Updated for 2024
This is a updated bog posts for 2024, the original blog post can be found here
The Singapore Supplementary Retirement Scheme is a voluntary scheme to encourage individuals to save for retirement, with contributions being eligible for tax relief. It is often something that expats stumble into without fully understanding how it works, which can happen as a result of an employer thinking that it is a good thing to establish for EP holders who do not benefit from CPF, or as a result of an individual seeking to use all means available to lower their income tax bill.
The basics
a An SRS account is available to anyone in Singapore who earns income of any kind, and must be opened with DBS, OCBS or UOB. Joint SRS is not possible.
b) You claim immediate tax relief on contributions made into SRS.
c) Tax is payable when you withdraw from SRS, but only against 50% of the amount withdrawn provided you have reached the age of 62. You may spread this withdrawal over up to 10 years, or withdraw in one lump sum.
d) The maximum that you can contribute to SRS in any given year is $35,700 for foreigners ($15,300 for PR).
e) Contributions can no longer be made after you make your first withdrawal
f) If you leave Singapore, you can maintain your SRS in the same way. The only difference would be that you would be taxed at non-resident flat income tax rate as opposed to local sliding tax rates.
g) SRS can be invested in a number of ways. For example, investment into mutual funds and ETFs is possible via the IFast Platform (Ifast).
Special Rule for EP holders
Those who are neither Singaporean or PRs qualify for an additional concession (penalty-free withdrawal). The conditions for this concession are as follows:
i) you are neither a Singapore Citizen nor a SPR on the date of withdrawal and for a continuous period of 10 years preceding the date of withdrawal; and
ii) you have maintained your SRS account for a period of not less than 10 years from the date of your first contribution to your SRS account.
Under the above conditions, only 50% of the lump-sum withdrawal is taxable.
Thus for many EP holders, reaching 10 years from date of contribution effectively replaces the need to reach age 62 (assuming the former comes before the latter)
What if I Withdraw Early?
You can withdraw from SRS at any time. However, for withdrawals made before age 62, or before 10 years of operating the SRS account in the case of non-PR foreigners, 100% of the sum withdrawn will be subject to tax AND a 5% penalty for premature withdrawal will also be imposed.
Some Further Key Points to Note on SRS
1. SRS is the only way that you can subject yourself to Singapore tax on investment gains
Singapore does not generally tax capital gains or income from investments. The only way that I know of by which you can subject investment gains to Singapore tax is to make those gains within an SRS account, which at best taxes 50% of what is withdrawn. In effect you are, assuming that you stick to the 10 year rule (and do not become PR), gaining income tax reduction today on contributions for the agreement to pay income tax on 50% of both contributions and gains thereon in 10 year’s time (or more).
The fact that investment gains are taxed, highly unusually in Singapore, appears to be completely glossed over in everything that you can find online about SRS. I am not sure if people just have not realised it, or are purposefully not discussing it.
Ignoring for now that your marginal rate of tax could be lower or higher in the future (as a non-resident, it will be as high as 24% from 2024 onwards), the tax deduction now would be exactly offset if your investments double in value over time. Clearly that would be a good result in terms of investment returns, but this serves to illustrate that it is not as simple as SRS basically cutting your tax bill on contributions in half in the long run.
When establishing whether the immediate tax benefit of SRS outweighs any drawbacks, we must ensure that the lack of tax on investment gains in all alternatives is taken into account
If we assume a current marginal tax rate of 17% ($200k annual income), the tax saving for the maximum $35,700 SRS contribution would be $6,069. That same contribution would be worth $70,227 in 10 year’s time assuming 7% annual growth. The tax rate as non-resident at that time will be 24%, which even with the 50% discount would result in tax of $8,427. The contribution would actually have resulted in you paying $2,358 more in tax than you would have if investing that cash outside of SRS into the same investments. Now not every investment will enjoy 7% pa growth, but this helps illustrate that the tax advantage may not be as clear cut as most writing on SRS would have you believe.
Confirmation of 24% tax rate for non residents here – https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/tax-residency-and-tax-rates/individual-income-tax-rates
2. If you live overseas when you withdraw SRS, how will your home country tax the income/gain?
To use the UK as an example, we cannot say with any certainty how the UK would tax your SRS withdrawal should you be living there at the time of withdrawal. This is despite the fact that, in comparison to many tax systems, the UK is fairly transparent and comprehensible.
As mentioned, Singapore does not tax investments at all, but does tax employment income. SRS is, in effect, an income tax deferral, with 50% discount perhaps being present to account for the fact that gains will not be separated and exempt from tax. If Singapore treats SRS as income as opposed to investment, it would stand to reason that the UK may then view SRS as a pension/income as opposed to an investment account, and what the taxpayer holds is the SRS account and not the underlying investments. If viewing it as such, the UK would simply tax the income whilst providing the taxpayer the right to later claim relief for any tax paid in Singapore on the same income. As UK tax rates are generally higher, it is likely that the tax paid could match or surpass the tax saved in year of contribution.
The alternative is for the UK simply treat investments held within SRS the same as any other investments within, for example, Interactive Brokers. If it opts for that approach, the UK would simply charge capital gains tax on any investment gains made on sale. Again, it may be possibly to claim relief to an extent for any Singapore income tax paid in relation to those gains, though this is now getting a little complex (given that IRAS will not actually provide any statement separating tax paid on contributions and tax paid on gains). If the UK took this approach, it would result in the strange possibility that the correct approach would be to sell all investments held within SRS before moving to the UK (crystallising the gain), but leaving the proceeds within SRS until you hit the 10-year barrier for Singapore tax purposes.
Under UK rules it now is generally accepted that CPF payments to UK residents are subject to UK income tax. As yet I have found no wealth of writing on the subject as regards SRS, given that SRS is far less common.
The treatment of SRS in countries such as Australia and the United States is also uncertain, though perhaps slightly more clear than the UK. In the case of Australia, it seems likely that the ATO would simply wish to tax investment gains made after becoming Australia resident. In the case of the USA, it seems likely that the IRS would expect you to report on investment income each year and investment gains as they arise (regardless of where you live), with tax being charged thereon in those years.
Conclusion
Given all of the above, we can only conclusively recommend SRS for expats who are nearing age 62 (as they need not wait 10 years to enjoy the 50% discount).
For the majority of expats, any possible tax benefit may not be worth the potential tax complications and restriction on withdrawals.
Speak to Chartwell before taking the plunge into SRS to ensure that you do so whilst in possession of all the relevant facts in your circumstances.
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