Section 68 of the Income Tax Act legally requires all employers in Singapore to prepare income information for their employees. This can be the company secretary/director, precedent partner, sole-proprietor or manager. The employer can also authorise a person to carry out the employee income tax filing process – such as an honorary secretary/treasurer, representative of the non-resident company or an employee within the HR department.
This process includes Form IR21, if applicable.
Who do I file Form IR21 for?
If your employee is –
- Going to stop working for you in Singapore,
- Transferring overseas, or
- Leaving the country for more than 3 months,
Your company must file Form IR21 with IRAS to seek tax clearance for said employee; tax clearance is a process that checks the tax status of a person who plans to leave Singapore. This applies to all work pass holders including Personalised Employment Pass (PEP) holders.
There are some exceptions to this. Tax clearance is not required for an employee who is away for an overseas posting if:
- The period away from Singapore is not 6 months or more;
- The employee maintains a valid work pass during the period away from Singapore and will return to Singapore to work for the same employer;
- The employer continues to pay the employee’s remuneration during the period away from Singapore.
These conditions apply to overseas postings on or after 1 January 2016. Thus, tax clearance is still required for cases where the services rendered overseas are not incidental to the Singapore employment.
What is IR21?
Form IR21 in Singapore is a mandatory document that contains information on the tax status of an employee planning to leave Singapore. As the employer, you will need to use this form to report your employee’s employment details and income earned up to his/her last day of employment or the day before departure from Singapore.
Income that will be assessed to tax by IRAS includes the following:
|Employment Income||Severance Payment||Withdrawal from the SRS Scheme|
|This includes salary in lieu of notice, gratuity for past services payable at the end of the contract, and existing share options or awards.
If these have yet to be exercised or vested, they will still be considered derived gains at the point of tax clearance. This also applies to those with selling restrictions.
|This compensation for loss of office may not be taxable.
As the employer, you should provide IRAS with the necessary information.
This includes the reason for paying and the basis for arriving at the severance payment for IRAS’ review.
|If the employee has been contributing to the Supplementary Retirement Scheme (SRS) and plans to make a withdrawal from his/her account, this early withdrawal will be taxable.
His/Her SRS Operator will withhold tax on the withdrawal based on the prevailing withholding tax rate.
What if the employee wishes to claim a refund of the withholding tax? He/She should then provide IRAS with the SRS Statement of Contribution/Withdrawal (for Tax Clearance) Form that’s duly certified by the SRS Operator.
Download the form here.
Based on the income information in the Form IR21, IRAS will work out the employee’s tax liability. This will be assessed on:
- The income earned in the current year up to the date the employee cease employment, go on an overseas posting or depart from Singapore for more than three months; and
- The income earned in the preceding year that has not been assessed at the point of tax clearance.
What should I know before submitting the form?
You must file the Form IR21 at least one month before your employee ceases employment, go on an overseas posting or leave Singapore for more than three months.
IRAS will then process the form and will take approximately 7 days to process the e-Filed Form IR21, as well as 21 days for the ones that are paper-filed. This processing time may take longer if the information given in the Form IR21 is incomplete or when IRAS needs clarification on the submitted information.
Hence, the employee should give sufficient notice to you so you can file the Form IR21 for him/her early. This will also give the employee time to settle all income tax before he/she either leaves Singapore or starts his/her new job.
If you are unable to give one month’s notice, please provide IRAS with the reason in the Form IR21. Unless there are valid reasons (e.g. an employee’s immediate resignation), employers who do not or are late to file Form IR21 can face a fine of up to $1,000.
To ensure that your employee pays all income tax, you are required to withhold the payment of all monies to said employee.
This includes salary, bonus, allowances, overtime pay, leave pay etc. Do note that you can only withhold these payments from the date you are aware of the employee’s impending resignation or departure from Singapore.
If the monies you withheld from your employee are insufficient, your employee will need to pay the amount of shortfall within 7 days of the date of the Statement of Account. For details on how to pay, your employee can refer to Payment Options. GIRO instalments are not applicable to tax clearance cases.
In the event that the tax balance is still not settled, IRAS will be able to carry out enforcement actions to recover the unpaid tax. This includes appointing you – the employer – as an agent to pay the tax, as well as issuing a travel restriction order to stop your employee from leaving Singapore and/or taking legal action against your employee.
You will receive Clearance Directive from IRAS once the employee’s tax liability is determined.
As the employer, you must remit to IRAS the amount payable as stated in the Directive.
What if the withheld monies are more than the amount payable stated in the Directive? You will then need to release the balance to your employee.
After the tax clearance, your employee can expect to receive termination of his/her GIRO instalment plan.
What if the employee will be re-employed by another Singapore employer right after the cessation of employment and wishes to continue paying income tax via GIRO instalments? In this case, the employee can send an email to IRAS upon securing the following documents:
- A copy of his/her new work pass or the in-principle approval letter from the Ministry of Manpower; and
- A signed copy of his/her new employment contract or a confirmation letter from the new employer, that indicates the commencement date of his/her new employment.
This would help to minimise disruption to the employee’s GIRO instalments.
How do I submit the IR21 Form?
Inland Revenue Authority of Singapore
55 Newton Road
A second option is to file tax clearance (Form IR21) online via myTax Portal. With e-Filing, you will enjoy the following benefits:
- Immediate acknowledgement upon successful e-Filing
- Faster tax clearance compared to paper filing which usually takes 21 days
- View Tax Clearance status and print the Clearance Directive online. No more waiting for the paper Directive to arrive by post!
And instead of downloading a IR21 file and uploading it separately to myTaxPortal, you can submit IR21 with just a click of a button using free IRAS-approved HR tools like Talenox.
To ensure you can use this feature to submit IR21 easily in Talenox, you have to be under AIS. If you are not under AIS, you can simply apply for AIS over here. Do note that if you apply for AIS now, it will be for the following year’s submission.
How does submitting IR21 to IRAS in Talenox look like?
Here’s a short video that you can view to see what it’s like:
In summary, Talenox users can simply carry out the following steps to submit Form IR21 to IRAS for free:
- Head over to Payroll > click Payroll Settings > select IR21 from the drop-down menu.
- Then, choose your Year of Assessment (YA).
- Next, click on Generate IR21 for …, where “…” is your YA.
- Update your Employer Info (Step 1).
- Then, double-check all the IR21 forms to ensure that everything is in place.
- Once that is done, click on “View Overall Report”. Then, click “Submit to IRAS” using your CorpPass account details.
Talenox users can also easily withhold the relevant employee’s salaries for tax. All they have to do is:
- Go to the Talenox Payroll module
- Click into Payroll Setting. Then, Process Payment to Step 2.
- Then, click into the Ad Hoc Payment/Deduction tab.
- From there, create a Deduction (from Net Salary)(No SHG contribution) pay item.
They can also leave the Remarks as “Tax withhold for IR21 clearance”.
Can my employee check the tax clearance status in Singapore?
IRAS will send the tax bill detailing your employee’s tax payable computation for each year of assessment and the Statement of Account indicating his/her tax balance to him/her by post. Your employee can also view the electronic copy of his/her tax bill at myTax Portal using SingPass or IRAS Unique Account.