What is IR21 (Tax Clearance) and How to File for One?

While working as an employer in Singapore has its perks, it also attracts a fair share of tax obligations. For instance, when it comes to filing taxes, one of the many forms you should expect to fill out at some point is the IR21. And in case you’re wondering, failure to submit it as stipulated could have you paying hefty penalties

Now, to help you avoid that, this article provides basic insights into the whole IR21 saga. It explains what Form IR21 entails, how it’s tied to the tax clearance process in Singapore, as well as when and how you should file one. 

What is Form IR21?

Unlike Form IR8A and the likes, Form IR21 is not a yearly obligation per se. Rather, it only comes into play when your foreign employee (including Singapore Permanent Residents) leaves Singapore for more than three months, takes up an overseas contract, or terminates employment with you. 

In such a case, the Inland Revenue Authority of Singapore (IRAS) requires you to seek clearance for the absent employee by filling out Form IR21. 

But, that’s not all. While you're at it, you’re further obligated to withhold all the funds that are due to the employee for the sake of tax clearance. 

So, all in all, you could say the IR21 is pretty much a tax clearance process for Work Pass holders who happen to leave their local postings. The only thing is, it’s their employer who’s required to file the form and seek clearance. 

The Importance of Form IR21

Form IR21 is basically Singapore’s way of keeping foreign tax defaulters in check. By passing on the tax clearance obligations to the employers, IR21 makes it impossible for any foreign employee to flee the country with a tax bill. 

According to Singapore’s law, employers are required to use IR21 to duly notify the Inland Revenue Authority of Singapore at least one month before their employees leave. Subsequently, it’s only after the IRAS clears the employees that their employers can proceed to release the withheld funds.

To streamline your corporate compliance and tax management in Singapore, it’s crucial to have the right support for handling these obligations. WealthBridge offers a suite of Singapore corporate services, including incorporation, accounting, and tax advisory. Our incorporation services, for instance, guide businesses through the entire process, ensuring adherence to statutory requirements from day one. Additionally, WealthBridge helps businesses navigate complex tax processes like filing Form IR21 for departing employees, ensuring timely submissions to avoid penalties. Our tax advisory services allow employers to focus on growth, while compliance is handled.

When is Tax Clearance Not Required?

You don’t have to seek IR21 tax clearance if your employee is: 

• A Singapore Citizen. 
• A Singapore Permanent Resident (SPR) who won’t be leaving the country permanently after terminating employment with you. 
• A non-Singapore citizen who worked continuously for three or more years, within which they made less than S$21,000 annually. 
• A non-Singapore citizen who worked for 183 days or more over a period of two years, within which they earned less than S$21,000 annually. 
• A non-Singapore citizen who worked for 183 days or more in a calendar year, within which they earned less than S$21,000 annually. 
• A non-Singapore citizen who worked for 60 days or less in a calendar year, except for professional consultants, public entertainers, and company directors. 

The IRAS is also considerate enough to exempt employees who are posted overseas provided:

• The overseas work period doesn’t stretch beyond half a year. 
• The employee maintains a valid work pass under their employer throughout the overseas assignment, and then comes back to Singapore to work for the same employer. 
• The Singapore employer continues to pay the employee while they’re posted overseas. 

When and How to File the Form IR21

As it turns out, the IRAS requires you to file IR21 at least one month before your employee leaves. 

The procedure itself is as follows: 

• For quick tax clearance, you might want to fill out and submit the IR21 electronically. You can do this via IRAS’s myTaxPortal, after signing in with your company’s CorpPass credentials.
• Once you’re in, you should proceed to enter your employee’s income figures during the year of departure. 
• Meanwhile, you should go ahead and withhold all your employee’s pending dues - including lump-sum payments, gratuities, reimbursements, allowances, leave pay, overtime pay, etc.)
• When you’re done, you might want to give the IRAS about 7 working days to process the e-filed IR21. Otherwise, it would take about 21 days to process paper-filed forms. 
• Once the IRAS processes the form, you’ll receive a tax Clearance Directive via myTax Portal within three working days. The IRAS additionally sends it via post, whose delivery should take about five to seven working days. 
• If the Clearance Directive turns out to be a Directive to Pay Tax, you’ll be required to remit the funds to the IRAS within ten days. Otherwise, a Notification to Release Monies means you can go ahead and give the employee their dues. 

Navigating Your Way

All in all, you need proper record-keeping to effectively manage not just the IR21 tax clearance process, but also all your employees’ income taxes. Don’t fret though - WealthBridge has got you covered. Contact us to learn how we can help.