The Inland Revenue Authority of Singapore (IRAS) announced in 2023 the withdrawal of the concessionary tax treatment for employers’ contributions to mandatory overseas pension and provident funds. As a result, mandatory contributions made on or after 1 January 2024 are fully taxable to the employee. For prior coverage, see BDO’s alert, Singapore - Withdrawal of concessionary tax treatment for overseas mandatory pension contributions a - BDO.
This change may have tax implications not just for employees, but also for employers who may have to assess their prior compliance with reporting obligations.
Under the prior rules, contributions made on or before 31 December 2023 were not taxable to the employee if the following conditions were satisfied:
The imposition of tax on employers’ mandatory pension contributions will result in higher remuneration costs for employers who pay the taxes for their employees, or a smaller take-home pay if employees pay their own taxes.
Employers are also required to collate the mandatory contributions figures from employees’ respective home countries for the employer’s annual tax filing.
The IRAS will likely take note of those employers who are reporting these contributions for the first time, and they may raise questions to establish if they have correctly excluded past-year reporting. Employers in that situation should examine whether they have met the conditions to exclude reporting of contributions to offshore pension funds. If they did not, the company may consider voluntarily declaring past years’ under-reporting to reduce potential penalties from 200% of tax undercharged to 5% per year of delay.
BDO Singapore can advise and assist with voluntary reporting to correct past years’ underreporting.
Wu Soo Mee
BDO in Singapore
This change may have tax implications not just for employees, but also for employers who may have to assess their prior compliance with reporting obligations.
Changes
Under the prior rules, contributions made on or before 31 December 2023 were not taxable to the employee if the following conditions were satisfied:
- The contributions were mandatory even though the employees were working outside of their home country;
- The pension plan was operated, regulated, and supervised by the home country’s government;
- The contributions were not borne by, or no deduction was claimed by a permanent establishment/company in Singapore; and
- The employer was not an investment holding company, tax-exempt body, representative office, foreign office not registered in Singapore, or a service company that adopted the “cost plus mark-up” basis of tax assessment.
Tax Implications
The imposition of tax on employers’ mandatory pension contributions will result in higher remuneration costs for employers who pay the taxes for their employees, or a smaller take-home pay if employees pay their own taxes.Employers are also required to collate the mandatory contributions figures from employees’ respective home countries for the employer’s annual tax filing.
The IRAS will likely take note of those employers who are reporting these contributions for the first time, and they may raise questions to establish if they have correctly excluded past-year reporting. Employers in that situation should examine whether they have met the conditions to exclude reporting of contributions to offshore pension funds. If they did not, the company may consider voluntarily declaring past years’ under-reporting to reduce potential penalties from 200% of tax undercharged to 5% per year of delay.
BDO Singapore can advise and assist with voluntary reporting to correct past years’ underreporting.
Wu Soo Mee
BDO in Singapore