How Is Income Derived from Overseas Employment Taxed?
Many people living in Singapore earn income that has its source in a foreign country. Such income is not subject to the tax laws that govern taxation of Singapore-sourced income. Thus, taxpayers who earn income with a foreign source must be aware of how such income is to be taxed.
In Singapore, one of the factors that determines how much income tax a taxpayer must pay is the origin of the income. Any income that is either earned in or derived from Singapore will have income tax charged against it. Most income that is earned overseas but received in Singapore is usually not subject to any taxation. Income is defined as being foreign-sourced, and therefore not taxable in Singapore, if it fulfills certain criteria. If there is an official secondment agreement or contract that specifies the duration of the taxpayer’s secondment, the taxpayer’s services are fully rendered for the overseas entity, and the taxpayer’s remuneration is completely borne by the overseas entity, then the income received will be deemed as having a foreign source.
Taxable and non-taxable foreign employment income
Anyone who is contracted to be based overseas to render their full employment completely outside Singapore is not liable to Singapore tax because their employment income is completely sourced from outside Singapore. However, certain forms of foreign-sourced income are taxable in Singapore. The following criteria make overseas income taxable in Singapore: if travel overseas is part of one’s Singapore employment, if one works in Singapore for a foreign employer, if one’s overseas employment income is for services rendered in Singapore, if one carries on a trade or business overseas which is related to that person’s trade or business in Singapore, if one receives income in Singapore through a partnership in Singapore, if one receives service income from overseas, or if one who works for the Singaporean government is based overseas.
When a taxpayer who earns income sourced from abroad files an income tax return, the taxpayer is not required to declare overseas income which is not taxable. However, if the overseas income earned by the taxpayer is taxable, the taxpayer is required to declare it under one of the following categories: “employment income”, “trade income”, or “other income”, whichever may be applicable. Taxpayers who earn income from overseas as well as from Singapore must also declare their Singapore income.
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If a taxpayer’s income sourced from abroad is taxed in the foreign country, the taxpayer is encouraged to apply for double taxation relief. This can be done via the use of Avoidance of Double Taxation Agreements (DTAs), which prevent the same income from being taxed twice. DTAs also clarify taxing rights between Singapore and its treaty partner on income arising from economic activities between the two countries. However, only Singapore tax residents and tax residents of countries that have concluded tax treaties with Singapore may use DTAs to escape double taxation. Furthermore, as every DTA has different provisions, not all DTAs or the provisions contained within them will apply to all taxpayers.
Those who render their employment services both in Singapore and overseas may either be taxed as a resident or non-resident, depending on how many days the person spends working in Singapore. Anyone who exercises employment in Singapore for 183 days or more in a calendar year will be regarded as a tax resident; anyone who does so for less than 183 days in a calendar year will not be regarded as one.