IRAS issues a revised circular on the Not Ordinarily Resident scheme
July/August 2008
The Inland Revenue Authority of Singapore (IRAS) issued a revised circular on 7 July 2008 on the Not Ordinarily Resident (NOR) scheme. This revised circular mainly details the following changes to the NOR scheme announced in the 2008 Budget Speech:
- Time apportionment concession
Under this concession, a qualifying NOR taxpayer would not be subject to tax on the portion of employment income corresponding to the number of days spent outside Singapore for business reasons pursuant to his Singapore employment. This is subject to certain conditions, one of which was that the taxpayer's tax on his total Singapore employment income must be greater than 10% of his total Singapore employment income.
As announced during the 2008 Budget Speech, to provide certainty to NOR taxpayers, this 10% minimum qualifying tax rate condition has been replaced by a $160,000 minimum income threshold. However, it should be noted that the 10% floor rate has not been correspondingly removed, i.e. the NOR would still be subject to a minimum tax of 10% of his total Singapore employment income. Since the effective tax rate for resident individuals at the income level of $160,000 would already fall below 10%, this change may not produce the desired result of providing certainty to taxpayers. Although the taxpayer may now know upfront that he qualifies for the concession, he would still need to calculate his effective tax rate to determine whether he would benefit from the time apportionment concession. Depending on the underlying policy intentions, it would appear that either the minimum income threshold or the 10% floor rate should be removed. Other qualifying conditions remain unchanged.
Another Budget change is that the definition of Singapore employment income, and consequently the scope of the concession, has been expanded to cover perquisites and leave pay. Director's fees however are still excluded.
As announced during the 2008 Budget Speech, to provide certainty to NOR taxpayers, this 10% minimum qualifying tax rate condition has been replaced by a $160,000 minimum income threshold. However, it should be noted that the 10% floor rate has not been correspondingly removed, i.e. the NOR would still be subject to a minimum tax of 10% of his total Singapore employment income. Since the effective tax rate for resident individuals at the income level of $160,000 would already fall below 10%, this change may not produce the desired result of providing certainty to taxpayers. Although the taxpayer may now know upfront that he qualifies for the concession, he would still need to calculate his effective tax rate to determine whether he would benefit from the time apportionment concession. Depending on the underlying policy intentions, it would appear that either the minimum income threshold or the 10% floor rate should be removed. Other qualifying conditions remain unchanged.
Another Budget change is that the definition of Singapore employment income, and consequently the scope of the concession, has been expanded to cover perquisites and leave pay. Director's fees however are still excluded.
- Tax exemption of employer's contribution to non-mandatory overseas pension fund or social security scheme
The above $160,000 minimum income threshold must also be met in order for NOR taxpayers to enjoy this tax exemption. In addition, employers will no longer be allowed to claims a tax deduction on contributions made to non-mandatory overseas pension funds and social security schemes.
The above 2008 Budget changes are effective from Year of Assessment 2009.
The circular provides for transitional rules for existing NOR taxpayers. These taxpayers are required to make a one-time election by 15 April 2009 if they wish to remain under the old scheme until their five-year qualifying periods expire. The exception to this is NOR taxpayers enjoying only the tax exemption of employer's contribution to non-mandatory overseas pension funds or social security schemes. Such taxpayers will remain under the old scheme unless they make an election by 15 April 2009 to opt in to the new scheme. In both cases, the election is irrevocable. IRAS has indicated that it will not allow any extension of time beyond 15 April 2009 for NOR taxpayers to make their elections.
The circular also consolidates and supersedes the earlier circulars issued on 31 August 2002 and 31 January 2004, and incorporates consequential updates arising from other tax changes.
For further details, please call your usual PricewaterhouseCoopers contact.
