Treasure Heng delivered the 2019 Singapore Budget on the afternoon of 18 February 2019. This Budget was the first Mr Heng delivered as the anointed leader of the Fourth Generation of Government leaders and marked the mid-term of the current Government.
At the end of Treasurer Heng’s Budget speech, we were given an outline of the focus for the current and future years on the areas including innovation, defence, infrastructure and community.
Whilst the headlines in the media have been on the expansionary nature of the budget, from an expat perspective there were two significant announcements made in the Budget Speech and annexures which have a direct impact on the expat community in Singapore.
As an island, the scarcity of land means that Singapore’s greatest assets is human capital. The Singapore Government acknowledged early on of the need to develop human capital and therefore introduced programs and incentives for expats to bring their skills and knowledge to the country so that locals could learn and gain from their experience.
Different classes of visas for workers were introduced – Employment Passes for professionals, Work Permits for semi-skilled workers and S-Passes for technical staff.
As Singapore grew and the quality of its education system (from primary through to tertiary levels) developed, it was clear that the need to “import” a workforce with skills and knowledge could be reduced.
The DRC was introduced to legally cap the proportion of the employees that an employer could fill with foreign workers on Work Permits or S-Passes. Different industries have different requirements and therefore the DRC is set and reviewed regularly to account for economic conditions and the skillset of local Singaporeans.
The 2019 Budget has announced a reduction of the DCR for Work Permits and S-Passes over the next two years for the services sector.
For Work Permits, the current 40% reduced to 38% from 1 January 2020 before stopping at 35% from 1 January 2021. While the DCR for S-Passes will fall from 15% to 13% before capping at 10% over the same timeframe.
The services sector incorporates business services, insurance, retail and wholesale trade, hotels, communication services and the food and beverage industry.
Given that Work Permits and S-Passes have a duration of two years, the structural changes to the workforce will be impacted immediately as the DCR will be taken into consideration during the renewal process for individuals on these passes over the next two years.
Whilst the quotas for professionals holding an Employment Pass have not been changed, a significant announcement affecting these expats was the removal of the NOR scheme from 31 December 2019.
The NOR Scheme was designed to act as an incentive for multi-national companys to base global or regional roles here in Singapore. Under the NOR Scheme, individuals meeting the eligibility criteria are able to pro-rata their taxable income to take into account the number of days that they were outside of Singapore for work. The proportion of taxable income related to work outside of Singapore was not subject to Singapore tax.
Individuals can only apply the NOR Scheme for a maximum of five years from the first year that they are eligible – for many expats this will be the first five years that they are in Singapore.
The effect of the announcement means that expats must ensure that they make the claim for the NOR Scheme when they prepare their return in 2020 as this will be last year in which you can be granted NOR status and obtain the ability to claim NOR in the years after the end of this year.
Individuals who have already been granted NOR status can continue to claim the scheme as long as they meet the annual eligibility requirements.
As a business owner you should now consider your human resource requirements and look at how the DRC changes will affect your pool of talent. Where appropriate, consider the business’s eligibility to apply for an Enterprise Development Grant to assist with the upskilling of staff or the restructure of workplace processes through the implementation of technology.
For individuals who have just arrived in Singapore, ensure that you are aware of the NOR Scheme eligibility criteria and make sure that you lodge an application for NOR status with the lodgement of your tax return in 2020.
In both cases, seek professional advice and guidance to ensure that you are ready for the change.
With his Singaporean ties and Australian upbringing, Boon has a first-hand appreciation of what it is like to establish yourself and your business as an expat in Singapore. He regularly draws on his in-depth understanding of the local Singaporean tax system and a network of in country specialists in expat hot-spots around the world including USA, UK, Asia Pacific and Australia to provide bespoke advice to his clients.