Employers in Singapore can pay employees per diems as compensation for the expenses incurred while they are on a business trip. This can be expenses such as the cost of meals, transport and other incidental items like laundry.
In principle, per diems are not considered part of an employee’s income and are thus tax-free up to a certain allowed amount. This maximum allowed amount is defined by the ‘acceptable rates’ that IRAS publishes. In case employers pay a per diem allowance that exceeds the acceptable rate, the excess is considered taxable income and needs to be reported to the IRAS in Form IR8A.
As the standard of living differs across countries/regions, the acceptable rate varies from country/region to country/region. The IRAS reviews these rates annually based on information from employers and other relevant information. The rates for the following year are always published in December and applicable from 1 January.
You can find the rates on IRAS’s website.
Example: The acceptable rate for Australia in 2022 is S$126. This means the employer can pay an employee a daily allowance of up to S$126 for their business trip to Australia. If the employer pays more than S$126, for example, S$200, the excess (S$200 – S$126= S$74) is considered taxable income.
Additional notes on per diems:
- If the per diem allowance is less than the acceptable rate paid for a trip, it is not taxable. In this case, it is important to note that it cannot be used to offset the taxable amount arising from other trips;
- If your company pays a higher per diem allowance than the acceptable rates set by IRAS and you think the higher allowance paid to your employees is justifiable, you can inform IRAS of these rates so that IRAS can consider them when reviewing the acceptable rates for the following year.
How to submit your proposed rates to IRAS:
- Email your rates to [email protected];
- Attach the report conducted by a consulting firm on the cost of living or other relevant information to support your basis. Proposed rates based on the employee’s own experience in the country/region will not be accepted by IRAS;
- Declare the amount that is more than IRAS’s acceptable rate in Form IR8A for the current year.
- In case a daily allowance is paid to cover accommodation, meals, transport expenses and other incidental expenses such as laundry, the taxable amount is the daily allowance minus the acceptable rate and minus the non-taxable items. The non-taxable items are overseas accommodation, overseas airport transfer, travelling expenses between cities for business purposes and entertainment expenses for business purposes.