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Company setup before leaving Singapore, advise from company secretary correct?

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Company setup before leaving Singapore, advise from company secretary correct?

Postby BenDover » Wed, 22 Nov 2017 4:08 pm

Hello Everyone,

I have been reading the forum up and down but didn't really find the answer I was hoping for.
If similar was posted already, please just refer me to the link.

I'm currently working on an EP in Singapore for a local consultancy.
I will be leaving Singapore by end of the year to be able to live abroad due to family reasons.
However, I would like to go on working for my current employer in Singapore as a freelance consultant, invoicing from my own company. That would allow me to live abroad and still work for the employer.
For the employer it doesn't matter where I live since I need to travel to the projects anyway to work onsite, which is at projects outside Singapore.

I spoke to several service management companies and all of them recommended the following:

Setup a company in Singapore with a nominee local director service and myself as a non-resident director.
Use the SME tax exempt in the first three years and only payout dividends, no salary required.
Control and management would be performed in Singapore since my company and my sole client (current employer) are in Singapore and I would only be needed to be onsite for negotiating the frame contract with the current employer on a yearly basis.

The country I will be living in doesn't tax foreign income and my home country doesn't ask for it either.
That sounds too good to be true, however, I spoke to 5 different service management companies and all of them stated exactly the same.

Am I missing some part here or is this just how business is made?
From what I read in other posts and replies, I would assume that I rather should pay myself a salary and tax it as a non-resident in Singapore. If that's the case, is there any suggested monthly amount I should pay myself (e.g. same amount as MOM requires for EP)?

Hope for some help here since I don't want surprises at the end of next year when IRAS starts looking into it.

Cheers,
BD

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby Strong Eagle » Thu, 23 Nov 2017 5:33 am

Let's start with this:

Setup a company in Singapore with a nominee local director service and myself as a non-resident director. Use the SME tax exempt in the first three years and only payout dividends, no salary required.

The country I will be living in doesn't tax foreign income and my home country doesn't ask for it either. That sounds too good to be true, however, I spoke to 5 different service management companies and all of them stated exactly the same.


It is too good to be true. First, Singapore IRAS is well aware of this scam. You don't pay yourself, instead your company makes a nice profit, and with corporate taxes waived for 3 years, you give yourself dividends instead.

But, IRAS has rules, like most developed countries, that professionals must be paid in accordance with the norms for that kind of job, and if you report zero income on your IR8A, they are going to want to know why you didn't get paid for the work you did. Ignore their queries and they may whack you with fines and more.

Your service management companies are lying to you... ask them what happens when you declare zero pay while working for your company. Ask them what happens when you're not paid any directors fees for being a non-resident director. The muppets probably haven't even thought about that. But, IRAS has... it takes them five seconds to check with ACRA to discover that you are the shareholder that receives all the dividends.

Second, virtually every country in the world wants to see you pay personal income tax somewhere, and this is the reason that there are tax treaties. You generally pay income tax in the country where the work was rendered.

In your case, you are saying you didn't get paid but received dividends. Dividends may be taxable depending upon which country you are talking about.

Setup a company in Singapore with a nominee local director service and myself as a non-resident director.


Why do you want to do this? Why do you think you need a Singapore entity in order to enter into contracts? You should verify with IRAS, and I am almost certain that this will cause you to be classified as a non-resident professional rendering services in Singapore, and therefore subject to a 15 percent gross withholding tax before the money is sent to you. You earn $1000, you send $150 to IRAS and the rest to yourself.

Your company is in Singapore. The company to which you supply services is in Singapore. You are the only person not in Singapore. Therefore you will be considered a non-resident professional. The same holds true for your position as non-resident director. Any fees you receive for being a director are also subject to withholding.

See, they don't want you to skip out on paying tax just because you are not resident. They have this gut instinct that you're not going to declare Singapore money in your home country. And they will be looking doubly hard at your returns because you're claiming you didn't earn any income, all the while IRAS wants to make sure that foreigners don't escape paying tax. Send up another red flag.

Aside from that, good luck with a bank account... the banks are as jumpy as ants on a hot griddle because of all the money laundering scams they have been caught in. They're not going to want to take a chance with a foreigner and online banking taking advantage of a little money laundering.

On top of that, any service management company willing to rent you a director is going to want to climb up your company's ass with a microscope. They will insist on being your accountant and bookkeeper. They will insist on seeing all your bank statements. They will want to approve all your contracts and applications for employment passes. They will want to analyze your sources of income and your expenses. All at a price. Why? Because if you turn out to be a scam artist, it is their director that faces the legal and financial consequences.

Why aren't you just forming a company or business in the country where you will be living? Is it because you are trying to avoid paying taxes? Or because you can't legally work there or form a company there? Or, why aren't you forming a company in your home country. Are you trying to avoid taxes again?

So long as you are being compensated for services performed and not for royalties, intellectual property, etc, there is no withholding and you pay taxes in wherever your company is incorporated.

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby PNGMK » Thu, 23 Nov 2017 8:20 am

Why not just invoice as a sole proprietor from wherever your living and make whatever tax arrangements you need to there? Then there is no need for anything in Singapore.

Which country will you be tax resident in or you hoping to be non resident for tax purposes in any country (aka perpetual traveller?).
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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby BenDover » Thu, 23 Nov 2017 10:10 am

Hello Strong Eagle and PNGMK,

thank you very much for replies.
Let me explain some background and ask another question:

Regarding your question why I don't setup a company in the country where I will be living:
It will be Thailand and I won't be working there. All my work is done outside Thailand and Thailand specifically doesn't tax foreign income (as long as the income is not brought into the country the same year it is earned - which I'm not doing anyway).
Setting up a company in Thailand is a nightmare and you're also forced to employ locals for each foreigner being employed. I won't even have an office there and don't see why I should put myself in such an uncomfortable position.

On top of that, any service management company willing to rent you a director is going to want to climb up your company's ass with a microscope.
+

That's the point I don't get: exactly these service management companies recommend the mentioned approach of only declaring dividends. Why would they put themselves in such a situation?
It's all of them recommending the same approach and they tell me it's the standard thing to do and there's no problem with it.

I'm not trying to avoid any taxes here, I want a legally safe solution because I'm not fancy of any trouble later on.
However, it is quite difficult to figure out what is a correct solution if everyone tells something different, even those who should know (service management companies).

My plan is to pay myself a salary that covers my monthly expenses (let's say 5,000 SGD), I would pay the non-resident tax of 15% on that and everything above that would be via dividend payment.
How can I know if this doesn't put me on the spot with IRAS or who could tell me?
This is the main question I actually have.

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby sundaymorningstaple » Thu, 23 Nov 2017 3:41 pm

I'm not sure but I believe Strong Eagle also had presence in Thailand and Malaysia so he should know what difficulties you face up there as well.

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby Strong Eagle » Fri, 24 Nov 2017 12:11 am

Preface: I setup a company in Thailand because it was the only way I could contract with the Thai firms for which I was doing business. I set it up under the Thai American Amity Treaty so while I still needed seven shareholders, I could retain a majority foreign ownership.

You are correct... it is not the simplest thing to setup a company in Thailand, and the two million Baht capitalization for foreigners to get a work permit can be problematic... we put the money in the bank, then immediately loaned it back out to a director (which made closing down the company most difficult). I also used a serviced office that kept an open office for companies like mine... if the authorities dropped by, my name placard and a picture of the wife and kids appeared on the desk. The fees I paid were interpreted as salaries for my "Thai workers". Having said that:

BenDover wrote:Regarding your question why I don't setup a company in the country where I will be living: It will be Thailand and I won't be working there.


As you will see, this question is relevant to the taxation situation (and feel free to reject my question): How are you living legally in Thailand? If you're on a Thai wife visa, then all the requirements for a foreigner starting a company don't apply at all... have her start it. And, if you are on a wife visa, then you are resident for tax purposes.

If you don't have a Thai wife and you don't have a company to get a valid work permit, then your only long stay visa choices are retirement (over 50 and 800,000 Baht into a bank account), or a business visa (working for a Thai company). Call me confused about your legal status in Thailand.

All my work is done outside Thailand and Thailand specifically doesn't tax foreign income (as long as the income is not brought into the country the same year it is earned - which I'm not doing anyway).


This is not quite accurate. Thailand is like the USA in that it taxes its residents on worldwide income. But, if you are not tax resident in Thailand, then only your income earned in Thailand is taxable. However, if your primary residence is in Thailand, then you are tax resident and this clause is not applicable to you. You pay tax on worldwide income, subject to the provisions of the dual taxation agreements that Thailand has entered into. If you pay tax in Singapore, you wouldn't pay it again in Thailand. Your Thailand residency status matters and I would contact someone very familiar with Thailand income tax before committing to a course of action.

On top of that, any service management company willing to rent you a director is going to want to climb up your company's ass with a microscope.


That's the point I don't get: exactly these service management companies recommend the mentioned approach of only declaring dividends. Why would they put themselves in such a situation?
It's all of them recommending the same approach and they tell me it's the standard thing to do and there's no problem with it.


Because they are stupid. These are the same people that apply for an employment pass for a foreigner in a new startup company, with a monthly salary of $9,000 for a company that has no revenues, and when it is rejected, they stand there with a confused look on their face. They think big money means easy EP approval.

Because they are unaware that Singapore is a signatory to FACTA and other Asian and European agreements to catch tax evaders. Because they are unaware that IRAS has issued detailed instructions to Singapore banks for the purposes of stopping tax evasion. From the document:

The Common Reporting Standard (CRS) is the global standard for the automatic exchange of Financial Account information between jurisdictions for tax purposes, with the objective of detecting and deterring tax evasion by taxpayers through the use of offshore banks and other Financial Accounts.


And in the end, they are stupid because they don't understand why the tax relief for new companies is granted. It's not granted so that someone can scam the system like you (and many others) have suggested. Tax relief is granted on the profits of new, startup companies so that they will have additional funds to grow their company.

IRAS actively seeks out tax evasion schemes. Sure, sometimes, it's a case of not reporting revenues that you actually earned. But, it is also tax evasion to say that the value of the labor you performed during a tax year is zero... you know it's not... and IRAS will eventually come back on you as to why you don't pay yourself anything. It's rather obvious, isn't it? You are evading taxes on income.

But, hey... don't take my word for it. Call IRAS. Tell them what your service management companies have suggested and see what they say. I'll lay a sizable bet they're going to tell you what I just told you.

I'm not trying to avoid any taxes here, I want a legally safe solution because I'm not fancy of any trouble later on. However, it is quite difficult to figure out what is a correct solution if everyone tells something different, even those who should know (service management companies).

My plan is to pay myself a salary that covers my monthly expenses (let's say 5,000 SGD), I would pay the non-resident tax of 15% on that and everything above that would be via dividend payment.
How can I know if this doesn't put me on the spot with IRAS or who could tell me?
This is the main question I actually have.


Your last paragraph is the more reasonable approach. The amount of salary you set should be determined by the average salaries for a similar position in a company doing a similar type of work. And certainly, there can be a broad band of salaries... some people don't make much money, some are much better at running a company. But again, if you are the sole shareholder, it's still pretty clear to IRAS as to what is going on. You could pay yourself directors fees or a bonus in lieu of dividends and be taxed. You can only know if your approach is successful when IRAS doesn't come knocking on your door.

Again, call IRAS. Confirm that you will be treated as a non-resident professional for tax purposes. I think my interpretation is correct but I'm not the one that matters.

Another alternative available to you is to incorporate in another country... there are many tax havens available to you.

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby PNGMK » Fri, 24 Nov 2017 9:51 am

OP have a look at Labuan. It's a specific offshore services hub set up for this type of activity. (It's also where Nick Leeson suspiciously went on holiday just after the trades he did in the bank blew it up - not that the UK press over seemed to connect the dots).
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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby BenDover » Fri, 24 Nov 2017 4:03 pm

Hi Strong Eagle,

thanks very much for your detailed reply.

For some of the regulations, I got different information:

If you're on a Thai wife visa, then all the requirements for a foreigner starting a company don't apply at all... have her start it


I'm on a Thai wife visa, however, even if my wife starts the company I need to hire 2-4 locals for each expat (myself) I want to bring into the company. I also need to increase the companies capital stock by 1 Million Thai Baht for each expat. All that would come on top of that my wife would be the one who owns the company and therefore would at least be as responsible as me in case anything goes wrong- I would like to avoid that.

Thailand is like the USA in that it taxes its residents on worldwide income


At least KPMG states on their webpage: "Salaries received from employment exercises outside of Thailand are exempt of Thai tax, if not paid in or remitted into Thailand within the same calendar year it is received..."
That even applies if one is considered a tax resident in Thailand.
Here's a link to it, there are several other pages that state the same.
https://home.kpmg.com/xx/en/home/insights/2011/12/thailand-income-tax.html

Confirm that you will be treated as a non-resident professional for tax purposes.


I would assume the same and at least here everyone is saying the same.
If I pay myself a salary as a non-resident professional, would I still need to pay myself a directors remuneration or directors fee on top of the salary?

...there are many tax havens available to you.


Thanks for the advise, but I prefer to stay "clean" - don't wanna have my name appear on some Panama papers ;)

Cheers,
BD

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby Strong Eagle » Fri, 24 Nov 2017 11:10 pm

BenDover wrote:
Thailand is like the USA in that it taxes its residents on worldwide income


At least KPMG states on their webpage: "Salaries received from employment exercises outside of Thailand are exempt of Thai tax, if not paid in or remitted into Thailand within the same calendar year it is received..."
That even applies if one is considered a tax resident in Thailand.
Here's a link to it, there are several other pages that state the same.
https://home.kpmg.com/xx/en/home/insights/2011/12/thailand-income-tax.html



I saw that KPMG page. Others state it differently.

http://www.expatfocus.com/expatriate-thailand-taxation

Those who live in Thailand for more than half the year are considered to be resident in the country for the purposes of tax. If you are resident then you are expected to pay taxes on all income that you earn worldwide. If you are not a resident and are in the country for less than 180 days each year then you are only expected to pay tax on the income that you get from within Thailand.


http://www.thaiworkpermit.com/personal- ... iland.html

There are two classifications of taxpayers: Resident and Nonresident. A resident taxpayer is someone who has resided in Thailand for a period that totals more than 180 days. Both incomes earned domestically or in foreign soil are subject to taxation. For Non-resident, only incomes earned in Thailand are subject to taxation.


https://www.greenbacktaxservices.com/bl ... -thailand/

Once you have lived in Thailand for more than 180 days in a calendar year you are considered a resident. Prior to that 180 days you are considered a non-resident.

Thailand taxes worldwide income, just as the US does. But unlike the US, only residents are taxed on their worldwide income while non-residents are taxed only on the income earned in Thailand.


So, I would call KPMG's comment incomplete, at best.

I've never had a Thai wife so I'll take your word on the requirements. I've found the forums on the following website a very useful source of information for expats trying to do business in Thailand.

https://www.thaivisa.com/

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Re: Company setup before leaving Singapore, advise from company secretary correct?

Postby johnkcp » Sun, 03 Dec 2017 5:10 pm

Dear Bendover,

Advise from your company secretary is totally make sense.

When you render your services and issue invoice in Singapore, the service fee that charge on your customers is subject to tax @ 17% after deduct allowable expenses.

As a director cum shareholder, definitely you could declare dividends to yourself (as you are shareholder too). But the dividends (if it is single tier) is not subject to tax at personal level as the source of income already taxed at company level.

If you intend to receive director's salary, the salary will be deemed as allowable expense, which also will reduce your company's net profit and eventually lesser tax to be paid at company level. But you will need to declare the salary on personal tax filing.

The amount of director's salary is crucial to decide whether you want to receive in the form of dividends or salary. As the tax rate for personal tax and company tax is vary. Personal tax can up to 22% (depends on your income) whereas company tax rate fixed at 17%.

PS: I was an auditor and now practicing accountant in a MNC.


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