Singapore Expats Forum

Organising a company and structure- legality

Discuss your views about Singapore business & economy, current policies & issues, starting a business in Singapore.
pakhan
Newbie
Newbie
Posts: 4
Joined: Fri, 27 Nov 2015

Organising a company and structure- legality

Postby pakhan » Fri, 27 Nov 2015 11:35 am

Hi all,

I just set up my own business (pte. ltd.) as a PR here- I am the sole shareholder and sole director- basically I do all the work! And I was wondering if it would be legal to not draw a salary but instead to award myself dividends instead?

all apart from the effect it will have on my PR status, of course.

User avatar
Strong Eagle
Moderator
Moderator
Posts: 10405
Joined: Sat, 10 Jul 2004
Location: Off The Red Dot
Contact:

Re: Organising a company and structure- legality

Postby Strong Eagle » Fri, 27 Nov 2015 1:01 pm

Completely legal. Pay zero tax for the company because of the first 3 years profit exemption. Pay zero tax yourself because dividend payments are not taxed.

a) IRAS may come back and disallow your interesting scheme, because employees/directors must be paid at some reasonable minimum for the work they do.

b) REP renewal time pops up... gee... what did you contribute to Singapore... nada, is it?... bye bye REP.

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34259
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Organising a company and structure- legality

Postby sundaymorningstaple » Fri, 27 Nov 2015 3:17 pm

^^^ And it has happened before. They are wise to almost every scheme imaginable. They've had lots of practice.

pakhan
Newbie
Newbie
Posts: 4
Joined: Fri, 27 Nov 2015

Re: Organising a company and structure- legality

Postby pakhan » Fri, 27 Nov 2015 3:44 pm

Thanks!

So it is completely legal, but IRAS may determine that I must be paid some minimum for work I do?

As there are no employees and as a director I am doing the work, then it would either be in the form of salary for director or a director's fees (but not both)- the main difference is that director's fees are not cpf-able (so to speak)?

Alternatively, if choose to go ahead with the tactic- what can IRAS do? Compel company to pay minimum for work by the director? Fine?





Strong Eagle wrote:Completely legal. Pay zero tax for the company because of the first 3 years profit exemption. Pay zero tax yourself because dividend payments are not taxed.

a) IRAS may come back and disallow your interesting scheme, because employees/directors must be paid at some reasonable minimum for the work they do.

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34259
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Organising a company and structure- legality

Postby sundaymorningstaple » Fri, 27 Nov 2015 4:43 pm

They could force the issue and make you report a portion of the dividends as wages as would be normal for the work being done. Or if they determined that you were deliberately trying to evade taxes AND CPF contributions, they could take away your PR and not just refuse to renew your REP. (It has been done).

The best thing to do is to draw a salary commensurate with the job your are doing and draw the balance as directors fees.

pakhan
Newbie
Newbie
Posts: 4
Joined: Fri, 27 Nov 2015

Re: Organising a company and structure- legality

Postby pakhan » Fri, 27 Nov 2015 5:00 pm

I see- so it's actually not legal to do so because any work done must be remunerated?

And other than CPF would there be any difference in the drawing salary vs director's fees?- ie. I can choose to have everything paid in director's fees and not salary?


sundaymorningstaple wrote:They could force the issue and make you report a portion of the dividends as wages as would be normal for the work being done. Or if they determined that you were deliberately trying to evade taxes AND CPF contributions, they could take away your PR and not just refuse to renew your REP. (It has been done).

The best thing to do is to draw a salary commensurate with the job your are doing and draw the balance as directors fees.

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34259
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Organising a company and structure- legality

Postby sundaymorningstaple » Fri, 27 Nov 2015 5:23 pm

Why are you here and just wasting our time?

pakhan
Newbie
Newbie
Posts: 4
Joined: Fri, 27 Nov 2015

Re: Organising a company and structure- legality

Postby pakhan » Fri, 27 Nov 2015 5:41 pm

I'm sorry I didn't realise asking for advice was wasting your time- feel free to delete if you think so.

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34259
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Organising a company and structure- legality

Postby sundaymorningstaple » Fri, 27 Nov 2015 6:05 pm

You've been given the same answer twice and again you are asking the same question. ](*,) #-o

User avatar
Strong Eagle
Moderator
Moderator
Posts: 10405
Joined: Sat, 10 Jul 2004
Location: Off The Red Dot
Contact:

Re: Organising a company and structure- legality

Postby Strong Eagle » Sat, 28 Nov 2015 6:35 am

Look, pakhan... here's the deal. What is clearly stated in law and applicable regulations is:

a) Your exempt private limited company pays no tax on the first $100,000 of profits, and actually the tax exemption is generous for several years out.

b) You personally pay no tax on dividends in Singapore.

Both of these items are LEGAL. File your corporate tax return and pay nothing. File your personal tax return and pay nothing on your dividends received.

And... like any other civilized country with an income tax system, IRAS knows the norms. They know average directors salaries and fees for various size companies because it is reported every year by every company. They know that the managing director of a $250K turnover company will make $XXX on average.

So... what do you think they are going to say when your personal tax return crosses their desk? Are they going to say, "Gee, what a clever PR fellow... he's escaped all tax obligations by taking dividends. Brilliant! We should encourage more to do the same!"

Or, are they going to say, "What the hell... one more f*cking scumbag PR trying to game the system. It's technically legal but we're going to take him to court because it's a scam... we know what directors make and we will challenge this person in court, for he has not paid himself enough."

So... if your company has earned little or nothing, then the expectation is that you won't have made much money, either. Maybe there are exceptions... you form a company and make a big bet on a diamond mine... it makes you a million dollars and you only invested 20 hours of your time... you might have a case that you did no work, hence, no pay, hence, all dividends.

But, if you've been working 40 hours per week, and alleged that you are paying yourself 7 cents an hour, IRAS may first deny your claim, and then take you to CIVIL court to force you to pay yourself on a realistic basis. And if you lose and continue to fight them, then maybe criminal fraud charges will be filed against you.

Get it now? Your actions are legal. Your actions are also clearly a tax avoidance scheme. If it's only a few dollars then IRAS may say, "F*ck it... not worth the hassle of prosecution." More likely, they will (and have) create tax rulings that essentially say you can't do what you want to do.

What you want to do is legal but contravenes tax rulings. Go ahead... be brave... I'd really like to know the outcome.

And as far as CPF and directors fees are concerned... yes, completely legal... and again... your REP renewal is an entirely discretionary decision for the Singapore government... they can reject you because they don't like which side of your head you part your hair... and if you think that, as a PR, you can pay no CPF and that the Central Provident Fund won't care? Go ahead and try that one, too... I'd like to see the outcome.

You really need to rethink your attempts to game the system... that is what you are attempting to do, isn't it? If you stop being PR you get all your money back, plus interest... where's the downside?

As for upside, my company paid max CPF for its owners/directors... then paid directors fees... we never declared dividends. And, two things happened... anecdotal evidence only... I never had an EP application rejected... never. And, when the recession hit, I was granted corporate tax credits... hard money... to keep people employed... that were more than any tax I payed in, personal or corporate.

Finally... the nasty, shadow guy in me says, "Cut your bullsh*t. Pay your share like everyone else does. Quit being a turd."

RedRidingHood
Member
Member
Posts: 27
Joined: Thu, 02 Jul 2015

Re: Organising a company and structure- legality

Postby RedRidingHood » Mon, 30 Nov 2015 10:41 am

Brilliant answer Strong Eagle!

I personally would like to contribute CPF as long as I can - it's money locked away far from uncontrolled spending habits, and the interest is generous.

User avatar
sundaymorningstaple
Moderator
Moderator
Posts: 34259
Joined: Thu, 11 Nov 2004
Location: Still Fishing!
Contact:

Re: Organising a company and structure- legality

Postby sundaymorningstaple » Mon, 30 Nov 2015 11:32 am

^^^This! I want to keep paying into it as long as I'm working. I'd like to pay at the maximum rates but sadly my boss and I don't quite see eye to eye on this one as he's not willing to cough up the extra employers contributions. After all, my combined contributions are only 9% now due to 'age'. :-(


  • Similar Topics
    Replies
    Views
    Last post

Return to “Business in Singapore”

Who is online

Users browsing this forum: No registered users and 0 guests