Contractor’s guide to contracting in Singapore
Heading further east from our previous stop in India, we arrive in Singapore, one of the world’s smallest yet most prosperous countries, writes Nikolas Papageorgiou of overseas contracting advisory Access Financial. But is it prosperous for UK contractors?
Singapore: in a nutshell
Singapore is a major international hub for trade and finance, and is a magnet for highly skilled foreign workers who can command globally competitive levels of pay. The economy is forecast to grow at a steady rate -- by 2.6% in 2019 and 2.4% in 2020 -- at a time of increasing global economic uncertainty.
It’s this economic strength that explains why it’s long-been known as an ‘Asian Tiger’ -- which by the way, is unrelated to Singapore’s nickname (and Sanskrit translation), Lion City.
And while Singapore’s economic momentum is expected to slow down in 2019, mainly as the contribution from the country’s manufacturing sector weakens, growth should be buoyed by strong domestic demand. The one caveat being that a prolonged dispute between the US and China could negatively affect the outlook, and this dispute remains a potential threat to economic growth. But this hasn't put off either entrepreneur James Dyson, who is moving his engineering firm's HQ out of Britain's leafy Wiltshire to Singapore, or the EU -- which has just struck a very juicy free trade deal with Singapore.
Lastly in this brief introduction to Singapore, bear in mind that although the nation regularly makes the top of the list of expatriates’ relocation destinations due to the high salaries offered for skilled migrants, the equally high living costs mitigate the financial outcome. And that’s despite the low level of personal income tax, as we outline below. On the plus side, Singapore offers a high standard of living, pleasant climate and low crime rate.
What are the benefits of working in Singapore?
There are many, but three are regularly cited:
The huge diversity of industries in Singapore means opportunities for millions of job candidates across a wide variety of sectors -- and levels of seniority.
Since more than a third (36%) of Singapore’s population is from overseas, foreign workers can often find people from their home countries to socialise with.
Moving to an unfamiliar environment always raises some concerns, but Singapore consistently ranks among the safest places to live and work in the world.
What about typical take-home pay in Singapore?
The net retention of an employed person is high -- approximately 85%.
What are the levels of taxation in Singapore?
Singapore's tax year is the calendar year. An individual who is physically present in Singapore for at least 183 days in a year (or a continuous period of 183 days over two years) is a tax resident in Singapore. Even if a person is not physically present in Singapore for 183 days in each of the first and the third year, he or she is treated as a tax resident for all three years, if they are employed in Singapore.
A tax resident is taxed on their worldwide income in addition to the Singapore-sourced income.
The tax rates for resident individuals in Singapore are progressive. Income up to SGD 20,000 (£11,508) is tax free. Income thereafter is taxed between 2% and 20% for income up to SGD 320,000 (£187,168). Income in excess of SGD 320,00 (£187,168) is taxed at 22%, which is the highest rate of tax in the country.
Employment income of non-residents is taxed at 15% without personal allowances, or at resident rates with personal allowances, whichever gives rise to a higher tax. However, the income from employment that does not exceed 60 days is exempt from tax.
For the tax assessment of 2018, the total amount of personal income tax relief (e.g. for pension contributions), that an individual can claim will be capped at SGD 80,000 (£46,075).
Deductions and Allowances
In general, deductions are allowed for expenses incurred wholly and exclusively for the production of income. Expenses fully reimbursed by the employer are not taxable and not deductible by the employee.
All contractors who earn income, whether from regular employment or self-employment will get an allowance of SGD 1,000 (under age 55). There are increased thresholds for handicapped individuals.
Singapore does not have a ‘pay-as-you-earn’ system like the UK. However, an employer is required to withhold enough funds from an employee who is about to cease employment in Singapore, until a tax clearance is issued.
Generally, payments to resident individuals do not attract withholding tax.
For payments of technical assistance (e.g. for a service provided which is technical in nature, which would include most IT-related services), service fees and management fees to non-resident individuals are subject to non-final withholding tax at 22%. Withholding tax is not imposed where the service is provided wholly outside Singapore.
What are Singapore’s Social Security requirements?
Foreigners are not required to contribute to social security in Singapore. However, they are required to contribute to the Skills Development Agency by paying a Skills Development Levy, at the rate of 0.25% of their remuneration. The SDL contribution is subject to a minimum of SGD 2 ((£1.16p) for worker earning up to SGD 800 (£464) a month and a maximum of SGD 11.25 (£6.51) for workers earning more than SGD 4,500 (£2,605) a month.
For Singaporean nationals, social security contributions are made to the following two different components:
- Central Provident Fund (CPF) - For Singaporeans & Singapore Permanent Residents
- Skill Development Levy (SDL) Contribution - All employees (including foreigners)
Employers are required to contribute 17% of an employee's wages as a contribution towards Central Provident Fund (CPF). This contribution is in addition to the employees’ gross pay. An employee is required to contribute at the rate 20%, lower rates are applicable for an employee who is aged above 55 years.
The monthly ceiling for maximum CPF contribution is SGD 6,000 (£3,475) for both the employer and employee. The social security contributions start from minimum earning of SGD 500 (£289).
In addition to the above contribution, Singaporean employees are required to contribute between SGD 1 (57p) to 10 (£5.70) per month in some government funds like ‘SINDA,’ ‘MBMF’ and ‘CDAC.’ The employer must deduct the prescribed amount from the wages of the employee and must deposit together with CPF every month.
How do I enter Singapore legally and register locally?
Foreigners holding ordinary passports of some Middle-Eastern and Asian countries will require a visit visa or business visa (for a business visit) to enter Singapore. If that’s you, please check the high commission of Singapore's official website for the entry visa requirement. The majority of European, American and Australian nationals do not require a visa to visit Singapore.
Employment in Singapore
Professionals can work in Singapore on three major types of work passes: Employment Pass, EntrePass and Personalised Employment Pass.
Skilled and Semi-skilled workers can work on ‘S pass’ (mid-level skilled staff) and Work Permit for foreign workers (semi-skilled). Most workers in sectors such as IT, financial services and engineering will be considered professionals and therefore eligible for the Employment Pass, EntrePass or Personalised Employment Pass.
i) Employment Pass
Foreign professionals with a job offer in Singapore can have their employer or authorised third-party to apply for an employment pass on their behalf subject to meeting the eligibility criteria. The foreigner must have a fixed monthly salary of at least SGD 3,600 (£2,062) and work in a managerial, executive or specialised job. Application for an Employment Pass is open to all nationalities. The Employment Pass is valid up to two years and can be renewed up to three years.
Foreign entrepreneurs who wish to start and operate a new business in Singapore can apply for an EntrePass subject to meeting the eligibility criteria as an entrepreneur, innovator or an investor. There are certain businesses that are not eligible for an EntrePass. It is therefore advisable to check the eligibility of the business from the official website.
iii) Personalised Employment Pass
High-earning foreign professionals can apply for a Personalised Employment Pass (PEP). PEP holders have greater job flexibility than with other work passes. However, the last drawn fixed monthly salary of a PEP applicant must be at least SGD18,000 (within six months before applying). An Employment Pass holder earning a fixed monthly salary of at least SGD 12,000 (£10,317) can also apply for a PEP.
Contractors, you should note that a freelancer or foreigner who intends to work on a freelance basis is not eligible for the PEP. Any kind of entrepreneurial activity or starting a business is not allowed on a PEP. If one intends to do so then he/she must apply for an EntrePass instead.
The outline benefits of a PEP over an Employment Pass is that the PEP-holder need not re-apply for a new pass in the event of switching jobs and when changing the contact details, as only a notification to the immigration authority is required.
There are certain requirements to keep holding a Personalised Employment Pass. A PEP holder must earn a fixed salary of at least SGD 144,000 (£82,564) per calendar year, regardless of the number of months in employment. They can stay in Singapore for a continuous period of six months without a job to search for a new job in any sector after complying with the registration requirements to practise in Singapore (for professions like medicine, dentistry, pharmacy, architecture, law), but not more than six months of unemployment at any time -- otherwise the PEP will be cancelled.
Self-employment and Limited Companies
Investment requirements, expertise and eligibility criteria make it very difficult for non-locals in Singapore to become self-employed professionals.
The employment pass cannot be used for self-employment. The process of acquiring an EntrePass and the difficulties involved outweigh the benefits. The low rate of income tax in Singapore for employees also makes operating via your own limited company far less attractive in Singapore than it is in many other countries where the tax difference is far greater.
Singapore has much to recommend it. If you are looking for an exciting, yet organised and regulated place on your overseas contracting journey, with high living standards and interesting career opportunities, Singapore is the right choice to make.
It is one of the most important business hubs in the world and a magnet for international talent. Bear in mind, however, that high living costs will erode your buying power and that Singapore is home to some of the strictest laws worldwide regarding smoking, littering and use of chewing gum!