Salaries foreign Executive Director (less 183 days in SG)

[Peter1969]

Dear Community,

Following Scenario:
Company is Private Limited in SG. Founded between 3 People from Europe and one local (25% each). All of them are directors in Company. Local Director acting as Managing Director.

The foreign Directors from Europe must pay income tax on dividends in their home countries which they get form shares. Now we think to start paying salaries to them.

Local Director appoint the foreigners as Executive Directors in Company. As foreign executive director staying less than 183 days in Singapore they must pay the income tax in Singapore (Tax resident Singapore). Is there any need of minimum stay in Singapore under this scenario or any wrong thinking?

https://www.iras.gov.sg/irashome/Indivi ... Directors/ (Scenario 3, Example 1)

Now spend a look on tax situation at home resident country of foreigners. Foreign Country has Exemptional Double Taxation with Singapore. Only point is that income from Singapore will be added in calculation of tax rate on other income in home country. Dividends for foreigners a full taxable in home country.

Is there anything wrong on this idea, or can it work like this?

If it works, what we must take care to get not in troubles with authorities?
The business is international except US and Europe. Executive Directors are only every two month for day’s in SG. Any special attention on Appointment Letter or Working Contract?

[Peter1969]

Can anywhere assist there ?

[Strong Eagle]

Dear Community,

Following Scenario:
Company is Private Limited in SG. Founded between 3 People from Europe and one local (25% each). All of them are directors in Company. Local Director acting as Managing Director.

The foreign Directors from Europe must pay income tax on dividends in their home countries which they get form shares. Now we think to start paying salaries to them.

OK - so far so good.

Local Director appoint the foreigners as Executive Directors in Company. As foreign executive director staying less than 183 days in Singapore they must pay the income tax in Singapore (Tax resident Singapore). Is there any need of minimum stay in Singapore under this scenario or any wrong thinking?

Let us first distinguish between a non-resident director and an executive director. A non-resident director is a person who is listed as a director for the company but has no residence permit to live in Singapore legally.

An executive director is the person who is in charge of the company, and operates under the title, Managing Director, Chairman, Chief Executive Officer, President, Big Cheese, Big Kahuna, or something similar. There can be only one executive director (this is not precisely true as a large company could have both a CEO and a President - but it's basically true for your small company). The executive director can either be resident or non-resident. By your own statements, the local resident director in Singapore is the Managing Director, therefore, none of the other three people can assume the title of non-resident executive director, unless, of course, you have some well defined splitting of executive duties.

For purposes of taxation, non-resident directors compensation is taxed at 22 percent on the gross amounts received. There are no deductions from gross pay. The 22 percent must be withheld and forwarded to IRAS basically within 30 days of payment being made to a non-resident director. All payments... salary, bonuses, directors fees... with the exception of stock options... are taxable at this rate.

Example: You decide to pay a non-resident director the sum of $1,000. You must withhold $220 of that amount and within 30 days, send it to IRAS. Meanwhile, your non-resident director actually receives a check for $780.

It does not matter if the director has never been to Singapore, been in Singapore for only 2 days, or been in Singapore for 182 days... the taxation scheme is exactly the same. Note that to stay in Singapore for 183 days or more would require a valid residence permit, ie, an employment pass. Your non-resident directors visiting for just a few days every couple of months raises no issues.

A non-resident executive director is a special case. Any money received by the non-resident executive director for acting in his/her capacity as the company executive is not taxable. So, let's say you have a non-resident executive director. She spends 50 percent of her time running the company, and 50 percent of the time prospecting for clients, closing deals, searching for suppliers. You pay her $2,000. Because 50 percent of her time is spent in the executive role, only $1,000 is taxable, and as in the earlier example, the remaining $1,000 is taxed at 22 percent and withheld. Out of the $2,000, the executive director would receive $1,780.

Be aware that IRAS will be looking at executive versus non-executive compensation. People who are tax resident attempt to pay all directors fees to avoid CPF contributions, and IRAS will certainly be looking at a non-resident director who pays no tax. Be able to justify any position you ultimately take.

https://www.iras.gov.sg/irashome/Indivi ... Directors/ (Scenario 3, Example 1)

Now spend a look on tax situation at home resident country of foreigners. Foreign Country has Exemptional Double Taxation with Singapore. Only point is that income from Singapore will be added in calculation of tax rate on other income in home country. Dividends for foreigners a full taxable in home country.

Is there anything wrong on this idea, or can it work like this?

If it works, what we must take care to get not in troubles with authorities?
The business is international except US and Europe. Executive Directors are only every two month for day’s in SG. Any special attention on Appointment Letter or Working Contract?

In general, and almost universally, earned income is taxed and paid where the legal entity that has hired you is located. Since you have a Singapore registered entity, you are being paid in Singapore, regardless of whether you are actually present, and therefore, you are taxed in Singapore. Most other countries also work the same way (the United States being an exception), so you will not have issues. But, do check with with your home country to be sure. They all follow the general rule that tax must be paid on earned income somewhere.

As for your other questions: All directors need to be on file with BizFIle. If all four of you named as directors in the formation documents all is good. Otherwise you'll need resolutions appointing directors, and you should have resolutions (approved by the shareholders at a AGM/EGM that specifies remuneration for each director). Being registered at BizFile is a must... keeping proper company records should be done, as your failure to do so could result in the loss of your corporate shield.

[Peter1969]

You're very helpful, thanks a lot

some small questions additional.

It does not matter if the director has never been to Singapore, been in Singapore for only 2 days, or been in Singapore for 182 days... the taxation scheme is exactly the same.

You telling me we can pay sallaries to non-executive, non-resident foreign directors ?

I only found on IRAD Page the Scenario 3, Example 1 to pay sallaries to non-resident and foreign !

https://www.iras.gov.sg/irashome/Other- ... Directors/

Let us first distinguish between a non-resident director and an executive director. A non-resident director is a person who is listed as a director for the company but has no residence permit to live in Singapore legally.

As Example: Can we manage in this way. Our local resident Director is Chairman. Foreigners: one is CEO and other is CMO. All Roles we pay Salaries which are taxable for the non-resident with 22%. As you wrote before incase only one can be executive director, can we name the others as CEO and CMO and pay them salaries as non-resistent foreigners ?

Are there limitations in SG what you can pay as salary ? Our preferation is to pay high salary (around 15k usd), low dividents and smal director fees. Also we will implement a bonus system which can end in high payments (over 200k usd). But they are in same position like salary what i understood. Has IRAS a problem with this amounts (they get 22% of them).

In general, and almost universally, earned income is taxes and paid where the legal entity that has hired you is located. Since you have a Singapore registered entity, you are being paid in Singapore, regardless of whether you are actually present, and therefore, you are taxed in Singapore. Most other countries also work the same way (the United States being an exception), so you will not have issues. But, do check with with your home country to be sure. They all follow the general rule that tax must be paid on earned income somewhere.

This is now under investigation from Tax Company in foreign Country. The Tax system is more then terrible there and govt well know how to press their tax resident.

Be aware that IRAS will be looking at executive versus non-executive compensation. People who are tax resident attempt to pay all directors fees to avoid CPF contributions, and IRAS will certainly be looking at a non-resident director who pays no tax. Be able to justify any position you ultimately take.

We are willing to pay the taxes in SG. Also for me understandable that a business which has success in SG should be taxable in SG and not in a foreign country which is not understanding the model so support poeple to do the same thing in own country.

As for your other questions: All directors need to be on file with BizFIle. If all four of you named as directors in the formation documents all is good. Otherwise you'll need resolutions appointing directors, and you should have resolutions (approved by the shareholders at a AGM/EGM that specifies remuneration for each director).

We are in contact with DB Buro in all this cases to handle it on right way. Thanks to point this out.

CPF will be a scenario in next two years. We must first hire local poeple therefore to open the possible todo this (Quote Rule Foreigners/resident).

[Strong Eagle]

You're very helpful, thanks a lot

some small questions additional.

It does not matter if the director has never been to Singapore, been in Singapore for only 2 days, or been in Singapore for 182 days... the taxation scheme is exactly the same.

You telling me we can pay sallaries to non-executive, non-resident foreign directors ?

I only found on IRAD Page the Scenario 3, Example 1 to pay sallaries to non-resident and foreign !

https://www.iras.gov.sg/irashome/Other- ... Directors/

What I am saying is that you can pay whatever amount of money you wish to a non-resident director so long as you withhold 22 percent in income tax and pay it to IRAS within about 30 days.

It seems as though you are somewhat confused. You do not have to be an executive director to receive a salary. Any non-resident director can be paid whatever the company wants to pay her.

so, YES, you can pay salaries to non-executive, non-resident directors.

Let us first distinguish between a non-resident director and an executive director. A non-resident director is a person who is listed as a director for the company but has no residence permit to live in Singapore legally.

As Example: Can we manage in this way. Our local resident Director is Chairman. Foreigners: one is CEO and other is CMO. All Roles we pay Salaries which are taxable for the non-resident with 22%. As you wrote before incase only one can be executive director, can we name the others as CEO and CMO and pay them salaries as non-resistent foreigners ?

You can do this, but what's the point? You do not have to be an executive director to get paid by the company. As I stated above, you can pay whatever the company wants to a non-resident director.

The only potential benefit that may exist as a result of calling someone an executive director is that at least part of his or her salary may not be subject to taxes. If you refer to Scenario 3 in the webpage you referenced above, you will see that the executive director must pay taxes on income earned as a board director... and that means basically working for the company in any capacity... whereas the duties performed as managing director are not taxable.

That is the only difference between and executive director and a non-executive director's remuneration and taxation... some portion of the executive director's salary will not be subject to tax.

Are there limitations in SG what you can pay as salary ? Our preferation is to pay high salary (around 15k usd), low dividents and smal director fees. Also we will implement a bonus system which can end in high payments (over 200k usd). But they are in same position like salary what i understood. Has IRAS a problem with this amounts (they get 22% of them).

Singapore and IRAS don't care what you pay anybody... except that if you were to pay a person too little money to save on taxes, they might force you to pay the standard salary for the position.

Otherwise, pay them whatever you want. Make the bonus as large as you want.

In general, and almost universally, earned income is taxes and paid where the legal entity that has hired you is located. Since you have a Singapore registered entity, you are being paid in Singapore, regardless of whether you are actually present, and therefore, you are taxed in Singapore. Most other countries also work the same way (the United States being an exception), so you will not have issues. But, do check with with your home country to be sure. They all follow the general rule that tax must be paid on earned income somewhere.

This is now under investigation from Tax Company in foreign Country. The Tax system is more then terrible there and govt well know how to press their tax resident.

Be aware that IRAS will be looking at executive versus non-executive compensation. People who are tax resident attempt to pay all directors fees to avoid CPF contributions, and IRAS will certainly be looking at a non-resident director who pays no tax. Be able to justify any position you ultimately take.

We are willing to pay the taxes in SG. Also for me understandable that a business which has success in SG should be taxable in SG and not in a foreign country which is not understanding the model so support poeple to do the same thing in own country.

As for your other questions: All directors need to be on file with BizFIle. If all four of you named as directors in the formation documents all is good. Otherwise you'll need resolutions appointing directors, and you should have resolutions (approved by the shareholders at a AGM/EGM that specifies remuneration for each director).

We are in contact with DB Buro in all this cases to handle it on right way. Thanks to point this out.

CPF will be a scenario in next two years. We must first hire local poeple therefore to open the possible todo this (Quote Rule Foreigners/resident).

Let me add just a couple of other things. First, you already have a local resident director in Singapore. If this person is a citizen or PR (not on EP), then you should already be paying CPF for this person.

Second, unless your company has been around for a while and the banks trust you, your company will come under suspicion of money laundering. Several banks in Singapore have already been shut down or been fined very heavily, for engaging in money laundering activities, including the giant corruption scandal in Malaysia.

And here is your problem. You are allegedly selling products and services overseas, except in the USA and Europe. The banks and the Singapore government don't know where your money is actually coming from. You could be a legitimate company with products and services, or you could be running a scam company that is laundering drug money, or is being used as a way to "clean" bribe money.

See how easy it is? Put money into a Singapore bank account from all over the world, especially with electronic fund transfer. Then pay it all back out to people who don't live in Singapore... nice and tidy... taxes paid... dirty money turns into clean money.

I'm not suggesting that this is what you do. What I am saying is that other people with offshore businesses have already experienced a great deal of expense and difficulty in managing foreign branches of their company. This will be especially true if you are going to be doing electronic transfers of funds, or where the deposits in the foreign banks are mostly cash.

On the other hand, if you've got real customers who've paid by check or credit card, and you have a strong paper trail for all your transactions, then the banks may not be as concerned.

[Peter1969]

great job,

And here is your problem. You are allegedly selling products and services overseas, except in the USA and Europe. The banks and the Singapore government don't know where your money is actually coming from. You could be a legitimate company with products and services, or you could be running a scam company that is laundering drug money, or is being used as a way to "clean" bribe money.

i know this works well if you like to do this. We have project contracts with Customers and project contracts with Vendors and service contracts with Consulting Companies. All of them a "real" companies and every project is well documented in scope and money flow.

Second, unless your company has been around for a while and the banks trust you, your company will come under suspicion of money laundering. Several banks in Singapore have already been shut down or been fined very heavily, for engaging in money laundering activities, including the giant corruption scandal in Malaysia.

All of business we are doing is totaly legal. This are IT related projects where we buy from vendors or using our products, selling to other companies and adding services and consulting on top. Money loundering or any other illeagal stuff is not in our interest.

In general, and almost universally, earned income is taxes and paid where the legal entity that has hired you is located. Since you have a Singapore registered entity, you are being paid in Singapore, regardless of whether you are actually present, and therefore, you are taxed in Singapore. Most other countries also work the same way (the United States being an exception), so you will not have issues. But, do check with with your home country to be sure. They all follow the general rule that tax must be paid on earned income somewhere.

One sentence to this, after i checked Double-Taxation Act between my country and SG.

I'm tax resident in Europe (>183 days in Europe). This it at the moment fact and makes no sense to discuss about.

DIRECTORS’ FEES
Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

think it's clear taxable in Singapore.

DIVIDENDS
(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other
Contracting State may be taxed in that other State.

think it's clear taxable in Europe

DEPENDENT PERSONAL SERVICES
(1) Subject to the provisions of Articles 16, 18, and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate
183 days in any period of twelve months commencing or ending in the calendar year concerned;
and
b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
c) the remuneration is not borne by a permanent establishment or a fixed base which the employer
has in the other State.
(3) Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an
employment exercised aboard a ship or aircraft operated in international traffic or aboard a boat engaged in inland waterways transport, by an enterprise of a Contracting State shall be taxable only in that State. However, if the remuneration is derived by a resident of the other Contracting State, it may also be taxed in that other State.

To Point 1: The work will be done around 20-30 day's a year in SG, and for the SG Company around 100 -140 day's in other countries (Customer, Vendors, Negotations.....). Not really clear how to see this also in combination to Point 2.

Good to know is, when taxable in singaore the ELIMINATION OF DOUBLE TAXATION clause tells clear that this income is exempt such income from tax. Only point there is that income in SG will be added to calculation base of tax-rate for other income in local country (progressiv Tax).

Strong Eagle: you wrote in other (link below) Post, that income is only taxable where you're tax resident. This shows then total income in SG is taxable in Europe and not in SG. Heret you wrote different, and this is confusing me. I'm not 183 days in SG and in total i spend around 130-150 day's a year for the SG Company (but only 20-30 days in SG). Have also Company in Europe where i spend the rest of time.

viewtopic.php?f=15&t=104529&p=708349&hi ... on#p708349

Question now, where i must pay the taxes for SG salary ?

Thanks for your very helpful support, you make it now 10times more clear.

best,

[Strong Eagle]

Which country or countries? I don't think tax codes are uniform across Europe.

[Peter1969]

Which country or countries? I don't think tax codes are uniform across Europe.

Hello Strong Eagle,

Austria, one of high tax nations. For me necessary to know if i must pay taxes for SG income in Austria or SG. And if it's Austria is there a possible solution or construct to avoid this. I can change my tax resident status in Austria earliest in 2-3 years.

thanks a lot

[okonu]

Here is the DTA

https://www.iras.gov.sg/IRASHome/upload ... 02014).pdf

Articles 16 & 22

So basically, if you get taxed 22% by Singapore, and (say) 40% by Austria, you can offset the 22% paid in SIN, and only ay Austria 18% - total tax is 40%, not 62%

[Peter1969]

Hello Okonu,

thanks a lot to supporting me on this topic.

are you sure about this, it sound not really good for me. When i read the DTA in Austria it looks different. Have they ratified the same paper ?

https://www.ris.bka.gv.at/Dokumente/Bgb ... _248_3.pdf

First is in german and afteron the english version.

and there is written in Article 22:

Article 22
ELIMINATION OF DOUBLE TAXATION
(1) In Austria double taxation shall be avoided as follows:
a) Where a resident of Austria derives income which, in accordance with the provisions of this
Agreement, may be taxed in Singapore, Austria shall, subject to the provisions of subparagraphs
b) to d), exempt such income from tax.

BGBl. III – Ausgegeben am 12. November 2002 – Nr. 248 1643
b) Where a resident of Austria derives items of income which, in accordance with the provisions of
Articles 10, 11, 12, paragraph 2 of Article 13, and 21 may be taxed in Singapore, Austria shall allow
as a deduction from the tax on the income of that resident an amount equal to the tax paid in
Singapore. Such deduction shall not, however, exceed that part of the tax, as computed before the
deduction is given, which is attributable to such items of income derived from Singapore.

this is not for sallery, only dividends, interesst, Royalities, Capital Gains, ..

c) Dividends in the sense of sub-paragraph b) of paragraph 2 of Article 10 paid by a company
which is a resident of Singapore to a company which is a resident of Austria shall be exempt
from tax in Austria, subject to the relevant provisions of the domestic law of Austria, however,
notwithstanding any deviating minimum participation requirements provided for by that law.

not applicable for me

d) Where in accordance with any provision of the Agreement income derived by a resident of Austria is exempt from tax in Austria, Austria may nevertheless, in calculating the amount of tax on
the remaining income of such resident, take into account the exempted income.

this i think is the clause i can use for Article 15 (Independend income). This shows for me,
when i get sallary in SG then this i exempt for Austrian Taxation. But they use the amount to calculate my tax rate for the other income i have in Austria. Looks for me i pay the 22% in SG only,
but my other income in Austria is affected with higher tax rate.

Perhaps i'm totaly wrong, but it's confusing.

One interessting case for me is to know how IRAS is acting on this example.

i get employment contract from SG Company for 140 day's workload in year (part-time) and pay me 12times a year the sallary. As example 10000 each month = 120000 a year.

i'm 35 days in SG over the year and 110 days i'm on business trips around different countries on behalf of SG Company.

Will IRAS only have the 22% income tax for time i was in SG.

35days of 140days contract = 30000 taxable in SG with 22% = 6600 or for
140days total contract = 120000 taxable in SG with 22% = 26400.

or they tell me first to pay tax for full contract in SG and then i get the part for not to be in SG back, and must tax in Austria ?

And how this works on the double taxation agreement against article 22 to avoid double taxation. I think SG will have the taxes of full contract, also in case i have done the work behalf of SG Company. I'm right there or total away from every reality.

Latest Update from a Tax Advisor in Home Country

Double Taxation Agreement Contract between AT and SG it's not allowed for SG to withhold taxes in SG. This cannot be happend as he checked the agreement. But IRAS wrote very clear to tax me in SG. In worst case you can pay 22% in SG and 48% in AT, also in total 70%. Perhaps AT Authority is clearing this then lateron with SG Authority, but can take years.

But it's already the 3rd Tax Advisor i was in contact and now i have 3 different scenarios. Call with Austrian Tax Authority was also not as expected. Answer was, very special case and surrender me !!!!