Can a non resident director invoice for consultancy work?

[benleegar]

Hi everyone

I have a quick question that I can't seem to find a simple answer for. Hopefully someone on here with accountancy background can help... I have a non resident director in the company who works remotely and does design / consultancy work for the company. He is a non resident now but plans to move to Singapore in 6 months.

If he takes a director's fee for his services as a non resident there will be 20% withholding tax, which is pretty high. As he is a freelancer, can he alternatively invoice the company for the project work, hence getting taxed in his local country, which has a substantially lower rate?

Is this feasible??? Or are there potential issues?

Many thanks for any input!

Ben

[PNGMK]

He would need an employment visa or PR or similar to invoice for work in Singapore. He also needs to pay CPF and taxes if it looks at all like employment (which it does on the face of it) You as his employer need to pay ER CPF. It depends a little on which entity / person issues the invoice.

In my case when I did something similar I invoiced from an offshore company into Singapore although the work was performed in Singapore. This was 20 years ago though and ummm... it's gotten harder to hide connections.

[Strong Eagle]

Hi everyone

I have a quick question that I can't seem to find a simple answer for. Hopefully someone on here with accountancy background can help... I have a non resident director in the company who works remotely and does design / consultancy work for the company. He is a non resident now but plans to move to Singapore in 6 months.

If he takes a director's fee for his services as a non resident there will be 20% withholding tax, which is pretty high. As he is a freelancer, can he alternatively invoice the company for the project work, hence getting taxed in his local country, which has a substantially lower rate?

Is this feasible??? Or are there potential issues?

Many thanks for any input!

Ben

As I understand it, a foreign professional or management consultant is subject to the 20 percent tax rates for all the time he is in Singapore actually working. If all the work is done remotely then there would be no withholding tax required. If the person came to Singapore for meetings or other freelance related work, then the portion of the time he is in Singapore would be taxable. Meals and airfare would not normally be taxable.

However, since he's already registered as a non-resident director, how are you going to turn him into a freelancer? If you remove him from the ACRA records as director, it's going to very obviously look like an attempt to avoid tax, and sooner or later your company will get whacked, or, you'll find his plans to move to Singapore mysteriously shit-canned by MoM.

If you leave him as a director, then I'd bet hard money you'd lose any IRAS administrative ruling where you claimed he was 'freelancing' and not 'directing'. IRAS will say he is performing duties of a non-resident director. You'd have to prove up why you have registered this person as a non-resident director yet have somehow turned him into a freelancer. I think that's a tall hurdle to get over.

https://www.iras.gov.sg/irashome/Other- ... lding-Tax/

[PNGMK]

SE - he looks like an executive director to me i.e. directors fees plus salary = employee.

[Strong Eagle]

It's rather a bit more complicated.

He would need an employment visa or PR or similar to invoice for work in Singapore.

True, as far as it goes. PR would be ideal because then he could work for himself and invoice the company as a freelancer. If you read the various PR threads on this forum you'll quickly discover that there is a larger probability of monkeys flying out of your butt than your non-resident director waltzing away with a PR.

To get an EP, an offer of employment must be extended by a business or company. If it's the company for which he is currently a non-resident director, then life is easy. But, this is what you are planning to do six months from now, if I read correctly.

The only possibility I see is to apply for EP for him now, establish some sort of residency in Singapore, then use the six months until he would have actually come over as a "transition" space, where the person is wrapping things up in the foreign country but also coming to Singapore to handle duties as a resident director.

He also needs to pay CPF and taxes if it looks at all like employment (which it does on the face of it) You as his employer need to pay ER CPF. It depends a little on which entity / person issues the invoice.

EP's never pay CPF. PR's for the first three years pay less than full amount... although given that it's a good deal, why not pay the full amount? All legally resident workers must pay income tax. It's residency status, not invoicing method, that determines tax obligations.

In my case when I did something similar I invoiced from an offshore company into Singapore although the work was performed in Singapore. This was 20 years ago though and ummm... it's gotten harder to hide connections.

If this was prior to 1993, then the law was different then... I don't know what it said. But, now, if the work is performed in Singapore, then withholding payments in the amount of 20 percent of foreign invoices must be remitted to IRAS since the work is performed in Singapore.

[Strong Eagle]

SE - he looks like an executive director to me i.e. directors fees plus salary = employee.

If he doesn't have a work permit (EP) or a PR then he is, by definition, a non-resident director and subject to the 20 percent withholding rate.

[benleegar]

The only possibility I see is to apply for EP for him now, establish some sort of residency in Singapore, then use the six months until he would have actually come over as a "transition" space, where the person is wrapping things up in the foreign country but also coming to Singapore to handle duties as a resident director.

Thank you both for the great feedback and input!!!

@Strong Eagle - I think you might be spot on with your recommendation to apply for an EP for him now with a target date to move down in 6 months and transition in the meantime. This makes sense and I may as well get the ball rolling.

On this note, if we only have 1 employee now (me) and I am a foreigner on EP, will we have trouble applying for another foreigner EP without having any local Singaporeans in the company yet? We have one Singaporean Director but no employees yet as we've only just recently set up the business.

[Strong Eagle]

On this note, if we only have 1 employee now (me) and I am a foreigner on EP, will we have trouble applying for another foreigner EP without having any local Singaporeans in the company yet? We have one Singaporean Director but no employees yet as we've only just recently set up the business.

Would I be correct in assuming that your Singaporean director founded the company and applied for EP for you? And, was your non-resident director added to the ACRA records at about the same time you and your Singaporean director were added?

There is no quota for EP's, per se, although I think that if a business has too many, MoM might be inclined to think that they're not doing enough to search for locals and might say no.

In your case, if you can demonstrate that the three of you are essential to the business and that it has always been the intent to bring the non-resident director to Singapore to participate materially in the business, then you'll probably be OK. I'd back it up with specific job descriptions for the EP directors and CV's that match the requirements. It's also going to depend to some degree on how much you plan on paying your EP director, and what the source of funds are.

[benleegar]

Ok great advice. Sounds spot on. Thanks so much Strong Eagle!