Are you curious about per diem allowances and how they apply in Singapore? In our comprehensive guide, we'll delve into everything you need to know about per diem allowances for your employees. From understanding what per diem allowances entail to who qualifies for them, and even the differences between per diem allowances and travel reimbursements, we've got you covered. Plus, we'll break down the acceptable rates for per diem allowances in 2024 and explore which payments fall under this category. And if you're wondering about tax implications, CPF contributions, or reporting requirements, we'll address those too. Get ready to navigate the ins and outs of per diem allowances with confidence!
What is per diem allowance?
Per diem allowance is a daily stipend provided to employees when they travel for business purposes. This allowance covers a range of daily expenses, including meals, accommodation, transportation, and other incidental costs, ensuring that employees are not bearing personal cost while on official trips.
Who qualifies for per diem allowances?
Employees who undertake business-related travel, whether it's for client meetings, conferences, or training sessions, generally qualify for per diem allowances. This includes a broad spectrum of roles, from entry-level employees to senior executives, depending on the nature of their job requirements.
What’s the difference between per diem allowance and travel reimbursement?
While both serve to cover travel expenses, there's a distinct difference between per diem allowances and travel reimbursements:
Per diem allowances offer a fixed daily amount, irrespective of the actual expenses incurred, providing simplicity and predictability.
Travel reimbursements require employees to submit receipts for their actual expenses, allowing them to claim back the exact amount spent.
If you prefer a straightforward approach and trust your team to handle expenses responsibly, per diem could be your choice. However, if you require precise cost control and are comfortable managing administrative duties, expense reimbursement might be more suitable for you.
What kinds of payments do not fall under the per diem allowance?
Certain payments made during business trips are not considered part of the per diem allowance and are not taxable. These include:
Overseas accommodation: costs related to hotel stays or other lodging while on a business trip abroad are separate from per diem allowances.
Overseas airport transfer: expenses incurred for transportation to and from airports in a foreign country are excluded from the per diem allowance.
Travelling expenses between cities for business purposes: costs associated with travel between different cities or locations within a country for business reasons are not covered by the per diem allowance.
Entertainment expenses for business purposes: any expenses related to client dinners, team outings, or other forms of entertainment conducted for business purposes are not part of the per diem allowance.
Is per diem allowance taxable for employees?
Per diem allowances are classified as taxable income for employees as long as the amount per day exceeds the acceptable rate. Therefore, it's crucial for employers to ensure the correct tax treatment is applied when disbursing these allowances, taking into account any applicable deductions or exemptions. Refer to the table below for the per diem allowance tax treatment by IRAS:
Per diem reimbursement for business expenses incurred
Not taxable E.g. reimbursements for the actual amount incurred on meals, laundry, telephone calls, overseas accommodation, overseas airport transfers, and entertainment expenses for business purposes.
Combination of per diem allowance and reimbursement
The reimbursement portion is not taxable. As for the per diem allowance, the amount in excess of IRAS acceptable rates is taxable.
Parking fees at the airport when employee drives to the airport
Taxable
Travel insurance premium
Not taxable if it is for the period during which an employee is overseas for business.
Travel between home and airport due to overseas business trips
Reimbursements made in 2005 and subsequent years are not taxable. Per-trip allowance for an actual trip made is not taxable from 2007 onwards.
Payment to buy warm clothing for business trips
Allowance is taxable. This allowance does not form part of the per diem allowance. Reimbursement based on actual expenses incurred is not taxable.
Payment to buy luggage for business trips
Allowance is taxable. This allowance does not form part of the per diem allowance. Reimbursement based on actual expenses incurred is not taxable.
What are the IRAS acceptable rates for per diem allowance in Singapore?
The Inland Revenue Authority of Singapore (IRAS) releases annual guidelines outlining acceptable rates for per diem allowances across different countries and regions. It's important to note that any per diem allowance exceeding these rates is taxable for employees.
Please remember, these rates are solely for Income Tax purposes and do not dictate the amount of per diem allowance employers choose to provide their employees.
The tax treatment for the per diem allowance for travelling out of Singapore paid in 2005 and subsequent years is as follows:
Allowance not exceeding acceptable rate
Allowance is more than acceptable rate
Report in Form IR8A?
No
Yes. Report the amount in excess of the acceptable rate.
Tax impact on employee
Not taxable
The amount in excess of the acceptable rate is taxable.
Where the per diem allowance is less than the acceptable rate paid for a trip, it cannot be used to offset the taxable amount arising from other trips.
The tax treatment of per diem allowance paid for business trips into Singapore on or after 1 January 2016 is as follows:
Allowance not exceeding acceptable rate
Allowance is more than acceptable rate
Report in Form IR8A?
No
Yes. Report the amount in excess of the acceptable rate.
Tax impact on employee
Not taxable
The amount in excess of the acceptable rate is taxable.
However, if the employee travels to Singapore for business purposes for 60 days or less in a year, they will be exempt from tax on their earnings here. For more information, please refer to Working for Foreign Employers.
How to calculate the taxable amount of per diem allowance to report in IR8A?
Example #1: If allowance is below the acceptable rate
The acceptable rate for Japan is $162 per day in 2024.
During the 7-day business trip to Japan, Matthew received a daily allowance of $160 from ABC Ltd.
Matthew's total per diem allowance adds up to 7 days x $160 = $1,120, covering his living expenses during his stay in Japan.
As this amount falls below the approved rate of $162, there is no taxable benefit incurred. Consequently, ABC Ltd is not required to report this allowance on Form IR8A.
Example #2: If allowance is above the acceptable rate
The acceptable rate for Germany is $125 per day in 2024.
When Nancy travelled to Germany for client meetings, ABC Ltd generously provided her with a per diem allowance of $150 per day. For her six-day trip, Nancy received a total of $900.
Since Nancy receives the allowance above the acceptable rate, there will be an excess amount to be reported on Form IR8A.
Excess amount per day over the approved rate = $150 - $125 = $25
Taxable amount to be reported on Form IR8A = $25 x 6 = $150
Are CPF contributions payable on a per diem allowance?
For lump sum per diem payments: Yes, CPF contributions are payable on per diem payments provided as a lump sum allowance since they augment your employee's wages.
For per diem reimbursements: No, CPF contributions are not applicable on per diem payments reimbursed for expenses incurred for official purposes, such as accommodation or meal expenses.
If an employee travels across countries/regions within the same day, what is the rate that should be used to compare against the per diem allowance given?
The per diem allowance aims to cover the everyday living expenses an employee might incur during their travels. Thus, the per diem allowance should be a proxy for the actual amount of living expenses that the employee incurs or is likely to incur in the day. The comparison should be reasonable and reflect the consumption pattern of that day.
If an employee departs Singapore on 5 April and returns on 9 April in the same year, how long does the employee stay "outside of Singapore" for the purpose of computing the per diem allowance?
IRAS recognises the number of days set by employers based on their HR policies, as long as it doesn't exceed the total duration of the trip. In this case, if an employer designates an overseas trip as having a 5-day duration (5 - 9 April), this would be acceptable to IRAS.
If the per diem allowance is paid in foreign currency, which exchange rate should be used to convert it to Singapore dollars?
You can utilise your in-house exchange rate for currency conversion. If you don't have an established rate, you may reference exchange rates provided by local banks, locally circulated newspapers, or reputable news agencies. It's essential to maintain consistency by using the same source for all conversions.
Are Singapore Permanent Residents (PR) or foreigners eligible for per diem allowance?
Both Singapore Permanent Residents (PR) and foreigners are eligible for per diem allowances, subject to the company's policies and guidelines. Employers should ensure equitable treatment and clear communication of eligibility criteria to all employees.
Can an employee on probation have a per diem allowance?
Employees on probation can receive per diem allowances, provided they align with the company's probation policy. Employers should refer to the policy for clarity on eligibility and entitlements during the probationary period.
How to develop a per diem allowance policy for your company?
Having a clear policy ensures that all employees understand the company's guidelines regarding per diem allowances, including eligibility criteria, allowable expenses, and reimbursement procedures. This clarity promotes consistency in how per diem allowances are administered across the organisation. Here's a step-by-step guide to help you create a robust per diem allowance policy:
Step #1: Define the purpose
Begin by clearly defining the purpose of the per diem allowance. Is it to cover daily living expenses during business trips? Understanding the primary objective will guide the rest of the policy development process.
Step #2: Research on the per diem allowance acceptable rates
Research acceptable per diem rates in the industry and region where your employees frequently travel. This helps in setting a competitive and fair rate.
Step #3: Set clear eligibility criteria
Define who qualifies for per diem allowances within your organisation. This could be based on roles, employment status, frequency of travel, or specific projects.
Step #4: Outline payment procedures
Specify how and when the per diem allowances will be paid. Will it be provided as a lump sum before the trip or reimbursed after the trip with proper documentation?
Step #5: Include documentation requirements
Clearly state the documentation needed to support per diem claims, such as receipts or travel itineraries. This ensures transparency and accountability.
Step #6: Address tax implications
Explain the tax treatment of per diem allowances, including whether they are taxable or non-taxable and if they need to be reported on Form IR8A.
Step #7: Provide clarity on non-eligible expenses
List expenses that do not qualify for per diem allowances, such as entertainment expenses or personal leisure activities.
Step #8: Review and update regularly
Periodically review the policy to ensure it remains relevant and compliant with changing regulations and company needs. Make sure that you also communicate it clearly to all employees.
Example of per diem allowance expenses report template
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