Tax on Executive Director's income (less than 60 days)

[dnmrk49]

Dear Community,

I have a question about my situation and our company:
Our company incorporated in Singapore since 2017, at first there was a Nominee Director in Singapore, and I was a normal Director.
August last year, I applied for the EP and was accepted. I requested to change the director, and now I'm the main director, position Executive Director, salary 5,000SGD per month.
I do not stay in Singapore regularly, as I am currently living in the UK for a year. Total days in Singapore are less than 60 days last year.

Question: How do I know about my Tax status/responsibility? Is there any personal income tax responsibility should I aware of?

I was consulted by an Accounting company, which also is helping our company's accounting, that "If such an employee renders part of his services in Singapore, income attributable to services rendered here is taxable in Singapore unless the employment is exercised for not more than 60 days in a calendar year. For employment of 61 to 182 days in Singapore, the employee will be taxed at a flat rate of 15% or the resident rates, whichever gives a higher tax."

May I ask is it true? According to that, my income salary will not be taxable, isn't it?

I hope that someone could help to give me an advice. Thank you!

[The Ref]

I am not an accountant, but I think if you have an EP then you are considered a tax resident regardless of time here. That was the case with a friend in a similar position. Your problem is when you try to renew the EP you may get denied if you spend so little time onshore.

The 60 days is for people who work here as of their normal job in the company at another location. E.g. working in HK and spend a few weeks here on a project.

That said, you could ring IRAS with your specific questions but they ask for your NRIC as a very first question

[sundaymorningstaple]

For non-resident directors there is a special rule for income derived from Singapore: Director fees, consultant fees and all other incomes are taxed at 22%. The employment income of non-resident director is taxed at a flat rate of 15% or the progressive resident tax rates, whichever is a higher tax amount.

[Strong Eagle]

You have at least a couple of issues to deal with. And it sounds like your accounting company is not very well versed in legal matters with respect to directors.

First of all, a company director is a director is a director. There is only one class and one kind of director in the Singapore Companies Act. It doesn't matter how you choose to name your directors. All directors in a company have equal powers, duties, and responsibilities. No company may limit the powers, duties, and responsibilities of a director as specified in the Companies Act through the articles of incorporation, shareholders resolutions, job descriptions, or other methods.

Any director may perform any act with respect to the management of the company, except those acts specifically reserved by the Companies Act for the shareholders in a general meeting. Directors may be added or removed only by a resolution of the shareholders passed at a general meeting.

Second, a nominee director is nothing more than a director who has been identified as potentially having special interests to one of the shareholders, a creditor, or other stakeholders in the company. For example, a shareholder with 15 percent puts her own director on the board. This person must be identified as a nominee director so that all others may know that this director may have biased interests in favor of the shareholder. Obviously, if you’re the one and only shareholder, or you have a small group of shareholders who have rented a director, your rented director is your nominee director, but the term is relatively meaningless since there aren’t other shareholders who care.

Third, although you may grant the title of “main director” or “executive director” or “managing director” and grant specific rights of management within the company, these so named directors have absolutely no more powers, director-wise, than any other director in the company. Although not applicable to you, a "chief executive officer", that is, a person who is not a director of the company but is appointed to lead it, for example, a “president” or "CEO", shall have the powers and duties of a director under the Companies Act. All votes of directors are always equal, and you cannot grant a "managing director" or "CEO" additional votes or powers on the board of directors.

Fourth, all Singapore companies are legally required to have a “normally resident director”, that is, a director that has a permanent residence and address in Singapore. Your rented director, aka, nominee director, fulfills that role for you. So, here is your first problem. Unless you have a permanent address in Singapore, you cannot be the normally resident director. If you have truthfully and correctly filled out your company Bizfile forms, and they show you living out of the country, and the Bizfile records further show that you no longer have your rented director, you will shortly get a letter from ACRA, informing you that you must have a normally resident director. Having the right of residency is insufficient, you must be resident. I was a PR who moved out of the country, leaving no in country resident director for my company. It didn’t take long for me to get the letter.

Your tax and employment situation are not nearly so clear. I don’t see how you managed to wangle an EP when you are not living in Singapore. What address are you using with MoM? What address is listed in your ACRA Bizfile records for your place of residence as director? In any event, holding the EP isn’t going to matter to you for tax purposes or residency purposes, any more than it matters for you being a locally resident director.

When you’re issued an EP, you’re considered to be tax resident, automatically, until circumstances show otherwise. For example, that tax residency status is rescinded if you don’t meet the time duration requirements. You obviously don’t meet the residency requirements since you’re not living in Singapore. Therefore, even though you have an EP, you will still be classified as non-resident.

But, you also have a special status. You are a director. This is your second problem. Because you don’t live in Singapore, you are a “non-resident” director, and non-resident directors are subject to special treatment. As you noted, your employment income is exempted from tax if you are here on short-term employment for 60 days or less in a year, but, this exemption does not apply if you are a director of a Singapore company. Therefore, you will pay tax on _all_ income you earn from your Singapore company.

You will pay a rate of 22 percent on directors fees, and 15 percent or the resident tax rate, whichever is larger, on regular salary. Further, since you are a non-resident director, these taxes must be withheld from your salary before you receive it. Example: You pay yourself $1000 in directors fees. The company must withhold $220 and send it immediately to IRAS, then send you a check for $780 for the remainder.

This may seem unfair but Singapore has taken the position that since you are the director of a Singapore based company, you can be considered to be doing work in Singapore as a director. No doubt this arose because of tax abuse of director positions. Thus, all your income is taxable. And since you are not resident, Singapore doesn’t want the hassle and difficulties of trying to collect from you in a foreign country. Therefore, taxes are withheld before you receive the money.

Dear Community,

I have a question about my situation and our company:
Our company incorporated in Singapore since 2017, at first there was a Nominee Director in Singapore, and I was a normal Director.
August last year, I applied for the EP and was accepted. I requested to change the director, and now I'm the main director, position Executive Director, salary 5,000SGD per month.
I do not stay in Singapore regularly, as I am currently living in the UK for a year. Total days in Singapore are less than 60 days last year.

Question: How do I know about my Tax status/responsibility? Is there any personal income tax responsibility should I aware of?

I was consulted by an Accounting company, which also is helping our company's accounting, that "If such an employee renders part of his services in Singapore, income attributable to services rendered here is taxable in Singapore unless the employment is exercised for not more than 60 days in a calendar year. For employment of 61 to 182 days in Singapore, the employee will be taxed at a flat rate of 15% or the resident rates, whichever gives a higher tax."

May I ask is it true? According to that, my income salary will not be taxable, isn't it?

I hope that someone could help to give me an advice. Thank you!

[LeamM]

@dnmrk49

Why didn't you go to the IRAS before, or are you at least in touch with them to see all your options?

[dnmrk49]

@Strong Eagle
Thanks for your detailed comments. I would give more information to make it clearer as below.

So, here is your first problem. Unless you have a permanent address in Singapore, you cannot be the normally resident director

Your tax and employment situation are not nearly so clear. I don’t see how you managed to wangle an EP when you are not living in Singapore. What address are you using with MoM? What address is listed in your ACRA Bizfile records for your place of residence as director?

Yes, I do have a permanent address in Singapore. I also used that to report to MoM. The address which listed in ACRA Bizfile records is in Singapore.
The problem is that I do not stay frequently in Singapore. I usually on business trips last year, and right now I'm in the UK to finish my study here. That's why the total days of mine in Singapore last year were below 60 days.

You obviously don’t meet the residency requirements since you’re not living in Singapore. Therefore, even though you have an EP, you will still be classified as non-resident.

Yes, I understand this. So, basically, I will be classified as non-resident, I guess.

This is your second problem. Because you don’t live in Singapore, you are a “non-resident” director, and non-resident directors are subject to special treatment. As you noted, your employment income is exempted from tax if you are here on short-term employment for 60 days or less in a year, but, this exemption does not apply if you are a director of a Singapore company. Therefore, you will pay tax on _all_ income you earn from your Singapore company.

I also read about it somewhere on ACRA. And I did ask our accounting agent in Singapore about it, however, they insisted me that they did ask ACRA and they confirm that it was exempted, too. That's why I am confused and need to seek some advice here.

You will pay a rate of 22 percent on directors fees, and 15 percent or the resident tax rate, whichever is larger, on regular salary. Further, since you are a non-resident director, these taxes must be withheld from your salary before you receive it. Example: You pay yourself $1000 in directors fees. The company must withhold $220 and send it immediately to IRAS, then send you a check for $780 for the remainder.

I see. The problem is, because I trust my accounting agent, our company just paid me salaries since August 2018 without reporting or transferring anything to IRAS. As the salaries were 5,000SGD per month, my total income in 2018 was 25,000SGD.
There were no director fees recorded, as all of that were recorded as my salary.
In the worst case, if our accounting agent was wrong. Do you have any suggestion on what should I do now? Is this cause any trouble with IRAS? Any fine for late report/late tax submission?

Our company FYE is 31 March, hence, mostly the report will be done in June. However, I see the FORM B1 in my Individual IRAS account, due date 15 April. Our company is a small software/app development company, and I don't want to avoid tax or anything. I was just too busy to look it up again or contact IRAS directly myself before last year to confirm the information.
I do want to extend my EP as I will come back to Singapore at the end of this year, after finishing the short study here. That's why I have the concern that I should do something to recheck this issue, to make sure that I do it right.
It would be great if you could give some advice with clearer information as I gave above.
Thanks a lot!

[dnmrk49]

I am not an accountant, but I think if you have an EP then you are considered a tax resident regardless of time here. That was the case with a friend in a similar position. Your problem is when you try to renew the EP you may get denied if you spend so little time onshore.

The 60 days is for people who work here as of their normal job in the company at another location. E.g. working in HK and spend a few weeks here on a project.

That said, you could ring IRAS with your specific questions but they ask for your NRIC as a very first question

Thanks for your information. Yes, I am also a bit worried to extend the EP next July. I'm not in Singapore frequently as I often on business trips year, and later I came to the UK for a short study here. That's why the total day in Singapore of mine is less than 60 days in 2018.

Why didn't you go to the IRAS before, or are you at least in touch with them to see all your options?

Actually, I trusted our accounting agent (as I also worked with them to handle the process of opening our company in Singapore) when they said that, then I had no time to check again or get in touch with IRAS before. Now, I will ask them more about this issue, if they have any solution. I just want to get some advice from outside, to understand and argue with them, as I am not really familiar with Singapore laws and legal matters with respect to directors.

[Strong Eagle]

Here's the deal. You say you have a permanent address in Singapore. For most of us that were on EP at one time, that was our home address. I'm not going to ask what your permanent address is but it is apparently acceptable to the government authorities.

In that case, you are tax resident and you are "normally resident". For the purposes of tax residency, time you spend out of the country on business and holidays does not count against your minimum 183 day stay to achieve residency. I essentially lived in KL for 8 months in 2005 while I was on EP, traveling back and forth about once a week. I was resident for tax purposes.

I was also "normally resident". This means that you, as a director, have a physical address in Singapore to which a court summons, notice of appearance, or other legal documents could be delivered to you personally. It doesn't necessarily mean you have to be home at the time of delivery.

Therefore, in my view, whether you are in Position A, non-resident, with all its attendant problems, or Position B, resident, with all its attendant benefits, depends entirely on whether you have a permanent address in Singapore. For most of us, this would be an address at which we take a dump, sleep, and eat. However, if the authorities are good with your permanent address, then I'd say you're good to go.

And this means that all the 60 day or less malarkey, and all the less than 183 day, Form M rules don't apply to you at all. You're resident. You pay all your taxes in Singapore. There's no halfway in this matter... you are either resident or you are not.

[dnmrk49]

Hi @Strong Eagle,
Thanks a lot for your reply. I very appreciate your help.

In that case, you are tax resident and you are "normally resident". For the purposes of tax residency, time you spend out of the country on business and holidays does not count against your minimum 183 day stay to achieve residency. I essentially lived in KL for 8 months in 2005 while I was on EP, traveling back and forth about once a week. I was resident for tax purposes.

I was also "normally resident". This means that you, as a director, have a physical address in Singapore to which a court summons, notice of appearance, or other legal documents could be delivered to you personally. It doesn't necessarily mean you have to be home at the time of delivery.

Thanks for your information. I feel clearer about this now. So basically, I am a resident in Singapore. The rule 183 days do not apply for me as I have a resident address in Singapore. My tax status is "Resident".

And this means that all the 60 day or less malarkey, and all the less than 183 day, Form M rules don't apply to you at all. You're resident. You pay all your taxes in Singapore.

I understand now. May I ask just one more question about what the Tax rate would normally apply in my situation? Is that the progressive resident tax rate or a flat rate of 15%?
All of my income is recorded as Salary as Managing Director, no Director fees or other remuneration as board director.

Thank you!

[Strong Eagle]

You pay the graduated resident tax rate on all income. It doesn't matter whether you pay yourself as directors fees, salary, or bonuses... your tax rate is identical. If you were subject to CPF (you are not), the manner of payment would affect CPF contributions.

[dnmrk49]

You pay the graduated resident tax rate on all income. It doesn't matter whether you pay yourself as directors fees, salary, or bonuses... your tax rate is identical. If you were subject to CPF (you are not), the manner of payment would affect CPF contributions.

Dear all, can I submit the Form B1 by myself through IRAS MyTax Portal? The accounting agency is charging a lot for this and I hope I can do it myself.

Sorry for asking a lot. Thank you!

[The Ref]

I think the problem here is this, paraphrasing slightly:
He wants to be treated as a Tax Resident so he can run the company, even though he doesnt live here.
He wants to tell one part of the government (IRAS) he wasnt here for 60 days to minimise his tax
He wants to be the "resident director" and he wants to keep his EP by using his mailing address as a "Permanent address" (by not telling MOM he was less than 60 days)
He wants to pick and choose which advice he is given
He wants to minimise the costs of paperwork

I do not see this ending well.
People try to jig the system to their advantage - I am not aware of many situations where it has worked out for them, and when they do the loophole closes.

[dnmrk49]

Hi The Ref,
I would disagree with you on this.

He wants to be treated as a Tax Resident so he can run the company, even though he doesnt live here.
He wants to tell one part of the government (IRAS) he wasnt here for 60 days to minimise his tax

I am willing to pay Tax. As I said, this was the problem of YA2019, because I started my EP in the second half of the year and I thought it affects my residency status. I asked because I want to do it right.

He wants to be the "resident director" and he wants to keep his EP by using his mailing address as a "Permanent address" (by not telling MOM he was less than 60 days)
He wants to pick and choose which advice he is given

I'm not sure what you mean, but as I mentioned above, I do have a permanent address in Singapore. I co-rented it with my friends and stay there whenever I'm back.
The only thing I misunderstood at first, and has been clear, is that the time I travel/on business duty will not affect my residence status here. Hence, I want to confirm so if anybody in the same situation will understand.

He wants to minimise the costs of paperwork

Yes, I do. Because I think $500 for submitting personal Tax return is really high. Seriously, Singaporian willing to pay that much for a task which as I know, people can do it online in a few minutes?

Sorry if my questions were not clear before, I edited it out to avoid confusion. Thanks!

[Strong Eagle]

You need to contact IRAS and get a proper determination of your status. You can fill everything out yourself but you can't both be resident and non-resident. Contact IRAS.