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Corporate & personal tax on dividends below 100K

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Minke
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Corporate & personal tax on dividends below 100K

Postby Minke » Wed, 07 Apr 2010 11:20 pm

I have a question on dividend tax on company tax and personal tax level. Lets assume that my company would make a profit of S$ 99 000 during its first financial year and I as a owner would withdraw that S$ 99 000 as a dividends. Is it so that neither my company or myself would need to pay any taxes in that case since first S$ 100 000 on company profit is 0% tax for the first 3 year of operation and dividends are classified as capital gains which are not taxable in Singapore? I understand the taxation when it comes to salary and director fees but not very clear when it comes to dividends. Thanks

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Postby Strong Eagle » Thu, 08 Apr 2010 8:15 am

What you said is correct, assuming you are a qualifying company.

http://www.iras.gov.sg/irasHome/page04. ... 14#qualify

However, there are two potential pitfalls. If you are American, then your dividends are classified as unearned income and not subject to the earned income exclusion for tax purposes. This may or may not hold true for other countries.

And second, if you are on an EP here, you will not have earned enough salary to keep your EP in force.

And as a matter of principle, you might get yourself flagged for obviously trying to squeeze the system. If you are working you should be paid and contribute your share of taxes. I have always paid at least some corporate tax, and in the tough times, I've been given significant credits. What goes around comes around.

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Postby Minke » Thu, 08 Apr 2010 10:53 am

Thanks Strong Eagle. I am SPR

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Postby Strong Eagle » Thu, 08 Apr 2010 11:01 am

SPR myself. Again, my S$0.02 is that while your SPR never expires, your re-entry permit does, and if you are not making any money, you might or might not be viewed as a suitable PR... or perhaps more appropriately, if you're not paying taxes in a manner that they would like you to be accustomed to, maybe the re-entry permit doesn't get approved.

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Postby Minke » Thu, 08 Apr 2010 11:38 am

Very good points, thanks. I am paying a lot of taxes on director fees and salary that I take from company. I wanted to have a decent mix of salary and director fees so that I can contribute CPF. I will pay taxes from last year around S$ 30K so I hope that will be considered as reasonable amount. I am not from US btw, so that dividend issue you pointed out shouldn't apply to me

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Postby Strong Eagle » Thu, 08 Apr 2010 5:47 pm

I think you are sitting pretty. I too, take a mix of directors fees and salary... I usually take a fixed salary which is well above any P1 minimums, and far larger than the CPF $4500 cap... then pay a yearly directors fee more or less based upon how successfully we did in the year.

At your tax level I'd say they love you since your paying more in taxes than a lot of Singaporeans earn. That's a heck of lot different than pulling $99K out in dividends and having no salary.

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Postby stiwi » Mon, 10 Jan 2011 12:38 pm

Let me refresh this topic.
So to summarize, when you are on a salary basis and your company will end the financial year with a profit, then you can withdraw the remaining amount tax free (considering it is below 100k)?
When such dividends should be paid out? Once the financial year is finished or once the accounting has been done? Or it doesn't matter and dividends can be paid out even during the financial year?

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Postby Strong Eagle » Mon, 10 Jan 2011 1:37 pm

stiwi wrote:Let me refresh this topic.
So to summarize, when you are on a salary basis and your company will end the financial year with a profit, then you can withdraw the remaining amount tax free (considering it is below 100k)?
When such dividends should be paid out? Once the financial year is finished or once the accounting has been done? Or it doesn't matter and dividends can be paid out even during the financial year?


A dividend payout can occur at any time. It requires a directors resolution authorizing the dividend.

If you are a US citizen: Note that the dividend is declarable as income on the date that it is authorized by the directors, regardless of when you actually take the dividend. For example, you declare a dividend on Dec 30, 2010 but don't actually get the check until Jan 5, 2011. You must still declare the dividends on your 2010 tax return.

Actually, directors fees work the same in Singapore... they must be declared on your income tax when authorized by the directors, regardless of when you actually receive them.

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Postby stiwi » Mon, 10 Jan 2011 2:04 pm

Strong Eagle wrote:A dividend payout can occur at any time. It requires a directors resolution authorizing the dividend.
[...]
Actually, directors fees work the same in Singapore... they must be declared on your income tax when authorized by the directors, regardless of when you actually receive them.


I am not US citizen.
Is directors resolution required even if I am the only director in my company?
Directors fee is different from dividends I believe. Dividends don't need to be declared on my income tax while directors fee has to be, right?

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Postby Strong Eagle » Mon, 10 Jan 2011 2:26 pm

stiwi wrote:Is directors resolution required even if I am the only director in my company?


Yes. Everything, from opening a bank account to declaring dividends and directors fees, requires a resolution.

Directors fee is different from dividends I believe. Dividends don't need to be declared on my income tax while directors fee has to be, right?


Correct. And if you have read the chain of posts here, you'll want to think through how much tax avoidance you want to do versus future renewals of EP or PR REP.

Cheers.

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Postby azp123 » Thu, 28 Jul 2011 5:42 pm

different question. dividend paid to an non-resident director - is that taxable at flat 20% and will that be classified as 'other' income?


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