Taking Up Permanent Residency In Singapore? What are the Pros and Cons? (Part 1)

The Singapore population grew rapidly over the last decade it, before reaching the four million mark in 2006. Many came from all over the world to seek jobs and maybe a new home. So what has Singapore to offer for these new residents to convert them into a permanent Resident?

Different considerations motivate an expatriate to choose to reside in Singapore permanently. These can be: social, lifestyle, political, financial and other factors. In this article we examine some key financial factors of choosing Permanent Residency in Singapore.

Central Provident Fund (CPF) and Tax

Advantages

CPF contributions are compulsory for any PR to participate in Singapore's social security system. The main purpose is to provide a comprehensive saving system that provides for financial security for retirement, healthcare and home-ownership.

Based on the $4,500 ceiling, used to calculate contributions to the CPF account., the employer will contribute 14.5% for the employee CPF account and 20% from the PR employees. These contributions are allowed as a form of tax relief and the CPF Ordinary Account can be used to purchase your own properties.

The example below compares a person of $76,500 annual income package, as a non-PR and converting to a PR, taking into consideration no changes in total payment by the Employer.

Table 1 - Comparison of non-PR CPF and Tax with Singapore PR

Assumptions: Other than CPF relief, other reliefs are set to zero for ease of comparison

This example clearly shows the income tax advantages, and creating a CPF asset.

Disadvantage

The net result is also less take home pay, which is a 23% cut in net take home pay, if the employer structures the same cost basis for the pay package. However, if the employer foots the CPF Employer portion, meaning you do not get a "Pay-cut" you are most likely better off with just 12% in reduction of net take home pay.

To defray initial pain of suffering from a "pay-cut", the CPF Contribution rates are phased in for the PR, with the starting first 2 years at a lower percentage till the third year, where the full 20% will be contributed to the CPF account.

If you choose to give up the PR status before retirement age, you have the choice to withdraw all the monies or leave it to accumulate interest.

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