Singapore enters 2025 with its most significant tax and workforce policy updates in over a decade. For SMEs, this is not just “another year of compliance updates”—it’s a year where tax rules will tighten, payroll documentation will be scrutinised, and work pass approvals will increasingly depend on data-driven transparency.

From BEPS 2.0, to 15% effective tax rates, to new Employment Pass salary thresholds, to COMPASS becoming a mandatory scoring system, business owners now face a more structured and audit-heavy era.

This article breaks down how these reforms will reshape accounting, tax, payroll, and HR workflows for Singapore SMEs—and how companies can prepare to stay compliant without inflating operational costs.

What Are the Biggest Tax Changes Singapore SMEs Will Face in 2025?

Singapore’s alignment with global tax reforms—especially under OECD’s BEPS 2.0—marks the start of a new cross-border tax environment. Even SMEs that previously thought “global tax rules don’t apply to us” will now feel downstream effects.

1. BEPS 2.0 and the Global Minimum 15% Tax

Singapore will introduce legislation aligned with Pillar Two, affecting large multinational enterprises (MNEs) operating in Singapore. But even if an SME is not directly subject to the 15% effective tax rate, the impact will still be felt:

• Downstream Effects on Singapore SMEs
• SMEs supplying to MNEs may face heightened transfer pricing documentation requirements.
• Companies under global groups may need additional reporting to support consolidated group filings.
• Parent companies may require more granular financial data, segment reporting, and payroll breakdowns from Singapore entities.
• Intra-group transactions will require clearer audit trails.

Why this matters: SMEs that previously submitted minimal working papers will now be expected to maintain audit-ready accounting and tax support files year-round, not only during filing season.

2. Stricter IRAS Audit & Review Practices

IRAS has already expanded its audit focus in:

• Revenue recognition timing
• Expense claims without documentation
• Director fee disclosures
• Related-party transactions
• GST compliance for companies near the S$1M threshold

In 2025, businesses should expect:

• More frequent compliance reviews
• Requests for supporting ledgers, contracts, payroll documents, and bank statements
• Pre-assessment queries before issuing NOAs

Companies operating lean with poor documentation will face the most risk.

3. Enhanced GST Scrutiny After 9% Rate Stabilisation

With GST stabilised at 9%, IRAS is expected to intensify:

• GST classification audits
• Zero-rated vs standard-rated supply reviews
• Claims verification for GST refunds
• Audits for F&B, retail, logistics, and service sectors

SMEs relying on manual bookkeeping will struggle to keep pace.

How Will the New 2025 Employment Pass Salary Requirements Affect SME Payroll?

From 1 January 2025, MOM has raised the EP qualifying salary to:

• S$5,600 for most sectors
• S$6,200 for financial services

And under COMPASS, higher salaries will be required to safely clear the 40-point threshold.

Payroll Implications for SMEs

For SMEs employing foreign PMETs, this triggers:

• Higher monthly payroll commitments
• Reassessment of salary bands for new hires
• Potential salary adjustments for renewals
• Higher employer CPF contributions for local hires (if choosing to localise roles)

Companies with tight margins must now decide:

• Increase salary to retain foreign staff
• Convert roles to local hires where possible
• Redesign job scopes to justify EP renewals

Payroll planning will no longer be just an HR function—it becomes a cost strategy function.

Which Sectors Will Be Most Impacted?

• Tech startups
• Marketing agencies
• Professional services firms
• Trading companies
• Finance and fintech
• Construction & engineering managers

These industries traditionally rely on mid-range EP salaries that may no longer qualify.

What Does COMPASS Mean for Payroll Transparency and Documentation?

COMPASS is not new, but 2025 is the first full operational year with no grace period.

All EP applications (new and renewal) are scored against:

• Salary
• Qualifications
• Diversity
• Fair hiring
• Skills bonus
• Strategic economic priorities bonus

Why COMPASS Increases Documentation Requirements

Under COMPASS, SMEs must prepare more documentation, including:

• Salary benchmarking materials
• Proof of job advertisements on MyCareersFuture
• Fair hiring explanations if MOM asks
• Detailed organisation charts
• Local vs foreign workforce breakdowns
• Education verification for applicants

This means payroll records must be audit-ready, timestamped, and retrievable at any time.

How Will MOM’s Increased Scrutiny of Payroll Records Change SME HR Processes?

2025 brings greater emphasis on:

• Actual salary paid vs declared salary
• Overtime practices
• Allowance structures vs fixed salary
• Variable pay vs guaranteed pay
• Compliance with itemised payslip requirements

SMEs can expect more MOM requests for:

• Bank-in slips or GIRO proofs
• Detailed payroll registers
• OT logs
• KETs (Key Employment Terms)
• Employment contracts
• CPF records

This pushes SMEs towards payroll digitalisation, because Excel-based payroll systems will no longer withstand documentation checks.

How Should SMEs Adjust Their 2025 Payroll Structures to Remain Compliant?

SMEs must rethink their payroll strategy across three areas:

1. Salary Structuring

• Shift away from allowance-heavy packages
• Increase fixed salary component for EP applicants
• Review pay bands for foreigners vs locals

2. Documentation

• Generate automated payslips
• Set up digital employment contracts
• Maintain cloud-based payroll records
• Prepare for MOM audits by organising PDF archives of bank transactions

3. Hiring Roadmaps

• Plan hiring budgets 12–18 months ahead
• Secure approvals for EP renewals early
• Conduct COMPASS self-assessments before offering roles
• Improve local hiring ratios to strengthen COMPASS scores

HR and finance teams must collaborate more closely because payroll now affects work pass outcomes, tax filings, and corporate compliance.

How Will Tax and Payroll Intersect More Closely Under 2025 Regulations?

The convergence of IRAS and MOM data systems means:

IRAS will compare your tax filings against your payroll records

Examples:

• Director fees must match declared director income.
• Staff salaries must reconcile with Form IR8A.
• Expense claims (travel, entertainment) must match accounting records.
• Withholding tax for overseas contractors must match payment logs.

MOM will check payroll for work pass compliance

• Declared EP salary vs actual salary in bank records
• Underpayment or delayed payment
• Allowances improperly classified as fixed salary
• Salary deductions without justification

With integrated cross-agency data, SMEs must ensure consistency across:

• Accounting systems
• Payroll systems
• Tax reporting
• Work pass applications

How Should SMEs Prepare for IRAS and MOM Being More Data-Driven in 2026?

Singapore’s regulators are moving toward pre-filled, automated, cross-verified filings. Companies must improve:

1. Accuracy

Errors in payroll or accounting will be flagged by algorithms, not just human officers.

2. Timeliness

Late filings will trigger faster penalties due to automated reminders and digital enforcement.

3. Traceability

Companies must provide supporting documents on-demand during reviews.

4. Transparency

Hidden transactions, unreported income, and unclear payroll arrangements will be harder to justify.

This pushes SMEs towards:

• Cloud accounting systems
• Integrated payroll software
• Digital HR documentation
• Real-time reconciliations

Manual record-keeping will no longer be sustainable.

What Can SMEs Do Now to Prepare for Singapore’s 2026 Compliance Landscape?

1. Upgrade Accounting and Payroll Systems

Switch to software that supports:

• Automated ledgers
• Real-time reconciliation
• IRAS-compliant reports
• MOM-compliant payroll formats
• Cloud backups

2. Conduct a 2024 → 2025 → 2026 Compliance Gap Audit

Review:

• Salary structures
• COMPASS scoring
• Director fees
• GST documentation
• Transfer pricing files
• Employment contracts
• Itemised payslips

3. Strengthen Documentation Practices

Create a documentation calendar for:

• Tax papers
• Payroll logs
• EP support files
• GST submissions
• Annual return filings

4. Work With a Professional Accounting & Payroll Partner

This ensures:

• BEPS-aligned tax planning
• Accurate accounting data for IRAS filings
• Payroll compliance for EP/S Pass submissions
• Proper documentation and audit trails

For SMEs, outsourcing to a compliance specialist is often cheaper than hiring full-time staff.

Why Will 2026 Be the Most Challenging Compliance Year for SMEs?

Because:

• Tax rules will get more international.
• Payroll documentation will get more forensic.
• Work pass approvals will be more data-driven.
• IRAS and MOM systems will be more integrated.
• Penalties will escalate faster.

In short:

Small mistakes that went unnoticed before will trigger audits in 2026.

Final Thoughts: What Should Singapore SMEs Do Before 2026 Begins?

Singapore’s 2026 reforms are not meant to punish SMEs—they’re designed to improve fairness, transparency, and global alignment. But for SMEs operating with lean teams and manual processes, the transition will be demanding.

This is the best time to:

• Digitalise
• Document properly
• Strengthen corporate governance
• Reorganise payroll structures
• Validate COMPASS scores
• Review tax positions ahead of BEPS 2.0

The SMEs that take action now will avoid penalties, secure work passes smoothly, and maintain clean financial records—all while operating more competitively in 2026.