Country Payroll Spotlight: 7 Key Facts about Payroll in Singapore
Nov 6, 2018
As part of our continuing effort to help payroll professionals everywhere address the complexity of global payroll, we’re asking our internal experts about the unique challenges and requirements of processing payroll in some key countries. In this spotlight, we shine the light on Singapore, the small but mighty financial center of Southeast Asia that welcomes both foreigners and foreign businesses. Read on to find out what multinational employers should know about running payroll in Singapore.
What do global enterprises need to know before setting up their payroll in Singapore?
Singapore has several government agencies responsible for various aspects of employee security and wellbeing, whether while they’re working or into retirement. Organizations expanding into Singapore would do well to understand the requirements for each of these agencies ahead of time, including how they impact payroll.
- The Ministry of Manpower (MOM) is responsible for the formulation and implementation of labor policies related to the workforce in Singapore. This agency maintains the employment act that establishes the basic terms and conditions of work for employees, with some exceptions. MOM ensures that employers purchase and maintain medical insurance of at least SGD 15,000 per year for every Work Permit holder. The Ministry also maintains quotas for how many Work Permit and S Pass holders a company can hire, based on sector and employee makeup. Additionally, MOM ensures the foreign worker levy is collected from employers who hire foreign workers.
- The Central Provident Fund (CPF) is a compulsory comprehensive savings plan for working Singaporeans and permanent residents that is used primarily to fund their retirement, healthcare, and housing needs. Both employers and employees contributed a mandated amount to the fund, with contribution rates determined by the age of the employee. The CPF Board also manages collections of contributions to self-help groups (SHGs) and donations to SHARE, including:
- Chinese Development Assistance Council (CDAC) Fund: All employees belonging to the Chinese community who are Singapore citizens and permanent residents need to make monthly contributions to the CDAC Fund. Contributions range from SGD 0.50 to 3, depending on wage level.
- Eurasian Community Fund (ECF): All employees belonging to the Eurasian community who are citizens or permanent residents must contribute monthly, with contribution levels set according to wage level and ranging from SGD 2 to 20.
- Mosque Building and Mendaki Fund (MBMF): All Muslim workers who are citizens, permanent residents, or foreign employees contribute monthly according to their wage levels, from SGD 3 to 26.
- Singapore Indian Development Association (SINDA) Fund: All employees belonging to the Indian community who are citizens, permanent residents, or employment pass holders make monthly contributions to the SINDA Fund, ranging from SGD 1 to 30.
- The Skills Development Levy (SDL) is paid by employers for all employees (local and foreign) working in Singapore. The SDL rate is 0.25% of the employee’s wage, with a minimum of SGD 2 and maximum of SGD 11.25. SDL funds support workforce upgrading programs and provide training grants for employers who send employees for training under the National Continuing Education Training system.
- The Inland Revenue Authority of Singapore is the statutory board responsible for tax collection under the Ministry of Finance. All employers are required to prepare Form IR8A and Appendix 8A, Appendix 8B, or Form IR8S (where applicable) for all employees who are employed in Singapore by March 1 each year. Employers are responsible for filing Form IR21 and for withholding money from employees for tax purposes.
Can you describe a unique challenge or requirement for global payroll in Singapore?
The greatest challenge for anyone doing global payroll in Singapore is the fact that the government is very active in this area and is continuously reviewing statutory requirements and filings. The government maintains a high degree of flexibility when it comes to tax and contribution regulations, which is done to support and protect workers as the nature of work transforms.
Most of the changes have a direct effect on payroll, although many also impact other areas of the business. Employers in Singapore need to maintain a high level of flexibility themselves, and ensure their business is able to adjust internal processes and adapt to unexpected changes.
How can global enterprises benefit from doing payroll in Singapore?
The tax structure in Singapore is particularly beneficial for global enterprises in that the corporate tax rate is just 17% of chargeable income. There is no capital gains tax, and a company’s tax liability can be further reduced through government incentives, subsidies, and schemes such as the Corporate Income Tax rebate, Productivity and Innovation Credit scheme, Start-up Tax Exemption scheme, and the Foreign-Sourced Income Exemption scheme.
Singapore has no minimum wage law, and an employee’s salary is subject to negotiation and mutual agreement between the worker and the employer. Additionally, the government is moving to maximize the digitalization of their daily transactions with both businesses and citizens. Information can be accessed easily via the government website, and the adoption of technology in daily transactions among businesses and the Singapore government have encouraged businesses to remain flexible and adapt their operations to newer and better technological advances.
Why is Singapore a good location for multinational organizations?
Around 26,000 international companies call Singapore home, which has helped the nation grow into the largest financial hub in Asia. Singapore ranks as the world’s fourth largest financial center in terms of competitiveness and hosts some of the world’s leading names in insurance broking, offshore insurance, and risk management. Singapore also provides a well educated, motivated, and productive English-speaking workforce, with several world-class universities providing high-level qualifications and training.
One important advantage of doing business in Singapore is the government’s emphasis on R&D and Intellectual Property protection. By 2015, the government was spending 3.5% of GDP on R&D capabilities, and today five research centers collaborate with local universities to nurture and encourage indigenous inquisitive minds. Singapore also provides funding to foreign companies through programs like the Action Community for Entrepreneurship (ACE), SPRING Singapore, the Start-up Enterprise Development Scheme (SEEDS), and the Local Enterprise Finance Scheme (LEFS). The Innovation and Capability Voucher (ICV) scheme provides vouchers valued at SGD 5,000 that are good for consultancy services, hardware, and technical solutions.
How have the recent changes in compliance regulations affected payroll operations in Singapore?
Since April 2016, all employers have been required to issue itemized payslips to employees covered by the Employment Act. Each required item that applies to the employee must be listed on their payslip, with employers facing a fine of up to SGD 1,000 for each initial violation and up to SGD 2,000 for subsequent violations.
The Ministry of Manpower is seeking approval in Parliament later in 2018 to amend the Employment Act again, with changes to come into effect by April 1, 2019. The changes sought would increase the salary threshold for “non-workmen” (typically white-collar rank-and-file workers such as clerks) from SGD 2,500 per month to SGD 2,600, and raise the cap for overtime pay from SGD 2,250 to SGD 2,600.
What is the typical payroll window in Singapore, and what can organizations do to shorten that cycle?
A typical payroll in Singapore takes anywhere between seven and ten working days to process, with most of the variation depending on employee headcounts. The best way for organizations to minimize that calendar window is to ensure their payroll data is as complete and correct as possible before it is transferred to their payroll provider or input into the payroll system. Poor quality and inaccurate data could easily add one or two days to the processing time.
Singapore is known to be very welcoming of foreign businesses. Are there any particular advantages multinational organizations should know about?
In addition to the low corporate tax and commitment to IP protection, it is relatively easy to set up operations in Singapore, with many businesses able to open within a few days. Plus, Singapore’s open immigration policy enables foreign workers to visit the country and seek out business opportunities, which helps companies source the exact talent they need between local and foreign workers.
In collaboration with China under the Chongqing Connectivity Initiative, which is the third G-2-G project between Singapore and China, the nation’s position as a gateway to Southeast Asia will be strengthened, creating new opportunities for organizations to reach additional Southeast Asian countries.
Beyond business and government details, Singapore has plenty to offer foreign workers and companies on a cultural level. The country is well known for its food, with a range of cuisines and tantalising dishes available everywhere from hawker centers to high-end restaurants. There’s plenty to explore, and a rich cultural experience to be had in Singapore.