Singapore will be treated as non-residents for tax purposes and taxed at a flat rate of 15% or at the rate payable by a tax resident in the same income bracket, whichever is higher.

However, if the non-resident employee held employment in Singapore for less than 60 days total in a calendar year, they are exempted from paying income tax, unless they are professionals, entertainers, or a non-resident director of a Singapore-based company.

For non-resident directors who are present in Singapore for less than 183 days combined in a calendar year, income tax will be assessed and withheld by you at a flat rate of 24%.

Non-resident employees staying in Singapore for 61 - 182 days with tax residency in a country with a double taxation agreement (DTA) with Singapore may also benefit from tax exemptions or reliefs under the DTA treatment if they meet the qualifying conditions.

Common payroll compliance mistakes to avoid

Payroll processing can be a complex activity for businesses with a sizable workforce and different work schedules, worker classifications, and benefits systems, especially when it's handled manually.

Knowing the common payroll pitfalls can help you avoid them and prevent employee dissatisfaction, legal penalties, and additional financial burdens that they may cause:

Employee misclassification

Classifying employees as independent contractors or non-resident employees exempt from tax as a tax-paying non-resident or a resident for tax purposes can complicate tax assessments, causing you and your employees to incur fines and other penalties.

Inaccurate income calculations

Miscalculating the number of hours worked, using the wrong wage rates, failing to include all taxable compensation, or relevant deductions can lead to payroll disputes and incorrect tax remittances.

Incomplete or scattered payroll records

The absence of a centralized system or clear process for recording, updating, and managing employee and payroll information can result in the omission of important information such as address, benefits, identification number, and pay increases from tax forms, causing tax filing delays and tax underpayment or overpayment.

It can also make it harder to put up a defense when payroll disputes arise or your books get audited by the authorities.

Not adhering to IRAS regulations

Failure to comply with IRAS rules for employee income reporting, filing deadlines, mandatory contributions, and withholdings can mean financial and legal penalties and even a disruption of your business’s operations.

How to simplify payroll and tax compliance in Singapore

By leveraging the right strategies and resources, you can resolve common payroll challenges and make it easier to pay your employees and manage tax compliance in Singapore as a local or foreign entity.

1. Create clear payroll policies and workflows

Make a list describing the steps you need to take to finalise payroll and ensure compliance. Outline your existing worker classifications, payment and benefits structures, leave and overtime entitlements, and your policy for organizing and updating records.

This will enable you to standardize processes, ensuring accuracy, consistency, and smoother compliance.

2. Use payroll software to automate processes

With a global payroll software like Deel, you can run payroll effortlessly wherever your employees are based, eliminating the need for manual computations or data entry, which is the leading factor behind payroll errors. Deel's compliance specialists constantly monitor tax regulations in Singapore and notify you of any changes and approaching deadlines, so you never miss anything or fall out of compliance.

You can connect your HR tool to the payroll software to sync and update employee data instantly, rather than copying and pasting it from disparate platforms. Utilizing payroll software offers other benefits, including increased organizational efficiency, enhanced employee satisfaction, reduced payroll disputes, automatic deductions and withholdings, and streamlined reporting.

3. Outsource payroll to an EOR

An employer of record service like Deel EOR allows you to hire and pay employees compliantly in Singapore without undergoing the tedious and costly process of setting up your own entity. The EOR will manage all key HR and payroll functions on your behalf, including income tax reporting, compulsory contributions, and other compliance responsibilities.

Unlock end-to-end payroll management with Deel

Whether you're a Singapore-based business or a foreign company looking to expand operations to Singapore, you are responsible for calculating and reporting employee earnings, submitting tax forms, paying required contributions, and withholding tax when necessary. The consequences for falling behind or neglecting to fulfil these obligations can be serious for you and your employees.

Deel Global Payroll equips you to run error-free payroll consistently and maintain compliance with local labor and tax laws in Singapore.

Deel can significantly cut down payroll processing time with done-for-you tax calculations and reporting, automatic payroll withholdings and remittances, centralized document management, and integrated HR workflows.

Our EOR service helps reduce administrative burdens, enabling you to dedicate more time and resources to growing your business and keeping your employees engaged.

Learn how you can simplify Singapore payroll with Deel. Book a free demo today to get started.