Director Remuneration higher than Income

[EmmaAmber]

Company A provides management services to its associated company B.

Company A bill Company B management service charge.

If Company A only derived management service income during the year. No sales reflected in P&L.

Can Director pay himself an amount higher than the management service income received since there's some money from Director loan sitting in the cash at bank.

If Company A P&L reflect higher Operating expenses and Directors' Remuneration than than Management Service Income, will there be any tax issue?

Can the Director draw Remuneration from both Company A and B?

I need some advice. Thanks in advance.

[Strong Eagle]

Company A provides management services to its associated company B.

Are these both Singapore registered companies? Does one own the other? Does the same shareholder own both of them.

Company A bill Company B management service charge.

If Company A only derived management service income during the year. No sales reflected in P&L.

No, that is not correct. The "sale" is management service fees and must be shown in the income portion of the P&L as consulting or management services revenue.

Can Director pay himself an amount higher than the management service income received since there's some money from Director loan sitting in the cash at bank.

You can but why would you want to do that? If you pay a salary or fees to the director from the loan proceeds, then you are left with two situations.

1. The money paid to the director is taxable as income for personal income tax purposes.
2. The company continues to hold a liability account of "Director Loans Payable" until such time as the money is paid back.

It makes more sense to simply pay off some or all of the loan by giving cash to the director. You debit "Directors Loans Payable" which reduces the outstanding loan amount and you credit your "Cash" account when you write a check to the director. There is no tax obligation to a director when the money received is paying back a loan, either partially or fully.

If Company A P&L reflect higher Operating expenses and Directors' Remuneration than than Management Service Income, will there be any tax issue?

What you are saying is that the company is loss making and it is either drawing down its cash reserves because expenses exceed income (cash basis accounting) or it is creating liability accounts of money due to others (Accounts Payable - accrual basis accounting).

It is not unusual for companies to make a loss, especially at startup. There are no tax consequences for the company, except they pay no tax. Note however, that if you are not a citizen or PR, and your company continues to make a loss, MoM may not renew your EP.

Can the Director draw Remuneration from both Company A and B?

I need some advice. Thanks in advance.

This is applicable only if you are referring to citizens or PR's. EP's generally cannot be paid by more than one company.

So, yes, the director can draw remuneration from both companies, either as directors fees or directors salary. Be aware, however, that there are restrictions on transactions between tightly linked companies if it would lead to the avoidance of tax, either personal or corporate.

If it is really an arms length transaction, then it wouldn't be an issue. But, from what you have described, the director is receiving fees into company A and company B will pay him directly as well? That sounds kind of fishy to me.