Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 1)
Global mobility
Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 1)
Fri 16 Apr 2021
The Covid-19 pandemic has resulted in unprecedented disruptions across multiple countries and economies in the world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses.
This article provides an insight into the tax considerations in respect of the current crises with a focus on the Singaporean personal income tax regime and the possible creation of permanent establishment risk.
Taxation of foreign individuals in Singapore
Typically, salary or bonus received by an individual for the exercising of Singapore employment would be subject to Singapore tax. The relevant tax rate will depend on the tax residency status. Foreign individuals are considered as tax residents if they:
- Stay or work in Singapore for 183 days in a calendar year, or in two subsequent years or have spent continuously three consecutive years in Singapore
Tax residents are taxed at a progressive rate from 0% to 22%.
For an individual with non-resident status, they must pay taxes at the following rates:
- Flat rate of 15% OR a progressive rate capped at 22% (whichever is the higher amount)
However, there are foreign individuals who have been working in Singapore remotely for their overseas employer since 2020 due to the Covid-19 situation. The Inland Revenue Authority of Singapore (IRAS) is willing to consider these individuals as “not exercising an employment”. This is 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 all the relevant conditions are met.
If the period of their stay in Singapore did not extend beyond 31 Dec 2020, the qualifying conditions are:
i. There is no change in the contractual terms governing employment overseas before and after return to Singapore; and
ii. This is a temporary work arrangement due to Covid-19.
If the above conditions are met, the individual’s employment income for the period of their stay in 2020 will not be taxable in Singapore.
Alternatively, if the period of their stay in Singapore extended to 2021, in addition to the conditions listed above, the qualifying conditions to be met are:
iii. The work performed during their stay in Singapore would have been performed overseas if not for the travel restrictions caused by Covid-19;
iv. They will leave Singapore as soon as they are able to do so before 30 Jun 2021; and
v. Their employment income earned during the stay in Singapore from 1 Jan 2021 to 30 Jun 2021 is subject to tax in the country of their overseas employer.
Condition (iv) will not be considered breached if
- The reason they continue working remotely from Singapore is due to the escalating Covid-19 situation in the country of their overseas employer (i.e., the resurgence of infections and a new strain of virus); and
- There is an increased risk of contracting Covid-19 when returning to work overseas.
If the individual fulfills all the conditions under (i) to (v), their employment income for the period of their stay up to 30 Jun 2021 will not be taxable in Singapore.
On the other hand, if the individual meets the conditions (i) and (ii) but did not meet the additional conditions (iii) to (v), only their employment income for the period of their stay up to 31 Dec 2020 will not be taxable in Singapore.
Normal tax rules will still apply to determine the taxability of their employment income for the period of their stay from 1 Jan 2021 to 30 Jun 2021.
The Organisation for Economic Co-operation and Development (OECD) in its publication “Analysis of Tax Treaties and the Impact of the Covid-19 Crisis” recommends the tie-breaker rules to determine the tax residence of individuals; the home country or the country where he is stranded. This is applicable where the rules in the home and host country of the individual grant the taxing right to both jurisdictions.
Where there is no double tax treaty, there might be a case of double taxation. The taxpayer however bears the burden of proof to show that the pandemic forced the stay in that particular jurisdiction longer than expected. This calls for a need to keep necessary documentary evidence to back up the claims.
Read: Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 2)
Want to get notified when new blog posts are published?
Subscribe 
Moving to Mexico: global mobility tax considerations
Since 2020, as a result of the COVID-19 pandemic, Mexico has become an attractive location for certain foreigners to work remotely. However, employers have to consider numerous tax and immigration factors for their employees working remotely from Mexico. According to Mexican legislation, an expatriate is a person who is legally authorised to carry out a […]
Expert tax relief in Sweden to be more advantageous
The Government of Sweden has submitted a bill extending the period for granting expert tax relief from five to seven years. If the Government bill is approved by Parliament, the extension will be in effect for eligible employees commencing work on 1 April 2023 or later. This article explains how the tax relief works and […]
Significant changes to Dutch expat facility
On 19 September 2023, Dutch Parliament voted for several amendments to the 30%-ruling (exempting 30% of the pay of a foreign employee working in the Netherlands) from 1 January 2024. Upon the likely enactment, this will have an impact on the tax position of existing and future expats working in the Netherlands, reducing or limiting […]
Spanish Supreme Court allows tax benefit to company directors
A Spanish Supreme Court Ruling on 20 June 2022 effectively reverses the decision by the Spanish tax authorities to remove the tax exemption for company directors for works carried out abroad(1). In its ruling, the Supreme Court considers that directors and board members can apply the exemption, provided that requirements set out in Article 7.p) […]
The impact of digital assets and cryptocurrencies decentralised finance on taxation in various jurisdictions
Digital assets and cryptocurrencies continue to evolve by offering new services and products such as Decentralized Finance (DeFi) and non-fungible tokens (“NFTs”), but is tax legislation also keeping up to date with the ever-changing world of digital assets and cryptocurrencies?
India: Most Favoured Nation Clause causes controversy
India has signed double tax avoidance agreement (DTAA) treaties with several countries and entered into a protocol, inter-alia, containing the Most Favoured Nation (MFN) clause with 13 countries including France, Belgium, Spain, Sweden Switzerland, and the Netherlands. The MFN clause usually states that if, after date of entry into force of the tax treaty between […]
New tax rules in Luxembourg impacting cross-border workers and PEPPs
Guidelines on the taxation of cross-border workers during the Covid-19 pandemic and an update on PEPP as defined in the latest budget laws in Luxembourg.
Changes to Belgian special tax status expected in 2022
The Belgian government has approved a draft bill in which changes for the new Belgian special tax status for foreign executives and specialists are embedded. The limited duration of the tax benefits, the minimal remuneration threshold, and the ‘30%-rule’ are the most profound changes. The changes will be effective from January 1, 2022. As a […]
Greece’s beneficial tax regime for foreign residents
In December 2020, Greece introduced tax incentives to attract foreign tax residents. Specifically, the provisions of Article 5C of the Greek Income Tax Code (ITC), which came into force on 1 January 2021, stipulate that foreign employees or foreign freelancers becoming Greek tax residents can enjoy a 50% tax exemption from income derived in Greece […]
Improved tax flexibility for Belgian / Luxembourg cross-border workers
Due to the Covid-19 pandemic, many Belgian tax residents working in Luxembourg were no longer able to travel since remote working/home working was recommended or mandatory, based on governmental rules. As such, ‘the 24-day rule’ (whereby taxation of days working in Belgium are treated as fully taxable in Luxembourg and not in Belgium, provided the […]
Impact of the UK’s new Health and Social Care Levy Bill on expatriates
In response to the unprecedented spending on public services during the recent pandemic, the UK government has introduced a 1.25% health and social care levy applicable to every person liable to National Insurance Contributions (NIC), including self-employed individuals and internationally mobile employees (IMEs). Where employees are concerned, employers will also be required to pay the […]
Recent Tribunal ruling on the taxation of ESOPs (Employee Stock Option Plans) in India
In accordance with OECD guidelines, the taxability of ESOP in India depends on where employment is exercised and the period of service for which ESOP has been granted.
Tax aspects of opening a business hub in Asia
The Asian Development Bank has forecast that developing Asia’s growth is forecast to rebound to 7.3% in 2021 and 5.3% in 2022. This compares to 4.2% and 4.4% respectively for Europe (see here) and 6.9% and 3.6% for the US (see here). Businesses already with a footprint in the Asian region will be gearing up their operations to deal with the region’s expected […]
Migrants and refugees have employment rights and obligations in Uruguay
As Covid restrictions begin to lift there will inevitably be increased movement of workers across borders. This brings back into focus a range of global mobility and tax considerations for businesses and individuals. Examples include work permits, visas, payroll and social security amongst other issues. Below is a snapshot of some pints concerning Uruguay to […]
Challenges of global mobility – focus on Mauritius
Global mobility is a significant advantage in a world where all countries are connected by monetary flow, means of transports and digital communication. A comprehensive global mobility strategy takes time, teamwork, and careful thought. The main challenges faced when designing a global mobility program are payroll, tax issues and laws, and compensation among others. It […]
Updated OECD guidance on the impact of Covid-19 for cross border workers
In April 2020 the OECD issued guidance on the impact of Covid-19 on double taxation agreements (DTA) and their application to cross border workers. In January 2021 they updated this guidance. This guidance is necessary as some cross-border workers have been stranded in a country that is not their normal residence, and double taxation could arise without applying a practical approach to the […]
Why Czech Republic’s tax system is attractive for expatriate employees?
Tax reform continues to come in waves across the globe. One common theme of many reforms is tax breaks for low to mid wage earners and surprising tax hikes for high wage earners. This trend seems to be consistent with the latest out of the Czech Republic. New changes to the Czech tax law effective […]
Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 2)
The Covid-19 pandemic has resulted in unprecedented disruptions across multiple countries and economies in the world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses. This article provides an insight into the tax considerations in respect of the current crises with focus on the Singaporean personal income tax regime and the possible creation of permanent establishment risk. Permanent Establishment considerations […]
Covid-19 and the impact on taxation of individuals and permanent establishments in Nigeria
world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses.
EU-UK social security protocol and its implications
On 24 December 2020, a draft protocol on social security co-ordination for EU-UK cross border working arrangements that start from 1 January 2021 was published. The draft protocol contained an article covering detached workers, i.e. employees who normally work in one EU member state/the UK who are sent to work in the UK/an EU member […]
Remote Worker – “necessity” or “choice”?
During the first wave of Covid-19 back in the spring of 2020, many employers found themselves dealing with the issue of “remote workers” in significant volumes, for the first time. When “working from home”, means working from home in another part of the city or the country then the issues are more likely to be […]
Welcome (bienvenidos, willkommen, karibu, bienvenue) to a world of tax incentives
The pandemic has led to many people choosing to relocate. Many are leaving densely populated cities to work remotely to where they feel are more desirable locations for themselves and family. Others are holding steadfast to their crowded city dwellings. Either way, geographies are challenged to retain (or welcome) existing residents and newcomers. Many are […]
The new year brings new social security challenges post- Brexit
What is the issue? With Brexit talks still ongoing, employers should be planning for the impact of a hard Brexit on social security coverage and benefit provision for their employees who travel between the UK and EU (including EEA & EFTA countries and Switzerland) for work. HMRC’s October employer bulletin provided a welcome update on […]