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

[PNGMK]

The Irishman is now getting into the realm of DTT.

[PNGMK]

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.

You don't need ACRA's permission to be a sole proprietor from outside Singapore. In fact you need not even be a registered sole proprietor to invoice someone for your services in Singapore but there will eventually arise the question as to whether this person is a contractor or employee.

Going back to your original problem.

1. You're not resident in Singapore (by EP or whatever)
2. You're tax resident somewhere else presumably
3. You want to take earnings from the company you're a director of in a tax minimal manner (legally compliant).

Your choices are:

1. Resign as a director and use a nominee director. Bill the company for your services from OUTSIDE Singapore. Pay income taxes in your tax resident country. This should not attract Singapore withholding tax

2. Pay another company (not yourself) for something. Have that company pay you. Legally gray but commonly done.

3. Use a trust instead. Expensive but highly tax effective.

[Myasis Dragon]

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.

OK, you have to look at this whole business of personal taxation as follows:

Everything I am about to write below is found in a series of reciprocal taxation treaties that most countries have signed, although there are exceptions, such as the USA and Singapore. The intent is to both ensure that a person is not subject to double taxation, and of equal importance, to ensure that our global citizen pays his share of income tax somewhere.

In general, you are tax resident for personal income tax in the country in which you have your permanent residence. The rules can get complicated, especially with multiple residences, but, in general, if I have a home in Singapore, I am a Singapore resident. If I have a home in Ireland, I am a resident of Ireland. If I rent an apartment in Malaysia, I am Malaysian tax resident.

In general, you are considered to have performed your work in the country in which you were physically present when you performed the work. So, I am physically present in Singapore and I sweep the floors of the local Singapore karaoke club. I have performed work in Singapore. I am an accountant. I live in Kuala Lumpur. I log into your company's servers in Singapore and prepare all your invoices, prepare your financial statements. I have performed work in Malaysia because I am physically present there. It doesn't matter that I accessed a server in Singapore, nor that I did the work for a Singapore company, nor that I was paid by a Singapore company.

Singapore (and other countries) have created a number of exceptions to this rule of being physically present in country to determine where the work was performed. This includes entertainers, and of interest to us, people who are directors and/or manage the operations of a Singapore company. The Singapore gahmen has decided that you are considered to be working for the Singapore company, in Singapore, if you you are a director or a senior manager of that company. Therefore, you are subject to personal income taxation in Singapore. But, since you aren't physically in Singapore, the gahmen requires withholding of tax because of the impossibility of trying to collect tax from you while you live in Bumfukistan.

Does that clear things up? Do you see that the accountant working out of Malaysia has tax residency in Malaysia, works out of Malaysia, and therefore earns no money in Singapore, even though he is paid from a Singapore company? And, do you see that by the rule described in the previous paragraph, a director of a company is considered to be working in Singapore, no matter where she is physically located, and therefore subject to tax?

Let's talk about Singapore tax residency for just a moment. This refers to being physically present in Singapore to perform work. Note that the rules I am about to describe do not apply to non-resident directors of a Singapore company because the gahmen has already decided that they are resident for tax purposes, even if they live somewhere else. Nor do they apply to other classes of people for whom the gahmen has decided that withholding applies.

You have your 60 days or less non-resident rule. Basically, this is a convenience for everyone. I can fly into Singapore on my 90 day tourist visa, work for a company for 3 or 4 weeks, and leave again, without being subject to Singapore income taxation of any kind. Consider: The multi-nationals bring people into Singapore on temporary assignments all the time. Consultants fly in all the time, do their work, and leave again. It would be an absolute nightmare to try and track all of this activity for tax purposes. So, it's just easier to assume that for short term employment purposes, the person remains a tax resident of his home country. And in fact, that is generally true.

Now, you have the person who has worked in Singapore for between 61 days and 182 days. This person is non-resident for tax purposes, even though they may have an apartment or a house in Singapore. They are still considered tax resident in their home country but Singapore wants to tax them at the non-resident tax rate since they are earning in Singapore. Most reciprocal tax treaties have provision for this... the home country allows the person to deduct Singapore tax paid from the tax bill due in the home country.

And finally, you have your resident tax payer, a person who has lived and worked in Singapore for 183 days or more. By reciprocal tax treaty, this person is no longer tax resident in her home country, she is tax resident in Singapore.

Note that all of the above regarding tax residency has absolutely nothing to do with work permits or the right to live in Singapore. These are IRAS TAX residency rules.

So, it's pretty obvious that that the majority of people landing at Changi airport aren't tourists coming in to look at the Merlion. They are business people, coming in on a tourist visa, to go work at their MNC headquarters, or to close a sales deal, or to perform some sort of professional work. Do they have a work permit or a residency permit? Hell, no. There is a tremendous amount of short term economic activity that goes on under the radar (in this country, and every other country), and no one is asking for a work permit. And, the IRAS ignores this activity through their 60 day or less rule.

What about the person who works between 61 and 182 days? There are several scenarios that play out here, some legal, some not. Legally: A Singapore citizen coming from Ireland to work on a temporary basis would not need an employment pass because they are a citizen but would still be considered non-resident because their home residence is in Ireland. The company they work for would report them as non-resident to avoid running afoul of the laws. Otherwise, a company hiring someone for between 61 and 182 days would apply for a work permit or employment pass to legally allow the person to work, then again, report them as non-resident for tax purposes.

But, there are lots of people who come in on a 90 day visa, work for their MNC company, then leave again, only to come back 30 days later and do it again. This practice is technically in violation of the law but without self reporting the gahmen will never know or be able to track this.

I'll close with tax treaties. You should look up "Australia Singapore reciprocal tax treaty" to see exactly how your income will be treated by both governments. I don't know much about Australian taxation but I suspect PNGMK can tell you a lot. I do know that the USA is one of a very few countries that taxes world wide income. I get tax relief and a big deduction but I am taxed on my income in Singapore. I'd never take dividends from my Singapore company because those would be taxable in the USA at high passive tax rates.

I hope that clears things up for you.

[Narcisse]

Your choices are:

1. Resign as a director and use a nominee director. Bill the company for your services from OUTSIDE Singapore. Pay income taxes in your tax resident country. This should not attract Singapore withholding tax

2. Pay another company (not yourself) for something. Have that company pay you. Legally gray but commonly done.

3. Use a trust instead. Expensive but highly tax effective.

Thank you. This is abundantly clear and helpful. I appreciate you taking the time to spell this out for me. Crystal clear now.

[Narcisse]

In general, you are considered to have performed your work in the country in which you were physically present when you performed the work. So, I am physically present in Singapore and I sweep the floors of the local Singapore karaoke club. I have performed work in Singapore. I am an accountant. I live in Kuala Lumpur. I log into your company's servers in Singapore and prepare all your invoices, prepare your financial statements. I have performed work in Malaysia because I am physically present there. It doesn't matter that I accessed a server in Singapore, nor that I did the work for a Singapore company, nor that I was paid by a Singapore company.

This is where I was confused, now I am clear that “income earned in Singapore” is income earned from work physically in Singapore (obviously with some exceptions that you have given such as non-resident directors and entertainers).

Singapore (and other countries) have created a number of exceptions to this rule of being physically present in country to determine where the work was performed. This includes entertainers, and of interest to us, people who are directors and/or manage the operations of a Singapore company. The Singapore gahmen has decided that you are considered to be working for the Singapore company, in Singapore, if you you are a director or a senior manager of that company. Therefore, you are subject to personal income taxation in Singapore. But, since you aren't physically in Singapore, the gahmen requires withholding of tax because of the impossibility of trying to collect tax from you while you live in Bumfukistan.

Does that clear things up? Do you see that the accountant working out of Malaysia has tax residency in Malaysia, works out of Malaysia, and therefore earns no money in Singapore, even though he is paid from a Singapore company? And, do you see that by the rule described in the previous paragraph, a director of a company is considered to be working in Singapore, no matter where she is physically located, and therefore subject to tax?

Yes, crystal clear now, thank you very much.

Note that all of the above regarding tax residency has absolutely nothing to do with work permits or the right to live in Singapore. These are IRAS TAX residency rules.

So, it's pretty obvious that that the majority of people landing at Changi airport aren't tourists coming in to look at the Merlion. They are business people, coming in on a tourist visa, to go work at their MNC headquarters, or to close a sales deal, or to perform some sort of professional work. Do they have a work permit or a residency permit? Hell, no. There is a tremendous amount of short term economic activity that goes on under the radar (in this country, and every other country), and no one is asking for a work permit. And, the IRAS ignores this activity through their 60 day or less rule.

What about the person who works between 61 and 182 days? There are several scenarios that play out here, some legal, some not. Legally: A Singapore citizen coming from Ireland to work on a temporary basis would not need an employment pass because they are a citizen but would still be considered non-resident because their home residence is in Ireland. The company they work for would report them as non-resident to avoid running afoul of the laws. Otherwise, a company hiring someone for between 61 and 182 days would apply for a work permit or employment pass to legally allow the person to work, then again, report them as non-resident for tax purposes.

But, there are lots of people who come in on a 90 day visa, work for their MNC company, then leave again, only to come back 30 days later and do it again. This practice is technically in violation of the law but without self reporting the gahmen will never know or be able to track this.

Thank you for this information on the differences between IRAS tax residency rules and Ministry of Manpower employment and work permit rules. Very helpful.

I hope that clears things up for you.

Perfectly, and I am extremely grateful that you took the time to write such a long and detailed explanation for me. Thank you again.