SRS is really worth it for foreigners

[revhappy]

Hi Guys,

A colleague asked me to research about SRS and whether it is useful for foreigners. Initial reaction was that it is not worth it since foreigners have to pay 15% flat rate, so even 50% of it, the gain is not much, 7.5% vs 11.5% marginal tax rate for people in the 80k to 120k salary.
Then I got down to actual numbers.

Maximum a foreigner can put in SRS is 37.5k, this is just nice, since above 80k to 120k is 40k so kind of matches with 37.5k.

One factor to consider is that gains from investment from the SRS funds also subjected to the same tax as principal. Singapore doesnt tax capital gains, so on 1st glance this looks negative, so it is even more important to calculate the numbers.

This link is a good starting point since it explains the tax treatment for foreigners with example.

https://www.ifaq.gov.sg/mof/apps/fc...WkYYdSWk0XkIRjufEakGkrIHfG/NqQjs+EA=#FAQ_1563

I did a calculation for a foreigner with marginal tax rate of 11.5% who is around 40 years old and invests 37.5k and the gain is 17% Vs not investing in SRS. I have assumed 2% returns pa.

Note: if you manage to make 3% returns pa then your gains reduce to 11% due to the gains getting with with srs tax Vs no tax without srs.

If you manage to make 8% returns pa then your gains reduce to 6%.

So I think net net SRS is great deal for foreigners. I am kicking myself for not making use of it until now.

 

[Value.Matrix]

Hi Guys,

A colleague asked me to research about SRS and whether it is useful for foreigners. Initial reaction was that it is not worth it since foreigners have to pay 15% flat rate, so even 50% of it, the gain is not much, 7.5% vs 11.5% marginal tax rate for people in the 80k to 120k salary.
Then I got down to actual numbers.

Just take note its not a flat 15% tax rate. IRAS website states

"Non-residents are taxed at the flat rate of 15% or the resident rates whichever results in a higher tax amount on your employment income"

 

[linuskltan]

Note that foreigners are not necessarily treated as non-'tax residents'.

If you are a "Foreigner who has stayed / worked in Singapore (excludes director of a company) for 183 days or more in the previous year. i.e. the year before the YA.", you will be treated as a tax resident, where tax-resident income tax rates apply (which usually is much lower than the 15% flat rate)

 

[henrylbh]

Just take note its not a flat 15% tax rate. IRAS website states

"Non-residents are taxed at the flat rate of 15% or the resident rates whichever results in a higher tax amount on your employment income"

When withdrawal starts and the foreigner no longer living in Singapore, how? No exemption and no reliefs by then.

 

[revhappy]

When withdrawal starts and the foreigner no longer living in Singapore, how? No exemption and no reliefs by then.

Still worth it, worst case is 7.5%. If amount is so big that residential rate causes it to go above 7.5%(50% of 15%), then you can choose to split the withdrawal by upto 10 years to make it tax efficient.

 

[limster]

this is pretty useful info. i wonder how much time it will take for one of those financial advice sites or local blogs to coincidentally come up with an article with very similar content

 

[Value.Matrix]

When withdrawal starts and the foreigner no longer living in Singapore, how? No exemption and no reliefs by then.

That's why lo? Precisely why I highlight.

 

[bazingaman]

Let's assume the 'foreigner' put 300K-400K and decide to move out or kicked out. End up paying the highest possible rate :|
If the person moved to a country, where he needs to pay for foreign-sourced income / global income then it's a double whammy.

 

[revhappy]

Let's assume the 'foreigner' put 300K-400K and decide to move out or kicked out. End up paying the highest possible rate :|
If the person moved to a country, where he needs to pay for foreign-sourced income / global income then it's a double whammy.

Foreigner already pays at the high marginal rate. Above 80K is already 11.5%. SRS effective withdrawal tax rate will be 7.5%.

When you move to your home country you have to declare the amount in the SRS right at the beginning so that they know this income is your past income which is already tax paid and withdrawing it should not have a tax impact. It is just like any other foreign investment, you may have to pay the capital gains tax on the gains accrued after you move to your home country, but you are not going to pay tax on the past income.

 

[BBCWatcher]

Foreigner already pays at the high marginal rate. Above 80K is already 11.5%. SRS effective withdrawal tax rate will be 7.5%.

That's only a 4 percentage point delta, please note. On an account with limited investment choices and high costs, and you're probably going to assume some currency risk relative to a home country. Also, the 7.5% rate is applied to the total appreciated value, net of interest, dividends, and capital gains.

When you move to your home country you have to declare the amount in the SRS right at the beginning so that they know this income is your past income which is already tax paid and withdrawing it should not have a tax impact. It is just like any other foreign investment, you may have to pay the capital gains tax on the gains accrued after you move to your home country, but you are not going to pay tax on the past income.

Ah no, that's not usually how it works. It depends on the future tax jurisdiction of course, but Singapore doesn't have too many tax treaties that'd help.

If your home country allows you to take a foreign tax credit for the 7.5% effective tax rate, that'd be quite helpful since you could somewhat "double dip" the tax benefits. On the other hand, home country capital gains tax (if applicable) could be a significant issue.

I don't think SRS is a clearly attractive offer to foreign workers. You really have to sit down and do a lot of research, because it's quite tricky. If for example you're a citizen of Saudi Arabia and returning to that zero income tax jurisdiction after your stint in Singapore, OK, that analysis is not too hard. In most cases though it'll be a lot more complicated.

 

[revhappy]

Ah no, that's not usually how it works. It depends on the future tax jurisdiction of course, but Singapore doesn't have too many tax treaties that'd help.

If your home country allows you to take a foreign tax credit for the 7.5% effective tax rate, that'd be quite helpful since you could somewhat "double dip" the tax benefits. On the other hand, home country capital gains tax (if applicable) could be a significant issue.

I don't think SRS is a clearly attractive offer to foreign workers. You really have to sit down and do a lot of research, because it's quite tricky. If for example you're a citizen of Saudi Arabia and returning to that zero income tax jurisdiction after your stint in Singapore, OK, that analysis is not too hard. In most cases though it'll be a lot more complicated.

Okay, how is CPF treated then? If someone is a PR and if they decide to keep their CPF, after moving to their home country, upon retirement will they have to pay taxes on that in their home country?

Edit:I read an article related to how India taxes 401k withdrawal and you are right, it would be treated as income and taxes will have to be paid in India as well. I am pretty sure, if you do the annuity thingy, you can reduce your withdrawal to small enough amounts that you wont have tax incidence in India, but yeah, this adds a level of complication, which may not be worth it. It is probably better to pay 11.5% tax and be done with it.

https://timesofindia.indiatimes.com...to-do-with-your-401k/articleshow/11633158.cms

 

[BBCWatcher]

Okay, how is CPF treated then? If someone is a PR and if they decide to keep their CPF, after moving to their home country, upon retirement will they have to pay taxes on that in their home country?

PR or Singaporean citizen doesn’t matter in this situation. (Roughly 200,000 Singaporean citizens live outside Singapore, and that number is growing.) The country of residence can tax CPF assets and interest however it wishes, except for the very few countries that have tax treaties with Singapore that address CPF taxability.

Moreover, a few countries’ tax systems reach to CPF even for residents of Singapore. To pick a couple examples, people subject to U.S. tax (I’m one of them) pay U.S. income tax at ordinary rates on CPF interest and on the employer’s share of CPF contributions. Every year — it’s income, and it’s taxed. As another example, a Japanese citizen (and sometimes a non-citizen) is subject to Japanese inheritance tax and must pay that tax on inherited assets, including CPF assets, if he/she resided in Japan within the past 10 years (up from 5 years; the law changed recently). Quite a few countries have “lookback” provisions similar to that one, although Japan is pretty special.

 

[revhappy]

PR or Singaporean citizen doesn’t matter in this situation. (Roughly 200,000 Singaporean citizens live outside Singapore, and that number is growing.) The country of residence can tax CPF assets and interest however it wishes, except for the very few countries that have tax treaties with Singapore that address CPF taxability.

Moreover, a few countries’ tax systems reach to CPF even for residents of Singapore. To pick a couple examples, people subject to U.S. tax (I’m one of them) pay U.S. income tax at ordinary rates on CPF interest and on the employer’s share of CPF contributions. Every year — it’s income, and it’s taxed. As another example, a Japanese citizen (and sometimes a non-citizen) is subject to Japanese inheritance tax and must pay that tax on inherited assets, including CPF assets, if he/she resided in Japan within the past 10 years (up from 5 years; the law changed recently). Quite a few countries have “lookback” provisions similar to that one, although Japan is pretty special.

Ok, I get that. Let's leave US alone, it taxes global income even when you not resident of US.

Let's talk about countries that don't tax global income that was earned when you were not a resident of that country. So in this case how does the home country distinguish between money in Interactive brokers account that was earned and tax paid while you were not a resident Vs money in Fundsupermart account that was also earned while you were not a resident, but routed through the SRS?

By this logic it is going to be complicated to keep any money outside your home country, since they may decide to tax you when you bring it your home country, since it is very difficult to prove what is SRS and CPF and what is just a normal brokerage account.

 

[JuniorLion]

Basically another thinly-veiled post for TS to boast about his income (ala "11.5% bracket")

This, after the thread on YTD networth tracking of an almost 1mil networth.

Heh.

 

[revhappy]

Basically another thinly-veiled post for TS to boast about his income (ala "11.5% bracket")

This, after the thread on YTD networth tracking of an almost 1mil networth.

Heh.

Most foreigners are easily in the 11.5 range. We dont get CPF that is tax free/deductible. Neither do we get parent rebates, working mama rebate, baby bonus rebate and the whole host of things that locals get, so our 11.5% is like your 7%.

I know this because when I told my Singaporean colleague about SRS who earns similar to me, she said she hardly pays tax because of all the rebates.

 

[d9_lives]

Basically another thinly-veiled post for TS to boast about his income (ala "11.5% bracket")

This, after the thread on YTD networth tracking of an almost 1mil networth.

Heh.

This SRS info is quite useful for some of us.
You jelly bro?
So every similar posting by those with medium to high income level will be seen as boastful?
Frankly, 1mil networth before 40 is very achievable. nothing extraordinatary, nothing to boast about.
Maybe it is to you.

 

[BBCWatcher]

Let's talk about countries that don't tax global income that was earned when you were not a resident of that country. So in this case how does the home country distinguish between money in Interactive brokers account that was earned and tax paid while you were not a resident Vs money in Fundsupermart account that was also earned while you were not a resident, but routed through the SRS?

Most countries’ tax systems don’t give a damn about Singapore’s SRS accounts as such. Singapore’s Supplementary Retirement Scheme is a purely local construction with only very limited tax treaty recognition. Income is income (dividends, interest), capital gains are capital gains, and a dollar is a dollar — translated to the other country’s currency, of course. So typically however the country treats something outside the SRS is how something inside the SRS will also be treated.

Just to give an example — and yes it’s a U.S. example, but the same principle I’m about to describe generally applies — CPF MediSave Accounts generate 4% interest per year, but MediSave Account dollars can only be used for qualified medical spending in Singapore. That restriction doesn’t matter at all — the non-Singaporean tax authorities generally don’t give a damn about that detail. It’s still interest income, and it’s fully taxable.

Most foreigners are easily in the 11.5 range.

No way — not even close. According to the Ministry of Manpower’s mid 2019 statistics, there were just shy of 1.4 million foreign workers in Singapore. Only 189,000 of them held Employment Passes (including the few Personalised Employment Pass holders — PEP holders should be in the 15% bracket or higher). A whopping 981,000 held Work Permits, and it’s reasonable to assume approximately none of the WP holders are in the 11.5% tax bracket or anywhere near it. (WP holders are subject to foreign worker levies, and there’s no financial sense in that for decently or better compensated employees.)

If you had said most EP holders are in the 11.5% bracket or higher, I might have agreed.

We dont get CPF that is tax free/deductible. Neither do we get parent rebates, working mama rebate, baby bonus rebate and the whole host of things that locals get, so our 11.5% is like your 7%.

This part is largely correct, although there’s at least one big loophole: the Not Ordinarily Resident (NOR) tax break, which is going to end soon. I don’t know much about NOR status, though.

 

[revhappy]

Bbcwatcher, my question still remains unanswered. Let's talk about a country that doesn't tax global income of non residents. UK, Australia, India etc. Let's say a person from one of these countries lived in Singapore and earned and paid tax in Singapore and then kept his funds in fundsupermart account and then left Singapore while he was 40 and kept the money in Fundsupermart until the age of 62, then withdrew this money and took it to his home country. The home country should tax only the capital gains and not the original income, because the original income was earned and tax paid while the person was a tax non resident in the home country.

Do you agree until here?

Now enter SRS and as you said home country doesn't give a damn about SRS, so how will home country know whether the Fundsupermart funds were bought using SRS tax deferred money or tax paid money from normal account?

 

[JuniorLion]

This SRS info is quite useful for some of us.
You jelly bro?
So every similar posting by those with medium to high income level will be seen as boastful?
Frankly, 1mil networth before 40 is very achievable. nothing extraordinatary, nothing to boast about.
Maybe it is to you.

Definitely. Beyond my wildest dream.

 

[bright_84]

Most countries’ tax systems don’t give a damn about Singapore’s SRS accounts as such. Singapore’s Supplementary Retirement Scheme is a purely local construction with only very limited tax treaty recognition. Income is income (dividends, interest), capital gains are capital gains, and a dollar is a dollar — translated to the other country’s currency, of course. So typically however the country treats something outside the SRS is how something inside the SRS will also be treated.

Just to give an example — and yes it’s a U.S. example, but the same principle I’m about to describe generally applies — CPF MediSave Accounts generate 4% interest per year, but MediSave Account dollars can only be used for qualified medical spending in Singapore. That restriction doesn’t matter at all — the non-Singaporean tax authorities generally don’t give a damn about that detail. It’s still interest income, and it’s fully taxable.


No way — not even close. According to the Ministry of Manpower’s mid 2019 statistics, there were just shy of 1.4 million foreign workers in Singapore. Only 189,000 of them held Employment Passes (including the few Personalised Employment Pass holders — PEP holders should be in the 15% bracket or higher). A whopping 981,000 held Work Permits, and it’s reasonable to assume approximately none of the WP holders are in the 11.5% tax bracket or anywhere near it. (WP holders are subject to foreign worker levies, and there’s no financial sense in that for decently or better compensated employees.)

If you had said most EP holders are in the 11.5% bracket or higher, I might have agreed.


This part is largely correct, although there’s at least one big loophole: the Not Ordinarily Resident (NOR) tax break, which is going to end soon. I don’t know much about NOR status, though.

Let's not get into NOR. Not only is the scheme ending soon, it applies generally to the globe trotting demographic. And to be fair, its not as simple as it appears, as you might get caught in other tax jurisdictions as well.

Just want to add, there are some reliefs which foreigners don't receive, but there are also a bunch of reliefs which apply to all tax residents. That said, if its about CPF, I don't feel there's a lot to gripe over. You're getting the "CPF" component of your remuneration in cash today. If you feel strongly about being taxed on that, you can always negotiate your employment terms with your employer. If its about the Working Mother's Child Relief, that relief was to encourage citizen birth rate. If you want it, feel free to register your child as a citizen of Singapore. Its not like it's a blanket tax relief to all citizens, there are also a section of women who don't have children and get zilch.