Employment Tax

Singapore | Update on IRAS reporting requirements for retrenchment payments

Summary

The Inland Revenue Authority of Singapore (IRAS) has updated its guidelines on how retrenchment payments should be reported going forward from Year of Assessment (YA) 2026 (calendar year 2025).

Employers are now able to self-assess the taxability of each component of a retrenchment package and report the taxable and non-taxable amounts in the tax return. While this helps simplify reporting, do keep in mind that IRAS may review and question the positions taken.

We explain the update, its implications, and best practices that employers should adopt for retrenchment cases regarding this update.

The detail

What’s new and the implications

Previously, employers were only required to report the individual components of a retrenchment package based on the nature of each item, without the need to determine their taxability in advance.

From YA 2026 onwards, employers will be required not only to declare the retrenchment package components, but also to perform a self-assessment of the taxability of each item. The taxable and non-taxable amounts must then be reported directly in the tax return, as illustrated in the table below.

	What to declare	Annual return		Tax clearance return
		Employers on AIS	Employers not on AIS
YA2026	Taxable amount under ‘Gratuity/Notice Pay/Ex-gratia paymentʼ	Please complete ‘item d3ʼ of the Form IR8A	Please complete ‘item d4(i)ʼ of the Form IR8E	Please complete ‘item 4(c)ʼ of the Form IR21
	Non-taxable amount under ‘Compensation for loss of officeʼ		Please complete ‘item d4(ii)ʼ of the Form IR8E	Please complete ‘item 4(e)ʼ of the Form IR21   *withholding would still apply even on self-assessed non-taxable items

The employers are not required to submit upfront confirmation of the tax treatments or supporting documents along with the tax return. Instead, employers should provide documentation to the affected employees that lists the breakdown and taxability of each component.

Notwithstanding the update above, IRAS retains the right to review the detailed breakdown of a retrenchment package at any time. If there is insufficient basis to support the tax positions taken, IRAS may challenge and reverse the tax treatment of certain components. This is more likely in situations where:

• The retrenchment is high-profile or widely scrutinised by the public
• The retrenchment packages are high-value
• Components are non-standard, personalised, or potentially contentious
• Retrenchments involving employees working in multiple countries

If challenged, IRAS could reverse the tax positions, which may result in additional tax liabilities and delays. This can be particularly sensitive in retrenchment situations and may slow down the overall tax settlement process.

Recommended best practices

As retrenchment is a delicate matter, employers should aim to make the process as clear, efficient, and stress-free as possible—while meeting all requirements from the relevant authorities, including tax reporting obligations.

Whether it involves a bulk retrenchment exercise or a high-value, non-standard package for senior executives, we strongly recommend that employers work closely with a tax advisor to:

• Review the self-assessment to ensure the tax position is defensible if IRAS raises
• Prepare the communication as well as the breakdown and taxability of each component in the affected employeeʼs retrenchment package to the employees, to meet the IRASʼ requirement.
• Verify documentation so the position can be supported promptly if
• Ensure consistency in treatment across employees with similar
• Identify contentious components and seek IRAS pre-approval upfront to minimise future Please note that where the IRASʼ pre-approval on the taxability treatment of the items has been sought from the IRAS, the IRAS would still require the item(s) to be indicated on the reporting form, per the table above.

In conclusion

Overall, the update is not merely a change in form filing process but it also shifts more responsibility on employers to ensure the accuracy of the tax positions adopted. Employers should maintain clear and robust documentation to support the tax treatment of each component of the retrenchment package in the event of an IRAS review.

We recommend that employers continue to consult the tax advisors when determining the taxability of the retrenchment payments to ensure compliance and minimisation of future disputes from the IRAS.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Ben Neumann
Singapore Leader

Grace Huang
Partner, Tax

Girish Vikas Naik
Director, Tax

 

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