Tax exemption for overseas employees working remotely in Singapore ends 30 June 2021

Published on 9/16/2021 - Issue Q3/2021

Due to Covid-19 travel restrictions, some employees who have been employed overseas are now working remotely from Singapore. The Inland Revenue Authority of Singapore ("IRAS") has issued guidance on the tax treatment of two categories of employees:

• Singaporeans/Singapore permanent residents ("PRs") employed overseas but working remotely from Singapore;
• Non-resident foreigners employed overseas on short-term business assignment in Singapore and who are unable to leave due to Covid-19

For Singaporeans/Singapore PRs

In general, if a person is working in Singapore, they have to pay income tax in Singapore. However, due to the Covid-19 situation, some people with overseas employment returned to Singapore and ended up working remotely in Singapore. IRAS had granted such persons a tax exemption from the date of their return. Singaporeans and Singapore PRs will be considered as not exercising employment in Singapore for the period from the date of their return to the date they left Singapore in 2020, or up to 30 June 2021, whichever is earlier, provided certain conditions are met:

• There was no change to the contractual employment terms before and after the return to Singapore; and
• This is a temporary work arrangement due to Covid-19.

If these conditions are met, the person's employment income for the period of his stay in Singapore in 2020 will not be taxable in Singapore.

In order that the income for the person's period of stay up till 30 June 2021 not be taxable in Singapore, the additional qualifying conditions to be met are:

• The work performed by the person while in Singapore would have been performed overseas if not for travel restrictions caused by Covid-19;
• The person would have left Singapore as soon as they are able to do so before 30 June 2021; and
• Their employment income earned during the stay in Singapore from 1 January 2021 to 30 June 2021 is subject to tax in the country of his overseas employer.

If the second condition is not met due to the escalating Covid-19 situation in the country of the overseas employer, and there is an elevated risk of the person contracting Covid-19 if they return to work overseas, this condition will not be considered breached.

For the period of 1 July 2021 onwards, the usual tax rules for taxation of income while working in Singapore will apply.

Despite the tax exemption period having ended on 30 June 2021, a person may write in to IRAS for a review of the treatment of his employment income if the person was unable to leave Singapore due to a travel ban in the country of the overseas employer, or if it was impossible to travel due to unavailable flights or other modes of transport.

Non-resident Foreigners on Short-Term Business Assignment in Singapore

Non-resident foreigners will be considered not to be exercising employment in Singapore for the period that they were working remotely in Singapore during 2020 provided the following conditions are met:

• the period of the person's extended stay is not more than 60 days; and
• the work done by the person during the extended stay is not connected to the business assignment in Singapore and would have been performed overseas if not for Covid-19.

If these conditions are met, then the person's employment income for the period of the extended stay in Singapore in 2020 would not be taxable. 

Companies will want to reconsider their overseas remote working policies in light of the IRAS guidelines. Also, it is noteworthy that Singapore Double Taxation Treaties have taken into account the Covid-19 pandemic situation by making reference to the OECD's Updated Guidance on Tax Treaties and the Impact of the Covid-19 Pandemic.

Tax Issues for Employers

Overseas firms whose employees had to remain in Singapore due to travel restrictions relating to Covid-19 will have to consider if a permanent establishment ("PE") was created in Singapore during such times. IRAS has determined that the presence of these employees working remotely in Singapore would not result in a PE being created in Singapore for the foreign overseas firm in the Year of Assessment ("YA") 2021 and/or YA 2022 provided the following conditions are met:

• if the foreign company does not have a PE in Singapore for the immediate preceding YA;
• there are no other changes to the economic circumstances of the company;
• the presence of the employees in Singapore is due to travel restrictions relating to Covid-19 and their physical presence in Singapore up until 31 December 2021 is temporary;
• the activities performed by the employees during the presence would not have been performed in Singapore if not for the travel restrictions relating to Covid-19; and
• these employees will leave Singapore as soon as they are able to do, following relaxation of travel restrictions relating to Covid-19.

The overseas firm should keep relevant documentation and upon request, provide them to IRAS to support their claim that there is no PE in Singapore.