Singapore: Changes to exemption on mandatory overseas pension/provident fund contributions
Withdrawal of administrative concessionary tax exemption on employers’ contributions to mandatory overseas pension/provident funds
Changes to exemption on mandatory overseas pension/provident fund contributions
The Inland Revenue Authority of Singapore (IRAS) announced the withdrawal of the administrative concessionary tax exemption on employers’ contributions to mandatory overseas pension/provident funds with effect from the year of assessment (YA) 2025.
This follows the removal of the concession for partial tax exemption on employers’ contributions towards a non-mandatory overseas pension/provident fund with effect from YA 2025 due to the elimination of the not ordinarily resident (NOR) scheme. The scheme was phased out after 2020, although existing NOR taxpayers who continue to meet relevant conditions will be allowed to retain it until YA 2024.
Background
International assignees based in Singapore are generally kept on their home country pension/provident fund schemes during their international assignment to avoid disruption in retirement benefit accumulation. Some of the schemes may be mandatory even when the employees are working abroad, while others may be non-mandatory.
Under Singapore tax laws, any contribution made to an overseas pension or provident fund by the employer, in respect of an employee working in Singapore, is deemed to be income of the employee in the year of contribution.
However, certain tax concessions are available to mitigate the tax due on such contributions.
Why these changes matter
Any employer contributions towards an overseas pension/provident fund will be fully taxable from YA 2025, regardless of whether they are made towards a mandatory or non-mandatory fund and whether the costs of such contributions are recharged to the Singapore entity. However, the employer may claim a corporate tax deduction on the contributions in accordance with normal tax rules with effect from YA 2025.
Under many international assignment policies, Singapore income taxes relating to the employer’s overseas pension/provident funds are typically borne by the employer and tax gross-ups would have to be accounted for when computing the taxable benefit. With the removal of the tax concessions, the tax costs to employers relating to this benefit for international assignees to Singapore may increase significantly. This will also increase the personal tax burden of employees who have to bear their own tax.
Since the contributions will be taxable on the employees, regardless of whether the costs will be recharged to the Singapore entity’s accounts and/or whether a corporate tax deduction will be claimed, companies may consider recharging the relevant costs to Singapore and claiming a corporate tax deduction when applicable.
Read an October 2022 report [PDF 291 KB] prepared by the KPMG member firm in Singapore
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.