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Incorporation of company in Singapore and opening business bank account

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JonaBoss
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Incorporation of company in Singapore and opening business bank account

Postby JonaBoss » Thu, 13 Oct 2016 2:17 pm

Hi,
I have recently moved to Indonesia and am currently trying to set up a business in Singapore with a business bank account. I have spoken to a consultant who basically told me that they can help me set up the business, although I would need one local director/shareholder. They would also be able to refer me to OCBC bank, with whom they do lot of business. They told me that because the business and the bank account are "local", there should not be any issue.

Now, my revenue will not be generated in Singapore, but in the US. Actually have recently become a professional seller for Amazon, in other words, Amazon will be my only source of income.

A couple of questions:

1) This agency told me that the local director won't have any decisive power over my company nor would he have access to my bank account if I wouldn't want him to. According to them, the exact "powers" of a local director would be defined at the moment of signing the documents. Is this information correct?

2) At this point I do not have a local director/shareholder yet.
a) Is there any way to "find" someone in Singapore who would be willing to provide such a service (obviously in case question 1 is correct)? I suppose I am not the only foreigner looking for this type of service?
b) What would be an average fee to pay a person if he agrees to act as a local director and what are the risks/benefits for him when doing so?

3) I understand that it has become much more difficult as a foreigner to open a bank account in Singapore (for the obvious reason that they might relate it to money laundering). However, if there would be only one source of income and that source is known (i.e. Amazon), wouldn't it be easier for the bank to approve it, especially because it will be a local bank account?

Thanks a million for your thoughts on this.

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Re: Incorporation of company in Singapore and opening business bank account

Postby PNGMK » Thu, 13 Oct 2016 3:05 pm

Look buddy; there are some very recent threads on this very topic on this forum. I very much doubt you will succeed to the point of getting a bank account so make sure you pay your consultant on success only. In short there's no way YOU will be able to open a bank account (unless you have residency of some sort in Singapore); your local director can however and limiting that directors rights is illegal here under the companies act and so you have a major risk there. You possibly will not even be able to be a signatory if the troubles I've seen others go through is any sign.

Why is it like this? Blame the Malaysia prime minister.

If I were a US Citizen I would open a company some of the states (Delaware) were no reporting is done and open a corp account there.

(To test your consultant maybe ask him for a referral or several you can ring to check his success. It is possible I guess that his own banking relationship is bringing in the deals but I highly highly doubt it.).
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Re: Incorporation of company in Singapore and opening business bank account

Postby okonu » Thu, 13 Oct 2016 3:31 pm

1. Not legally true - a director's responsibilities can't be constrained. The standard though is for them to give you an open letter of resignation, so they can be removed if they break any agreed limits on their power. Note it isn't your bank account, it is the businesses, Mixing private and business accounts is a good way to get into trouble with tax & auditors

2. Normally provided as part of the package. Other threads on this subject say 2000SGD a year. It's normally a bit of extra cash for retired accountants etc.

3. Makes no difference. Plus your business sounds like a tax nightmare. US revenue for a company in Singapore with CEO living in Indonesia? Presume you will pay yourself via dividends & pay income tax in Indonesia? & then make use of double tax treaties between SG and US for the corporate tax on the companies profits?

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Re: Incorporation of company in Singapore and opening business bank account

Postby PNGMK » Thu, 13 Oct 2016 3:37 pm

Interestingly enough some friends were complaining the other day that their nominee director had written herself a significant cheque without authorisation. Fortunately they caught it in time.
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Re: Incorporation of company in Singapore and opening business bank account

Postby JonaBoss » Thu, 13 Oct 2016 4:05 pm

Thanks a million for the replies.

For the record, I am a Belgian citizen with official residence still in Belgium. I plan on keeping it this way (in the short run at least). The reason for setting up a company in Singapore is threefold:

1) Tax reasons - corporate tax in Singapore is 17%, in Belgium it's 34% (in the US 39%).

2) My business is international (buying from everywhere and selling to US and Europe at first, Japan and India on a later stage). I do not conduct business in Belgium, so I see no reason why I should establish my company there.

3) There is a chance that l decide to move and live in Asia in the medium term. Having my business and bank account set up would be extremely convenient.

I will talk to my consultant as you indicate, although I am a bit surprised that they did not inform me correctly. This contact comes directly from a high profile executive in Singapore who has dealt with this agency in the past.

Thanks once again.

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Re: Incorporation of company in Singapore and opening business bank account

Postby PNGMK » Thu, 13 Oct 2016 4:18 pm

For your last point... the situation is changing literally day to day right now thanks to the MAS shutting down banks and tightening up on procedures (two more banks shut down a day ago). I'm not surprised that even people in the business don't know as much as we do. Opening up a bank account WILL be your biggest hurdle. A couple of countries to consider (I kid not) include Australia and NZ - both countries have robust bank systems and their corporate tax is being progressively rolled downwards to attract these exact types of companies. Have you spoken to OCRA? They probably have better knowledge than a local and will be up to date with jurisdictions to suggest that will allow bank accounts to be opened. http://www.ocra.com/
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Re: Incorporation of company in Singapore and opening business bank account

Postby okonu » Thu, 13 Oct 2016 4:45 pm

Presume you are married to an Indonesian? Otherwise living there long term is tricky, you can rely on sosbuds but that's a pretty precarious method. Plus be resident for more than 183 days a year and you need to pay tax on worldwide income.

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Re: Incorporation of company in Singapore and opening business bank account

Postby JonaBoss » Thu, 13 Oct 2016 5:14 pm

Not married to an Indonesian. Not planning to either ;-) I know about the 183 rule, but have a solution to that.

Thanks for the OCRA link. Will definitely check it out. Will also look into the NZ & AUS options.

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Re: Incorporation of company in Singapore and opening business bank account

Postby Strong Eagle » Thu, 13 Oct 2016 9:16 pm

The people telling you that you can limit the powers of a director are full of crap. Think about it. A director is the leader of the company by statute. Take away her powers, then have the company commit a financial crime. Who is responsible? Nobody? Wrong! The director is responsible and that cannot be undone.

You can probably prevent the director from having access to your bank account, and, it is very unlikely that a local bank, at this point, is going to open an account where the only signatory is a foreign director. It makes it far too easy to launder money, especially if you are also the signatory on a foreign bank account. Maybe the Amazon angle will work... you won't know it until you talk to bank officers.

A rented director or "nominee" as folks love to say is a full fledged director of the company with all the powers and duties of a director. Check out the Singapore Companies Act for a complete list. You can screw the director and the director can screw you. Most outfits renting a director these days will require that you handle all taxes, accounting, hiring, EP's, and auditing through them so they can keep an eye on you. They usually demand monthly bank statements as well. $2,000 to $3,500 for the director each year, another $2,000 and up for the financial services.

Why would you open a corporation in the USA? You could start a LLC instead, and all income passes through to you on your own income tax report. Same if you open a Subchapter S company. No tax, other than personal.

If you are managing the company, how are you planning on paying yourself? Payments to foreign directors and professionals are taxed immediately through withholding at the rate of 22%. Pay yourself $1,000, send $220 to IRAS and the remaining $780 to yourself.

Think you're going to try to get around this by paying dividends instead? Probably can do for a while... but sooner or later IRAS will take a look at your company and realize that you are providing professional services.

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Re: Incorporation of company in Singapore and opening business bank account

Postby PNGMK » Thu, 13 Oct 2016 10:52 pm

One additional comment I would add is fiscal regime stability. Clearly we are in a state of flux. Even if you get your Singapore Pte Ltd up and running and establish a bank account who is to say that in 18 months the bank won't close it down and send you a cheque? They're doing it right now and things are only going to get worse for some years as the 1MDB and other scandals (UBS etc) wind their way through investigation, courts and into additional legislation.
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Re: Incorporation of company in Singapore and opening business bank account

Postby JonaBoss » Thu, 13 Oct 2016 11:34 pm

Strong Eagle wrote:The people telling you that you can limit the powers of a director are full of crap. Think about it. A director is the leader of the company by statute. Take away her powers, then have the company commit a financial crime. Who is responsible? Nobody? Wrong! The director is responsible and that cannot be undone.

You can probably prevent the director from having access to your bank account, and, it is very unlikely that a local bank, at this point, is going to open an account where the only signatory is a foreign director. It makes it far too easy to launder money, especially if you are also the signatory on a foreign bank account. Maybe the Amazon angle will work... you won't know it until you talk to bank officers.

A rented director or "nominee" as folks love to say is a full fledged director of the company with all the powers and duties of a director. Check out the Singapore Companies Act for a complete list. You can screw the director and the director can screw you. Most outfits renting a director these days will require that you handle all taxes, accounting, hiring, EP's, and auditing through them so they can keep an eye on you. They usually demand monthly bank statements as well. $2,000 to $3,500 for the director each year, another $2,000 and up for the financial services.

Why would you open a corporation in the USA? You could start a LLC instead, and all income passes through to you on your own income tax report. Same if you open a Subchapter S company. No tax, other than personal.

If you are managing the company, how are you planning on paying yourself? Payments to foreign directors and professionals are taxed immediately through withholding at the rate of 22%. Pay yourself $1,000, send $220 to IRAS and the remaining $780 to yourself.

Think you're going to try to get around this by paying dividends instead? Probably can do for a while... but sooner or later IRAS will take a look at your company and realize that you are providing professional services.


Thanks for your insights. I do have two questions:
1) Why would you open a corporation in the USA? You could start a LLC instead, and all income passes through to you on your own income tax report. Same if you open a Subchapter S company. No tax, other than personal. Not sure if I understand correctly. Are you referring to LLC in Singapore (I would still need a bank account) or the US?

2) If you are managing the company, how are you planning on paying yourself? Payments to foreign directors and professionals are taxed immediately through withholding at the rate of 22%. Pay yourself $1,000, send $220 to IRAS and the remaining $780 to yourself. I suppose that the 22% is the personal income tax and that this is a one-time payment?

Thanks for your reply. I will be posting the feedback I get from the agency tomorrow.

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Re: Incorporation of company in Singapore and opening business bank account

Postby PNGMK » Fri, 14 Oct 2016 8:15 am

1. I think is a typo ..."why wouldn't you open an LLC" - exactly along my thoughts.
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Re: Incorporation of company in Singapore and opening business bank account

Postby okonu » Fri, 14 Oct 2016 8:39 am

22% is the withholding tax instead of income tax, because you aren't resident in Singapore to pay income tax. Depending on where you are tax resident, and if that country has double taxation treaty with Singapore you should be able to claim this back (i.e. if you live somewhere with 30% tax, you won't end up paying 52%, but 30%, 22% to Singapore and 8% to country X)

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Re: Incorporation of company in Singapore and opening business bank account

Postby Strong Eagle » Fri, 14 Oct 2016 9:29 am

JonaBoss wrote:Thanks for your insights. I do have two questions:
1) Why would you open a corporation in the USA? You could start a LLC instead, and all income passes through to you on your own income tax report. Same if you open a Subchapter S company. No tax, other than personal. Not sure if I understand correctly. Are you referring to LLC in Singapore (I would still need a bank account) or the US?


You mentioned that the corporate tax rate in the USA is 39%... rarely paid, BTW. But, if you wanted a USA entity, you would never form a corporation. You would form either an LLC or a Subchapter S corporation, both of which are pass-through vehicles for company income... no tax at the company level, and you still have the protection of a legal company entity. So, if you wanted a USA entity, form an LLC in just about any state that allows foreign owned LLC's. LLC's are treated as sole proprietorships or partnerships at the federal level, and at the moment I can tell you nothing about your personal taxation under such a setup.

2) If you are managing the company, how are you planning on paying yourself? Payments to foreign directors and professionals are taxed immediately through withholding at the rate of 22%. Pay yourself $1,000, send $220 to IRAS and the remaining $780 to yourself. I suppose that the 22% is the personal income tax and that this is a one-time payment?


It's a calculated guess on my part, and somewhere back in Singapore's history, someone starting scamming IRAS. They'd form a local Singapore country, but all the directors and people actually running the company would be foreigners (ie, non-resident in Singapore)... maybe as "far" away as Johor Bahru. So, nobody paid Singapore income tax, and Singapore had no effective way to ensure that tax was being paid somewhere.

So, IRAS rules work like this. If I hire an arm's length firm in Kuala Lumpur to prospect sales for me, this is a simple contractual arrangement and there are no questions of tax obligations in Singapore. But, if I regularly rely upon a non-resident individual with close ties to the company, ie, director, shareholder, or key employee, and I compensate that person for services, then I must withhold and pay non-resident income tax for that person at the rate of 22%... much higher than local rates.

Singapore, like most other civilized countries, has rules and regulations governing "reasonable compensation" for tightly connected employees. If you choose to pay yourself nothing (for example, take your earnings as non taxable dividends) or something well out of the norm for a given job duty, you may well be accused of tax avoidance.

The consequence is that you will take a large hit of 22% for every dime you earn from your Singapore company.

Thanks for your reply. I will be posting the feedback I get from the agency tomorrow.


I will add two things. First, I'd bet money that the "limitations" the agency wishes to impose on directors are more directed to you... they will not make decisions, they will not manage your company, they will not present themselves in front of a bank officer for a loan or a bank account. They don't know crap about running your company, and they will make you sign something that says they have no obligations whatsoever if your company fails, even if their failure to act, for example, getting the EP you needed, or writing the check they failed to write, causes you incredible grief.

But, they cannot divorce themselves from fiduciary responsibility. They cannot say, "if you commit a criminal act, or cause the company to be civilly sued, our director is not responsible." Because, she is.

Finally, if you actually have a working business that is producing income, you really ought to read my various threads about starting a business and getting your own EP. You start with a rented director who applies for an EP for you. This is NOT an Entrepass. You need a valid Singapore address for your company (a cheap serviced office will suffice), and that can be your resident address as well. You come to Singapore periodically for your business.

A person with a valid EP is considered tax resident, even if they are out of the country for most of the year. You would achieve several benefits by going this route, not the least of which is greatly simplified tax matters, and a lower tax rate.

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Re: Incorporation of company in Singapore and opening business bank account

Postby okonu » Fri, 14 Oct 2016 10:11 am

Wouldn't you be better off doing this in a European tax/ laundering haven? Luxembourg/ Channel Islands/ Eire come to mind, and for Luxembourg/ Eire you would have right to live there as well.

Basically Singapore is trying to get away from this reputation - though they still have some way to go with co-operation with non OECD countries.


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