19 February 2019
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Singapore's tax system is being tweaked for this year's Budget to reduce the reliance on foreign workers of all skill levels and incentives for those Not Ordinarily Resident (NOR) in Singapore - introduced in 2002 to attract senior management of global companies - will end by next year.
The NOR scheme was first introduced in 2002 to encourage foreign talent to relocate to Singapore by providing them with tax concessions. The Ministry of Finance (MOF) has said that the last year for the NOR scheme will be in Year of Assessment (YA) 2020 — that is, for income earned this year.
Those who qualify are not taxed on the portion of their Singapore-sourced employment income that corresponds to the number of days they spent outside Singapore for business reasons in the calendar year. They also get favourable tax treatment of contributions to overseas pension funds, although one of the scheme's principal attractions, tax exemption for income remitted to Singapore before 2004, is now obsolete.
The lapsing of the Not Ordinarily Resident (NOR) is unexpected as that was a scheme which was introduced in Budget 2002 with the objective of attracting foreign talent with regional and global responsibilities to relocate to Singapore"
To qualify for the NOR scheme, individuals must be a non-resident for three consecutive YAs and must be a Singapore tax resident in the first year when he or she qualifies for the NOR status. Currently, NOR claimants number about 3,600.
The individual may also receive tax exemptions on the contributions made by his or her employer to any non-mandatory overseas pension fund or social security scheme.
Once the scheme lapses in YA 2020, it will not be renewed. This means that those who are granted NOR status in YA 2020 will see their status expire in YA 2024.
These individuals may receive tax concessions under the NOR scheme up till YA 2024 so long as they continue to meet the conditions of the concessions.
Singapore also tightened rules for foreign workers as it adjusted the foreign worker dependency ratio ceiling from the current 40% to 38% on January 1, 2020 and to 35% on January 1, 2021. The SPass of the services sector will also be reduced from 15% to 13% and then to 10%. The government is also striving to retain workers past their prime through the Work Fair and Silver Support schemes.
Singapore says it will "continue to build a conducive environment to attract and retain highly-skilled individuals', including through a competitive tax regime. However, its statement indicates that it will be relying more heavily on other attractions in future, such as 'a stable political, economic and social environment; strong regional connectivity; and high standards of healthcare, housing and education."
Sabrina Sia, Tax Partner and Leader of Global Employer Services at Deloitte Singapore, said: "The announcement of the 50% personal income tax rebate, subject to a cap of S$200, for the Year of Assessment 2019 was interesting. The cap of S$200 is the lowest in the history of individual tax rebates granted, and really demonstrates the intention to ensure and enhance the progressivity of the tax system, since the middle income earners will be the biggest beneficiaries of the rebate."
She added: "The key focus of Budget 2019 is really on transformation - transformation of the workforce, transformation of SMEs, transformation of organisations to cope with techologies in the new digital world. While the Government will help Singapore and Singaporeans cope with the tide of transformation, it is important that Singapore and Singaporeans stay relevant to keep up with the times."
"The lapsing of the Not Ordinarily Resident (NOR) is unexpected as that was a scheme which was introduced in Budget 2002 with the objective of attracting foreign talent with regional and global responsibilities to relocate to Singapore. As Singaporeans and Singapore Permanent Residents (SPRs) typically do not benefit from the tax savings available under the NOR scheme, it has been in our Budget wishlist for the Government to consider allowing Singaporeans and SPRs with similar roles to enjoy such concession, so as to provide incentives for them to step up to similar roles. Interestingly, the Government has levelled the playing field for all by removing the NOR tax concessions. This is probably in line with the Government's intention to ensure and enhance the progressivity of the tax system, as well as to ensure that the foreign workforce acts as a complement to the local workforce."
