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Cross Border Employee Taxation

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... Scheme contributions are eligible for tax relief. Maximum contribution for a foreigner in the year 2006 is S$26,775 (35% x S$76,500). – PowerPoint PPT presentation

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Title: Cross Border Employee Taxation


1
Cross Border Employee Taxation Cross Border Tax
Strategies Shanker Iyer Shanker Iyer
Co Singapore 7 and 9 November 2006
2
Agenda
  • Introduction
  • Countries Singapore, China, India and Malaysia
  • Updates of regional income tax systems for
    expatriates
  • Employer obligations
  • Employee obligations
  • Tax planning opportunities

3
Introduction
4
Singapore
5
SINGAPORE
  • Updates of income tax system for expatriates
  • Taxed in arrears i.e., calendar 2006 is tax year
    of assessment 2007
  • No pay as you earn
  • CPF only for Singapore citizens/PR
  • Supplementary Retirement Scheme contributions
    are eligible for tax relief. Maximum
    contribution for a foreigner in the year 2006 is
    S26,775 (35 x S76,500).

6
SINGAPORE
  Marginal tax rates
Chargeable income band S YA 2007 ()
0 - 20,000 0
20,001 30,000 3.5
30,001 40,000 5.5
40,001 80,000 8.5
80,001 160,000 14.0
160,001 320,000 17.0
gt320,000 20.0
7
SINGAPORE
Days in Singapore / in Singapore employment during calendar year Tax position
lt60 days No reporting unless director / sportsman / entertainer etc
gt 60 days lt183 days Taxed as non-resident (15) subject to treaty claim Form IR37 Certificate of Residency (COR) Concessional treatment
183 days Taxed as resident scale rates
8
SINGAPORE
  • Taxable Income
  • All remuneration and taxable benefits-in-kind
    paid in respect of Singapore employment
  • Gains from stock options granted in Singapore

9
SINGAPORE
  • Taxable benefits-in-kind
  • Housing / hotel accommodation
  • Furniture and fittings
  • Home leave passage
  • Motor car benefit
  • Educational expenses
  • Interest free / subsidised loan from employer
  • Club subscription
  • Long service award / gifts ( if value gt 100 )

10
SINGAPORE
  • Common Misconceptions
  • Salary or bonus not paid or brought to Singapore
  • Amounts not reported by employer
  • Remuneration paid through an offshore company /
    bank account
  • No tax return received
  • Only taxed for those days working in Singapore

11
SINGAPORE
  • The Not Ordinarily Resident (NOR) Scheme
  • Incentives for 5 years
  • Days in / days out treatment
  • Exemption for employers pension contribution up
    to CPF cap
  • Conditions
  • Resident in tax year
  • Non-resident for previous 3 years

12
SINGAPORE
  • NOR Scheme Conditions for time apportionment
  • The individual must
  • Qualify for the NOR Scheme conditions
  • Be employed by a Singapore company or branch
  • Spend at least 90 days outside Singapore on
    business
  • Suffer effective tax rate of at least 10

13
SINGAPORE
  • Capital gains are not subject to tax in Singapore
  • Foreign sourced income is tax exempt except if
    received through a partnership in Singapore.
  • Effective from Year of Assessment 2006, interest
    derived from a standard deposit, in any currency,
    with an approved bank or finance company is
    exempt from tax
  • Virtually all investment income is tax exempt

14
SINGAPORE
  • Exemptions from tax for
  • Interest from debt securities,bonds, notes,
    commercial papers, treasury bills and
    certificates of deposit
  • Distributions from authorised Unit Trusts, CPF
    Trusts and Real Estate Investment Trusts
  • Singapore dividends (unless franked)

15
SINGAPORE
  • Employer obligations
  • File Form IR8A by 1 March each year for previous
    calendar year
  • Obligation of employer for non-Singapore citizens
  • File Form IR21 at least 1 month before the
    employees departure from Singapore
  • Retain monies owed to employee to settle tax from
    date or resignation / termination / transfer
  • Excess refunded to employee / deficit paid by
    employee
  • Penalties up to S1,000 for late filing and tax
    liability of employee if no retention of monies
    owed to employee

16
SINGAPORE
  • Employee Obligations
  • File Form B1 or e-filing by 15 April each year
    unless extension granted
  • Can pay tax in one payment or instalments

17
SINGAPORE
  • Tax Planning Opportunities
  • Tax treaties
  • Structure employment
  • NOR
  • Area representatives
  • Tax on a proportion of the total remuneration
    package corresponding to the proportion of
    working days spent in Singapore
  • Dual Contracts
  • May exclude the earnings from the offshore
    employment from Singapore tax

18
China
19
CHINA
  • Updates of income tax system for expatriates
  • Assessed on a monthly basis
  • Number of days per year spent in China and the
    source of income
  • Deductions
  • Expatriates RMB 4,800 per month
  • Non expatriates RMB 1,600 per month

20
CHINA
  • Severe tax penalties 500 on tax unpaid or
    underpaid
  • Social Security taxes
  • Depending on location, Social Security tax rates
    vary for individuals domiciled or have lived in
    China gt 5 years.
  • Other individuals may be subject to social
    security tax depending on location.

21
CHINA
Monthly taxable income after deductions (RMB) Tax rates Quick Deduction (RMB)
lt 500 5 0
500 and lt 2,000 10 25
2,000 and lt 5,000 15 125
5,000 and lt 20,000 20 375
20,000 and lt 40,000 25 1,375
40,000 and lt 60,000 30 3,375
60,000 and lt 80,000 35 6,375
80,000 and lt 100,000 40 10,375
100,000 45 15,375
22
CHINA
Period Income Source from China Income Source from China Income Source from Overseas Income Source from Overseas
Period Paid or Borne by China Paid and Borne by Overseas Paid or Borne by China Paid and Borne by Overseas
lt 90 days / 183 days Taxable Not Taxable Not taxable Not taxable
gt 90(183) days and lt 1 year Taxable Taxable Not taxable Not taxable
gt 1 year and lt 5 years Taxable Taxable Taxable Not taxable
gt 5 years Taxable Taxable Taxable Taxable
23
CHINA
  • Residence Status
  • Domicile
  • Tax on worldwide income
  • Usually or habitually resides in China due to
    household registration
  • Family or economic involvement
  • Individuals who have lived continuously in China
    gt 5 years tax on worldwide income

24
CHINA
  • Expatriate who has lived in China 1 year, but
    5 years
  • Tax on income source from China and
  • Income paid or borne by China of income source
    from overseas

25
CHINA
  • Expatriate who is in China gt 90/183 days, but lt 1
    year
  • Tax on income source from China

26
CHINA
  • Expatriate who stays in China 90/ 183 (with tax
    treaty) days in a calendar year
  • Tax on income paid and borne by China of income
    source from China.
  • Senior management personnel and representatives
    of representative offices will be subject to
    individual income tax on income derived from or
    deemed to be borne by the Chinese establishment
    even if their stay in China 90/183 days in a
    calendar year.

27
CHINA
  • Employment Income
  • Income derived from providing services while
    employed within China is deemed to be
    China-sourced, regardless of the place of payment
    or the location of the employer.
  • Employment income includes
  • Wages/ salaries, commissions, bonuses,
    allowances, subsidies, taxes paid by the
    employer, stock options, any other income related
    to the individuals position or employment

28
CHINA
  • Benefits-in-kind
  • Certain fringe benefits could be exempt from
    income tax, such as
  • Housing
  • Meal and laundry allowances
  • Relocation allowance
  • Home leave allowance
  • Education allowance
  • Motor vehicle expenses
  • Benefits-in-kind taxable
  • Hardship allowance
  • Fixed Housing Allowance
  • Fixed Expenses Paid in Cash

29
CHINA
  • Capital Gains
  • taxable as investment income
  • Investment Income
  • Interest income, dividends and other investment
    income arising in China are taxable in China.

30
CHINA
  • Employer obligations
  • Pay as you earn
  • Obligated to withhold tax and
  • Responsible for remitting tax payments to the tax
    authorities on behalf of the employees within 7
    days after the end of the month.

31
CHINA
  • Employee obligations
  • Submit supporting documents such as agreements,
    contracts or valid commercial invoices, etc to
    the tax authorities for review and approval in
    the first month after receiving benefits in kind.
  • Expatriates should register with the Chinese tax
    authorities as soon as they become liable to
    income tax or if they have reason to believe that
    the duration of their stay in China will render
    them liable to income tax.

32
CHINA
  • Tax planning opportunities
  • Careful planning on expatriates certain benefits
    in kind may reduce tax liability.
  • Tax treaties may influence the tax treatment of
    expatriates.
  • Avoid being domiciled or staying continuously in
    China gt 5 years
  • Not to be considered to have spent one full
    year in China
  • Spends more than 30 days on a single trip or
  • 90 days in the aggregate outside the PRC during
    the calendar year

33
India
34
INDIA
  • Updates of income tax system for expatriates
  • Tax year April to March

35
INDIA
For the Assessment Year (AY) 2006-07 For the Assessment Year (AY) 2006-07
Taxable Income (Rs) Rate of Income Tax
0-100,000 NIL
100,001 150,000 10 of amount gt 100,000
150,001 250,000 5,000 20 of amount gt 150,000
Over 250,000 25,000 30 of amount gt 250,000
36
INDIA
  • Residence Status
  • Resident
  • Taxed on worldwide income
  • Stay in India
  • 182 days in the financial year OR
  • gt 60¹ days in the financial year and 365 days
    in the immediately preceding 4 financial years.
  • Note 1 182 days for Indian citizen/ person of
    Indian origin

37
INDIA
  • Resident but not ordinarily resident (RNOR)
  • Not liable to tax on income accrues or arises to
    him outside India (except income derived from a
    business controlled in or a profession set up in
    India).
  • Has been a non-resident in India in 9 out of 10
    previous years preceding that year OR
  • Has been in India for 729 days or less during the
    7 previous years preceding that year.

38
INDIA
  • Non-resident
  • Liable to tax on income sourced or received in
    India
  • Not liable to income accruing or arising outside
    India and remitted to India.
  • Not meet the criteria of resident or RNOR

39
INDIA
  • Income
  • Employment income/ Salaries
  • Tax on the earlier of due or receipt basis
  • Include
  • salaries/ wages, annuity/ pension, gratuity,
    fees, commission, perquisites (value of rent free
    accommodation and concession in rent), profits in
    lieu of salary, advance salary, leave encashment
    and etc.

40
INDIA
  • From AY 2001-02, Employees Stock Options and
    Ownership Plans (ESPOs) are not taxed at the
    time of grant or exercise.
  • Investment Income arising in India is taxable in
    India.
  • Capital gains are taxable in India.
  • Indo-US and Indo-UK treaties provide that each
    country can tax capital gains according to its
    own domestic law. Possible double tax on the
    capital gains!

41
INDIA
  • Exemption - Section 10(6)(vi) of the India ITA
  • The foreign enterprise is not engaged in any
    trade or business in India
  • The individuals stay in India 90 days in the
    relevant previous year and
  • Such remuneration is not deductible by the
    employer.

42
INDIA
  • Employer Obligations
  • File withholding tax return annually and
    quarterly by the 15th day after the end of each
    quarter.
  • Issue salary certificates to employees
  • Pay tax on the value of Benefits in kind

43
INDIA
  • Employee Obligations
  • File tax return by 31 July
  • Late filing interest and penalties will be
    imposed on unpaid taxes

44
INDIA
  • Tax Planning Opportunities
  • Tax Protection
  • Tax equalization
  • Double Tax Avoidance Agreements
  • Social security payments
  • Pension fund contributions
  • Allowances and exemptions

45
Malaysia
46
MALAYSIA
  • Updates of income tax system for expatriates
  • Tax year January to December
  • Current year basis of assessment
  • Self assessment - with effect from YA 2004.
  • Income tax is imposed on income accruing in or
    derived from Malaysia.
  • Resident individuals can claim personal relief
    and tax rebates.

47
MALAYSIA
  • Non-resident individuals are subject to
    withholding tax of
  • 10 on special classes of income
  • Use of moveable property
  • Technical advice
  • Assistance or services
  • Installation services on the supply of plant,
    machinery, etc.
  • Personal services associated with the use of
    intangible property.
  • 10 on royalties
  • 15 on interest
  • 15 on services of a public entertainer
  • Non-resident individuals who perform independent
    services such as consultancy services are not
    exempted from tax.

48
MALAYSIA
Chargeable Income (RM) (Resident) Tax Payable (RM) (Resident) YA 2007
0 2,500 Nil
2,501 5,000 1 of amount gt 2,500
5,001 20,000 25 3 of amount gt 5,000
20,001 35,000 475 7 of amount gt 20,000
35,001 50,000 1,525 13 of amount gt 35,000
50,001 70,000 3,475 19 of amount gt 50,000
70,001 100,000 7,275 24 of amount gt 70,000
100,001 250,000 14,475 27 of amount gt 100,000
Over 250,001 54,975 28 of amount gt 250,000
49
MALAYSIA
Types of income (Non-resident individuals) Year of assessment 2007 Rate ()
Public Entertainer's professional income 15
Interest 15
Royalty 10
Special classes of income
- rental of moveable property 10
- technical or management services fees 10
- payment for services rendered in connection with use of property or installation or operation of any plant, machinery or other apparatus purchased from a non-resident person 10
Dividends 28
Business and other income 28
50
MALAYSIA
  • Residence Status
  • Tax resident
  • In Malaysia 182 days in a calendar year OR
  • In Malaysia for a period lt 182 days during the
    year but that period is linked to a period of
    physical presence of 182 or more "consecutive"
    days in the following or preceding year OR
  • In Malaysia 90 days during the year and, in any
    3 of the 4 immediately preceding years in
    Malaysia 90 days or was resident in Malaysia
    OR
  • Resident for the year immediately following that
    year and for each of the 3 immediately preceding
    years.

51
MALAYSIA
  • Non-Malaysian Citizens
  • Effective 2003, working in Operational
    Headquarters or Regional Offices based in
    Malaysia would be taxed on employment income on a
    time apportionment basis for the number of days
    spent in Malaysia.

52
MALAYSIA
  • Short term employees
  • Non-residents employment income in Malaysia is
    exempt
  • If the aggregate of the period or periods of
    employment in Malaysia 60 days in a calendar
    year OR
  • Total period of employment which overlaps 2
    calendar years 60 days.

53
MALAYSIA
  • Income
  • Employment Income
  • Source of remuneration for services rendered is
    generally the place or location where the
    services are performed.
  • Employment income includes
  • Wages/ salaries/ remuneration, leave pay, fee,
    commission, bonuses, gratuities, perquisites,
    allowances for having or exercising the
    employment, any benefit, amenity/ living
    accommodation, contribution made to unapproved
    pension/ provident fund, any amount received by
    way of compensation for loss of employment

54
MALAYSIA
  • Benefits-in-kind
  • Fully taxable with the exception that certain
    benefits-in-kind is taxed on a concessionary
    basis

55
MALAYSIA
Benefit to employee Value to employee
Accommodation (unfurnished) Hotel accommodation Allowances (e.g. - entertainment, housing, etc.) Income tax Leave passages - lower of 30 of cash remuneration or defined value of accommodation. - 3 of cash remuneration. - total amount paid by employer. - amount paid by employer. - cost to employer of providing leave passage to the employee and members of his Immediate family. - Exemption is given for (i) one overseas leave passage up to a maximum of RM3,000 for fares only or (ii) 3 local leave passages including fares, meals and accommodation.
56
MALAYSIA
  • Under Public Ruling 2/2004, the value of
    benefits-in-kind provided for an employee may be
    determined by either of the 2 methods
  • The formula method
  • The prescribed value method

57
MALAYSIA
  • Other benefits
  • Investment Income
  • Taxable with other types of income with certain
    exceptions
  • Real Property Gains Tax
  • Non-citizens or non-permanent residents
  • Gains from disposal of real property within 5
    years are subject to tax at a flat rate of 30,
    after 5 years the tax rate is 5.

58
MALAYSIA
  • Employer Obligations
  • Submit monthly statement of tax deduction under
    Schedular Tax Deduction Scheme (Form CP39) within
    10 days after month end
  • File return of remuneration (Form E) within 30
    days of publication of P.U. order or by extended
    date granted.
  • File notification of employees commencement of
    employment (Form CP22) within 1 month of
    commencement of employment.
  • File notification of employees cessation of
    employment (Form CP22A) at least one month before
    cessation.
  • For tax clearance purposes, the employer is
    required to withhold amount due to the employee
    from the date of notification of departure from
    Malaysia.
  • File notification of employee leaving Malaysia
    for more than 3 months (Form CP21) at least one
    month before expected date of departure.

59
MALAYSIA
  • Employee Obligations
  • File Individual tax return (Resident Form B/BE
    nonresident Form M) by 30 April each year.
  • Filing deadline is 30 June for those who derive
    business income (i.e. sole proprietors,
    partnerships).
  • Pay tax by the tax return filing due date.
  • Employee Provident Fund Employees domicile
    outside Malaysia (i.e. foreign citizens) are
    exempted from contributing but can elect to
    contribute.

60
MALAYSIA
  • Tax Planning Opportunities
  • Certain benefits can be provided to an employee
    in a tax advantageous manner.
  • Tax equalization
  • Tax treaty between Malaysia and the other foreign
    country may help alleviate the tax impact or tax
    liability.
  • Consideration of becoming tax resident in
    Malaysia to qualify for progressive tax rates.

61
Thank you
62
CONTACT US
For a further discussion on any of the topics
covered in Cross Border Employee Taxation,
please contact Shanker Iyer shanker_at_iyerpracti
ce.com Agnes Schlesinger agnes.schlesinger_at_iyerp
ractice.com Alison Loh alison.loh_at_iyerpractice.
com Phone 65 6532 5746 Fax 65 6532
7680 To keep yourself updated on new
developments in Singapore, please subscribe
online to our free quarterly newsletter via our
website www.iyerpractice.com/News.htm
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