Procedure for Singapore LLC to pay salary to non-resident director

[Narcisse]

Thank you for accepting me to your forum. If this question has already been asked and answered elsewhere, I do apologize, I did a google search and a forum search but could not find an answer.

I am one of the directors of a small Singapore tax resident LLC, and personally I am non-resident in Singapore. We would like to look at paying myself a small salary (not director fee). Could anyone provide me with a link or small bullet point list of the procedure and paperwork that must be done in order to make this happen? It's fairly obvious that I can't just do a bank transfer each month from from the Corporate Bank Account to Personal Bank Account.

I'm assuming that these things need to be taken into account:

- employment contract
- CPF (not required because of non-residence of director)
- accounting for payroll
- IRAS requirements
- ACRA requirements
- etc

I haven't been able to find any kind of checklist or template online, and I'm scared that even if I do my own research, I will miss something that means I'm not conforming with all legal requirements. We do engage a secretarial service in Singapore, and while they told me they could handle dividend payments, they said they don't do payroll.

Thank you very much.

[PNGMK]

There is absolutely NO reason why you can't pay from the corp account to a personal account. You'd want a contract of some sort but it's not such a big deal AFAIK. Record the payments as "Salary to Singapore non resident XXX". The presumption is that the person receiving the funds will deal with the tax implications at their end.

I've been paid this way both as a Singapore resident and non resident "employee" and it's never been an issue.

[Narcisse]

Thank you for the response. I was wondering if there was any strict protocol that needed to be followed in Singapore, or it could be just as simple as signing a short, simple employment contract (which can be found as a template on the web pretty easily), then bank transfer and record the transfer in the accounts as you have described.

Cheers.

[PNGMK]

There is no strict protocol. It has to pass an audit so follow normal commercial procedures. You should be preparing audited accounts for your Pte Ltd so speak to the firm doing that maybe.

[Myasis Dragon]

How you deliver the money to a non-resident director doesn't matter at all. Send gold doubloons by carrier pigeon. Use ETF. Mail a check from your corporate account to her personal account.

How you characterize the transaction for your Singapore company matters a lot. Non-resident directors fees require mandatory withholding of 22 percent before the money is shipped offshore to the non-resident director. So, you pay $1000 in fees, you send $220 to IRAS and ship $780 to your director.

Just because you've decided to call it salary and not fees doesn't mean that you can escape mandatory withholding. You don't even need to be a director to be subject to mandatory withholding. You only need to be a senior non-resident manager, guiding the company.

For example, you're the Manager of Sales, residing in Bumfukistan. You get paid a salary for managing global sales for the company. Because you're a senior manager, the company is required to withhold before sending you your salary, because you are treated as though your are working for the company in Singapore.

OTOH, you've got a local sales puke with you in the same office. He sells stuff locally. You pay him put of Singapore just like the sales manager. But the sales puke's salary isn't subject to withholding because he's not a manager.

Thus, if you're a typical pte ltd, you're a hands on director, ie, senior manager. You need to contact IRAS with your specific situation for a ruling. You'll probably be liable for taxes.

You wouldn't be the first one to try this trick. Someone from the sub-continent forms a company, moves back home and runs it from there. They don't pay taxes in Singapore and they don't pay taxes in their home country. No government likes that.

[sundaymorningstaple]

Welcome back, Mr. Dragon!

[Narcisse]

Thank you for the reply. The main gist of the message is clear. I should contact IRAS to find out if the payment can and even should be treated as salary. Your message is just because you dress a pig up in a dress and put lipstick on it, it's still a pig. Just because you call a Director's Fee a salary, does not make it a salary. Understood.

Where I am confused is that you seem to be implying that there is no tax to be paid on a salary to a non-resident. IRAS are quite clear in stating that a non-resident will be taxed on all income earned in Singapore and at a flat rate of 15% or the progressive resident rates. My understanding would be that a Singapore resident LLC paying a salary to a non-resident would count as income earned in Singapore and hence be taxed at 15% or higher.

In regards to:

You wouldn't be the first one to try this trick. Someone from the sub-continent forms a company, moves back home and runs it from there. They don't pay taxes in Singapore and they don't pay taxes in their home country. No government likes that.

There's no trick, at least not in my case. I'm a resident in Australia. Have you seen our income tax rates? They are much higher than Singapore's rates. No matter what tax I have to pay to IRAS, I will be paying Australian resident tax rates on the salary anyway. Whether I pay 15% tax to IRAS or 0% makes very little difference in my case since the Australian rates are higher, and Australia offers you the possibility to claim back foreign tax paid when it is less than their own rates to avoid double taxation.

So I thank you for you post, but I do think you misunderstand my reasoning for asking the initial question, there is no 'trick' in my case.

[Myasis Dragon]

I understand exactly what you are asking. Certain non-resident professionals and managers are subject to a 15 percent withholding. Directors fees and other income paid to a director are subject to a 22 percent withholding. There is most assuredly lots of tax paid by the Singapore company for these non-resident professionals. Tax treaties with most countries usually ensure that the director is not taxed again in the country of residence. I don't know about Australia, though.

But, if I hire an accountant who lives in Kuala Lumpur to do all my accounting chores for me, I do not withhold Singapore tax as I would for a director. The assumption is that the accountant is tax resident in Malaysia and will pay income taxes there. Since my Singapore company has no legal entity in Malaysia, I have not hired her as an employee but as a contractor who is responsible for her own taxes.

And therein lies the gist of the difference. A director or a senior manager is an employee of the company, a hired hand in another country is not.

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

https://www.iras.gov.sg/irashome/Indivi ... -Director/

PS: There is no such thing as a Singapore LLC. There are sole proprietorships, limited and general partnerships, and companies (corporations). Companies can be public or private and within the private sphere, can be "exempt" from certain Companies Act requirements. But, your tax filing with IRAS is done as a corporation.

[Narcisse]

Ok, I think we are on the same page. Yes, the Singapore company does not need to withhold tax from what they pay their Malaysian accountant. But I would think that to be legally complaint, the Malaysian accountant would need to declare the income paid from the Singapore company to himself, to IRAS and pay 15% (minimum) tax as a on-resident on it (to IRAS). He would then also declare the income on his tax return to the Malaysian government, and declare the tax he has already paid to IRAS. Depending on the Malaysian tax system and whether they have a DTA with Singapore, he should then pay the tax on the income to the Malaysian government, and he can claim back what he has already paid to IRAS from the Malaysian government. To do anything else seems illegal to me.

I am not an expert on Singapore and Malaysian tax, but I was living as a French resident with a small income from Australia. It was a hassle paper work wise, because I had to declare the income I got from Australia in Australia to the Australian Tax Office and pay non-resident tax rates on it. Then I had to declare the same amount to the French Fisc as foreign sourced income. Then pay tax on it as well to the French. Then I would claim back the amount paid in Australia as a tax credit from the French government because the French tax rates were higher. God are they high. It is a total pain as you need to file a tax return in any country you derive an income from, if the person paying the income has not already withheld tax. But it is the only legal way to do it.

With my limited knowledge of the Singapore tax system (I'm not an expert like yourself), this accountant in Kuala Lumpur is breaking the law by receiving income from Singapore and not filing a declaration with IRAS and paying 15% (minimum) tax on it. I have no interest in tax evasion like this.

It does sound like we are on the same page though. If I decide to make a payment from a Singapore resident company to a non-resident individual, I will contact IRAS for the best way to handle the situation. The company will either withhold 22% tax on a director fee, then the individual will do nothing in terms of IRAS and declare the income to the Australian tax office. Otherwise, the company will withhold no tax on a salary, the individual will file a personal tax return with IRAS paying 15% or progressive tax rates on the salary, then file a tax return with the Australian Tax Office paying the required tax there as well, and hopefully claiming back the tax already paid to IRAS to avoid double taxation.

Thanks.

[Myasis Dragon]

With my limited knowledge of the Singapore tax system (I'm not an expert like yourself), this accountant in Kuala Lumpur is breaking the law by receiving income from Singapore and not filing a declaration with IRAS and paying 15% (minimum) tax on it. I have no interest in tax evasion like this.

No, he is not. He is tax resident in Malaysia and pays his income tax there. You are free to hire anyone you want to perform any function you want, from anywhere in the world. Through my Singapore company, I hired a lawyer in Hong Kong to setup my business there. It's an arms length transaction with an individual who is tax resident in Hong Kong. The withholding rule does not apply.

I hired an accountant in Australia to help me setup a tax vehicle to get a refund on the GST I had to pay in fulfilling a contract in Australia. He's tax resident in Australia and not subject to withholding.

I put a guy to work in Dubai on a contract. I paid him as a normal employee because although he was in Dubai for a long period of time, he retained his Singapore address and Singapore tax residency.

I interviewed a Swiss guy who had the right to live in Malaysia. He wanted to be my director of development for Malaysia. Besides the fact that he wouldn't work out, I would have had to withhold for his salary because he would be a key manager of my company, and be considered to be working for the Singapore company, even though he was not resident.

To clarify: In all countries that I have done business in, you cannot hire a person into your company as an employee unless that company has a legal presence in the country in which you are doing the hiring. Example: I want to hire a guy in KL to do break fix for local KL firms. I need to form a Malaysian company in order to hire him as an employee. My Singapore firm can only hire him as a contractor, and he files as a sole proprietor, working for himself, not as an employee, in Malaysia.

Therefore, I have no foreign based employees, therefore, I have no withholding tax liability. Again, this withholding is applied to only a narrow class of people, those who are deemed to be working for the Singapore company by virtue of their job responsibilities, and certain others, such as entertainers, where Singapore wants to extract their pound of flesh.

[PNGMK]

My Singapore firm can only hire him as a contractor, and he files as a sole proprietor, working for himself, not as an employee, in Malaysia.

Yes - this is how Narcissist should deal with this in part. I have used SP status in Singapore to bill companies in Singapore.

[Narcisse]

Ok thank you for the detailed explanation. I am 100% clear now that anything paid to a non-resident director (NRD) would be deemed as taxable income that should have 22% withholding tax paid, thanks to your explanation and IRAS saying: "Taxable income is income earned by NRDs that is subject to withholding tax. Director's remuneration refers to both cash and non-cash payments and includes: salary; etc"

We've decided against paying this salary anyway, but there's some annoying part of me that hates not understanding anything fully, so I will just ask one more question. It has nothing to do with anything but wanting to understand, so please feel free to not answer if you're busy.

IRAS quite clearly states: "As a non-resident: You will only be taxed on all income earned in Singapore." and "Your employment income will be taxed at a flat rate of 15% or the progressive resident rates, whichever results in a higher tax amount."

Who would this actually apply to? For instance, say you had an Irish accountant who had a work permit to work in Singapore and actually physically came to Singapore for 60 days (less than 183 days of the year) to work in Singapore as your accountant as an employee. You pay this guy a salary during his 2 months work and then he goes back to Ireland. Is he this creature that then has to declare this income earned in Singapore to IRAS and pay the 15% flat tax or progressive resident rates (whichever is higher)?

But the because the Malaysian accountant in your example is not physically coming to Singapore and because he is in an arms-length consultant relationship with your Singaporean company, his income is not deemed as 'income earned in Singapore', so he doesn't have to declare it to IRAS, he just deals with the tax authority in his own country.

Have I finally understood this or I am I still confused. Apologies again for the belligerence, and thank you again for your time.

[PNGMK]

Residency (in simple terms) is linked to having an EP or PR or similar residency permit. In simple terms. Your Irishman can't work here without that but your Malaysian can work in Malaysia without it.

[Narcisse]

Yes - this is how Narcissist should deal with this in part. I have used SP status in Singapore to bill companies in Singapore.

Thank you PNGMK, but I do not believe this would apply to me even if I wanted to do this (which I have decided against).

According to ACRA a sole proprietor must be "A Singapore Citizen, Singapore Permanent Resident, or an EntrePass Holder"

Which I am not. Thank you for the advice though.

[Narcisse]

Residency (in simple terms) is linked to having an EP or PR or similar residency permit. In simple terms. Your Irishman can't work here without that but your Malaysian can work in Malaysia without it.

Yep, understood. For the sake of clarity, assume he does have an EntrePass or PR, but he still spends only a short amount of time in Singapore, so for tax purposes, I would assume he is a tax resident of the Republic of Ireland even though he holds a EP or PR for Singapore. I assume that the holding of the EP would something worked out with the Ministry of Manpower and where he claims tax residence would be separate, this would be worked out with IRAS. But perhaps I've misunderstood again.