Administrative concession for employer contributions to mandatory pension/provident funds to be withdrawn

Concessionary tax treatment that currently is available to employer contributions to an overseas pension fund or social security scheme will be withdrawn in Singapore for contributions made on or after 1 January 2024 (i.e., year of assessment 2025).

Technically, employers’ contributions to overseas pension plans or social security schemes are taxable benefits that must be reported by the employer to the Inland Revenue Authority of Singapore (IRAS) in the relevant Return of Employee’s Remuneration Form. However, as an administrative concession, the IRAS treats the employer contributions as not taxable if all of the following conditions are fulfilled:

Contributions are made by the employer to a social security scheme operated, regulated and supervised by the employees’ home country government;
Contributions are mandatory even though the employees are working outside their home country;
Contributions are not borne by, or no deduction is claimed by, a permanent establishment/company in Singapore; and
The Singapore company is not an investment holding company, a tax-exempt body, a representative office or a foreign company not registered in Singapore.

Withdrawal of concessionary treatment

As noted above, the concessionary tax treatment will cease to apply as of year of assessment 2025. As a result, all contributions made by the employer to an overseas pension fund or social security schemes on or after 1 January 2024 will be taxable in the hands of the employees, regardless of whether the contributions are considered mandatory or nonmandatory for the employees during their period of employment in Singapore. With these changes, the contributions to the overseas pension will be deductible to the employer provided the normal tax rules for the deduction of business expenses are met.

Comments

The withdrawal of the administrative concessions follows removals of other administrative concessions, such as home leave passage and the provision of housing benefits previously available to foreign employees working in Singapore. The change is in line with the IRAS’ intention to have a consistent application of the principle of taxability of income and benefits in the hands of the employees and will likely increase the tax liability of foreign employees working in Singapore. As the changes will take effect from 1 January 2024, employers should have sufficient time to prepare for the change in tax treatment. Employers are encouraged to review their systems to ensure that information is readily available to meet the tax filing needs.

Evelyn Lim
evelynlim@bdo.com.sg

Wong Sook Ling
sookling@bdo.com.sg