Updated blog post for 2024 can be found here
The Singapore Supplementary Retirement Scheme is often encountered by expatriates without a full grasp of its mechanics. This can happen when employers deem it beneficial for Employment Pass (EP) holders who do not have access to the Central Provident Fund (CPF) or when individuals seek to reduce their income tax liability using all available means.
Key Points
a) An SRS account is accessible to anyone earning income in Singapore and must be established with DBS, OCBC, or UOB. Joint SRS accounts are not permitted.
b) Contributions made to SRS qualify for immediate tax relief. The maximum annual contribution limit is $35,700 for foreigners ($15,300 for Permanent Residents and Singaporeans). After the first withdrawal, contributions are no longer allowed. SRS funds can be invested in various ways.
c) Withdrawals from SRS are subject to tax at your marginal Singapore Income Tax rate, but only 50% of the withdrawn amount is taxable if you withdraw after turning 62. You can choose to spread the withdrawal over up to 10 years or opt for a lump-sum withdrawal.
d) Early withdrawals from SRS (before age 62) result in full taxation at your marginal tax rate, plus an additional 5% penalty tax on the withdrawal amount. Certain circumstances, such as bankruptcy or medical reasons, may warrant a waiver of this penalty.
e) If you leave Singapore, you can maintain your SRS account. However, you will be taxed at the non-resident flat income tax rate, and only 50% of the withdrawn amount is taxable, unlike the local sliding tax rates.
Expat Special Provision
Non-Permanent Resident (PR) foreigners can benefit from a special concession (penalty-free withdrawal) if they withdraw their entire SRS balance in a single transaction. To qualify for this concession, you must meet the following conditions:
i) You are neither a Singapore Citizen nor a PR at the time of withdrawal and have not been one for the past 10 years.
ii) You have maintained your SRS account for at least 10 years from the date of your initial contribution.
Under these conditions, only 50% of the lump-sum withdrawal is subject to taxation.
Important Considerations
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 taxes 50% of what is withdrawn. The use of SRS amounts to opting for an income tax exemption on contributions today in exchange for the agreement to pay income tax on 50% of both contributions and gains in 10 year’s time (or more).
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 to SRS is taken into account.
2. If you live abroad when you withdraw from SRS, your home country’s tax treatment of this income/gain is uncertain. Depending on how your home country views SRS, it may tax the income while allowing you to claim relief for taxes paid in Singapore, or it might treat investments within SRS like any other investments, subjecting them to capital gains tax. The UK, for example, taxes CPF payments to residents, and SRS could face similar taxation.
In conclusion, I recommend considering SRS for expatriates nearing age 62 (as they can enjoy the 50% discount without a 10-year waiting period). For others, the potential tax benefits are not guaranteed and may not justify the tax complications and withdrawal restrictions unless you are certain about staying in Singapore for at least another 10 years.
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