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Offshore Singapore Company/Non-Resident Director Questions

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Offshore Singapore Company/Non-Resident Director Questions

Postby DayTrader » Fri, 14 Feb 2014 4:26 am

Hello :wave:

I'm currently UK resident/domiciled for tax purposes and looking at setting up an offshore Singapore company to reduce my tax liability in a business I am about to start up.

In addition to the required local company secretary there will be a Singapore-based nominee director to fulfil the local director requirement. I will be the only other director and sole shareholder, but will be non-resident (for the time being). The company bank account will be outside Singapore and no money will be remitted into Singapore.

As I understand it, any company profits derived from outside Singapore and not remitted into Singapore are tax exempt.

I will be buying a commodity in Indonesia, and selling it to buyers in Indonesia, Philippines and other countries in SE Asia, outside Singapore. Can one of you knowledgable fellows confirm that in this case there would be no company tax payable in Singapore?

If I were to maintain a virtual office in Singapore for business mail and use a cell phone with a Singapore number to conduct my overseas business, would this change anything in terms of tax to be paid as to any outsider it would appear that I am conducting business from Singapore?

I have enough savings to live off for the first three years, so will forgo any salary or dividend payments as I wish all profits to remain in the company for future growth; would this be acceptable to the authorities?

Hopefully, if all goes well, I can then think about becoming a resident director and then start paying tax on any salary I draw.

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby Strong Eagle » Fri, 14 Feb 2014 5:32 am

DayTrader wrote:Hello :wave:

I'm currently UK resident/domiciled for tax purposes and looking at setting up an offshore Singapore company to reduce my tax liability in a business I am about to start up.

In addition to the required local company secretary there will be a Singapore-based nominee director to fulfil the local director requirement. I will be the only other director and sole shareholder, but will be non-resident (for the time being). The company bank account will be outside Singapore and no money will be remitted into Singapore.

As I understand it, any company profits derived from outside Singapore and not remitted into Singapore are tax exempt.

I will be buying a commodity in Indonesia, and selling it to buyers in Indonesia, Philippines and other countries in SE Asia, outside Singapore. Can one of you knowledgable fellows confirm that in this case there would be no company tax payable in Singapore?


You do not have the foreign income provisions assessed correctly. First, the exemption income must fall into one or more of these three categories:

a) Foreign-sourced dividend
b) Foreign branch profits
c) Foreign-sourced service income

But you don't have foreign dividends because there is no foreign company paying you dividends. You also don't have foreign branch profits because you don't have a foreign branch. And, you don't have foreign sourced service income because you have stated your intent to run an ex-im business.

Therefore, you fail on this point alone. But there is more. There is the expectation that income that is not taxed in Singapore will be taxed elsewhere. You must meet all three of the following requirements.

a) The highest corporate tax rate (headline tax rate) of the foreign country from which the income is received is at least 15% at the time the foreign income is received in Singapore;

b) The foreign income had been subjected to tax in the foreign country from which they were received (known as the "subject to tax" condition). The rate at which the foreign income was taxed can be different from the headline tax rate; and

c) The Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

Note that item c) says "would be beneficial to the person resident in Singapore". But you are not in Singapore and one might well wonder why the Comptroller might be "satisfied" with you claiming an exemption when you are not resident.

To actually gain your exemption you would have to do the following when you file your corporate return.

You have to provide the following information in your Income Tax Return (Form C):

1) Nature and amount of income received;
2) Country from which the income is received;
3) Headline tax rate of the foreign country; and
4) Confirmation that foreign tax has been paid in the country from which the income was received. This is to satisfy that the "subject to tax" condition is met.

But, the big elephant in the room is that you haven't mentioned anything about forming a company in Indonesia to carry on your business activities there. Clearly, the expectation of the Singapore government is that you have an external entity and that it pays tax in the country of its jurisdiction. Indonesia will also have the expectation that you will form a proper legal entity

For Indonesia, the corporate tax rate ranges from 12.5 to 30 percent of profits. But the real issue is setting up the business. Beyond the corruption and payoffs that might be necessary to actually get an application approved, there are requirements such as:

a) An investment plan of USD 1.2 million with 300K paid up capital.
b) Restriction on types activities which may restrict foreign ownership to as little as zero percent.
c) Having at least one director with an Indonesian tax card, ie, and Indonesian resident.
d) Having established a commercial domicile for your business.
e) Permits and licenses in place – most will be local and you will need a local “facilitator”

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby DayTrader » Fri, 14 Feb 2014 6:58 am

Thank you very much for your incredibly detailed and insightful reply Strong Eagle. You are absolutely right, I need to rethink my plan entirely!

Strong Eagle wrote:Now, if you were not planning on opening an Indonesian company, but merely planning to have your company contact Indonesian vendors to supply you the product, and other vendors to handle logistics, shipping, and delivery, then you don't have foreign sourced income at all, since the activities to order and ship are being conducted by the Singapore company. Therefore, income is locally taxable.


This is what I envisage my situation will be. As you rightly mentioned there are some very generous incentives for new companies that mean an effective tax rate for the first three years of around 5% on the first S$300,000, then 8.4% in subsequent years. At first glance this looks to be the best route for me and far, far better than being taxed out of existence as I currently am in the UK.

Thanks again for putting me on the right track. Two evenings Googling has not got me anywhere, it's only now I have a clear idea of what is possible.

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Postby Strong Eagle » Fri, 14 Feb 2014 7:00 am

Without commenting on the tax situation for you in the UK, of which I know nothing, your plan would work to simply incorporate in Singapore and pay Singapore corporate taxes. They are very low. See http://www.iras.gov.sg/irasHome/page04.aspx?id=410 for details.

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Postby DayTrader » Fri, 14 Feb 2014 7:10 am

Exactly, that it will. :)

The other major decision I will have to make is whether to apply for an Employment Pass when setting up the company, or to get the company up and running successfully first to establish a favourable track record.

Presumably, if the company is operating smoothly, then an application for an Employment Pass would be viewed more favourably?

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby Strong Eagle » Fri, 14 Feb 2014 7:24 am

DayTrader wrote:As you rightly mentioned there are some very generous incentives for new companies that mean an effective tax rate for the first three years of around 5% on the first S$300,000, then 8.4% in subsequent years.


And that's $300K of PROFIT. You can have a much larger revenue, pay yourself well, and not pay tax.

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Postby Strong Eagle » Fri, 14 Feb 2014 7:25 am

DayTrader wrote:Exactly, that it will. :)

The other major decision I will have to make is whether to apply for an Employment Pass when setting up the company, or to get the company up and running successfully first to establish a favourable track record.

Presumably, if the company is operating smoothly, then an application for an Employment Pass would be viewed more favourably?


You should read the various threads about starting a company and a LOC... they are equally applicable.

More later... maybe.

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby DayTrader » Fri, 14 Feb 2014 7:35 am

Strong Eagle wrote:And that's $300K of PROFIT. You can have a much larger revenue, pay yourself well, and not pay tax.


WOW! You're right, I thought it was S$300k revenue!

That really does seal the deal as it were. :)

I'll look at the threads you mentioned first thing in the morning. Thanks.

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby ComingSoon » Sat, 15 Feb 2014 3:58 pm

DayTrader wrote:
Strong Eagle wrote:And that's $300K of PROFIT. You can have a much larger revenue, pay yourself well, and not pay tax.


WOW! You're right, I thought it was S$300k revenue!

That really does seal the deal as it were. :)

I'll look at the threads you mentioned first thing in the morning. Thanks.


Even if you pay $0 tax in Singapore because of the exemption, you'll still have to pay tax in the UK if you are resident there and receive income / profits from overseas. The UK will likely consider the fact that you are living in the UK and not paying a tax elsewhere and quickly conclude you should be paying it there. I'd look into this in detail before going the offshore entity route.

If the profits were kept in the company in Singapore as retained earnings then the UK might have a different position, but you'd better check carefully.

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Re: Offshore Singapore Company/Non-Resident Director Questio

Postby DayTrader » Sat, 15 Feb 2014 11:21 pm

ComingSoon wrote:Even if you pay $0 tax in Singapore because of the exemption, you'll still have to pay tax in the UK if you are resident there and receive income / profits from overseas.


Understood. I will only be spending 6-8 weeks a year in the UK, but will still be UK "domiciled" rather than "resident" and subject to their taxes unless I can prove I am living abroad.

I will most likely apply for an Indonesian business visa and rent an apartment there in the short term. My recent experience of living in Switzerland for five out of the last seven years has shown the UK authorities quickly lose interest once you have moved abroad. As I will not be drawing any personal income in the first three years they would be wasting their time anyway. If all goes to plan I should be residing in Singapore by then.


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