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Case for Pte Ltd : Company has no income

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starnrose
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Case for Pte Ltd : Company has no income

Postby starnrose » Thu, 21 Jun 2012 9:27 am

Hi all,

If a Pte Ltd has only 1 employee, and its only employee is its director, who is a SPR. One day the company has no income anymore, and run out of money.

Director runs the company from his own money.

Does it still need to pay Director's CPF Contribution ? Or this company needs to be delisting ?

Thanks in advance

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Strong Eagle
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Postby Strong Eagle » Thu, 21 Jun 2012 6:44 pm

The books need to reflect loans payable to the director for any money put into the company.

If you are still paying a salary to the director then CPF is due on the salary.

If you are paying only director fees, then no CPF amounts are payable.

The way you stop paying CPF is to stop paying salaries subject to CPF. Whether or not you want to delist a dormant company is up to you but has nothing to do with the payment of CPF.

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Postby starnrose » Mon, 25 Jun 2012 3:30 pm

StrongEagle, thanks a lot for your input.

So actually I'm planning to incorporate a Pte Ltd. I probably can secure a short term project, between 2-6 months, for that Pte Ltd.

But I'm still confuse, what should I do if after that short term project, I'm not able to get more projects ?

Is it possible that I change the director's salary to lower rate, so I still can pay director's salary along with CPF contribution. Or is it possible if I just remove director's salary, and change it to director fee ?

What would be the consequences regarding matter with ICA / IRAS ? Will it be a problem when the time comes to extend director's PR status ?

Thanks in advance

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Postby Strong Eagle » Mon, 25 Jun 2012 5:41 pm

Unless the company you are contracting for requires it, I probably would not go to the trouble to register a pte ltd for a 2 to 6 month contract... only if I were planning for the longer term. Instead, I'd register a sole proprietorship.

If you do go the route of a pte ltd, then because you are PR, there is no minimum that must be paid to you. If you work for two months, get paid for two months, then don't draw any more pay.

In general, and my opinion has not been verified with the government agencies, I am of the belief that the Singapore tax authorities review salaries versus directors fees in the following light: If the employee/director is doing day to day work but receives no salary, the directors fees are suspect.

If the employee/director receives a reasonable salary and then takes additional directors fees, this will be seen as OK... for example, a very profitable year.

It is my view, again unverified, that when it comes to CPF, you should be making some reasonable contribution, even though it will ultimately come back to you anyway. But, you only need to make the contribution if you are earning income.

As for PR, you will notice that it is three years of tax statements that are to be submitted. There is no stated minimum income. My view is that there probably exists a threshold... if you are not contributing to taxes and Singapore GNP they may decide they don't want you.

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Postby starnrose » Tue, 26 Jun 2012 4:33 pm

Thanks Strong Eagle for your suggestions,

I think I will go to Sole Proprietorship route.

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Questions on Pte Ltd Company

Postby sharon lee » Fri, 27 Jul 2012 11:24 am

HI,

Due to the newly set up of our pte ltd coy, there is currently no salary being draw out from our company accounts. Are we able to draw out 'salary' and treat them as director fees instead? Director fee amount might not be consistent monthly, is that ok?

In addition, can a pte ltd coy pay the monthly loan instalment of the director's car out of company accounts?

Pls kindly advise.

Thank you!

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Postby sharon lee » Fri, 27 Jul 2012 11:25 am

to add on, the directors of the company are just myself and my husband who is running the operation work.

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Re: Questions on Pte Ltd Company

Postby Strong Eagle » Fri, 27 Jul 2012 6:05 pm

sharon lee wrote:HI,

Due to the newly set up of our pte ltd coy, there is currently no salary being draw out from our company accounts. Are we able to draw out 'salary' and treat them as director fees instead? Director fee amount might not be consistent monthly, is that ok?

In addition, can a pte ltd coy pay the monthly loan instalment of the director's car out of company accounts?

Pls kindly advise.

Thank you!


What is your status? PR? Singapore citizen? Other? This will help determine the answer.

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Re: Questions on Directors fee for Pte Ltd Company

Postby togeorgemathew » Sun, 29 Jul 2012 11:42 am

sharon lee wrote:Are we able to draw out 'salary' and treat them as director fees instead? Director fee amount might not be consistent monthly, is that ok?

In addition, can a pte ltd coy pay the monthly loan instalment of the director's car out of company accounts?


Hi Sharon,

Directors Fee requires a board resolution signed by your husband and yourself authorizing it. If the amount is not consistent monthly it is best to account for your monthly drawings as "Loan to Director" and declare a lumpsum Directors Fee at the year end. You do have to accrue a notional interest on the loan taken out at 5.38% per annum (see http://iras.gov.sg/irasHome/page04_ektid1784.aspx for details)

Yes the company can pay the monthly loan installment of director's car, however the expense is not deductible tax wise for the company (http://iras.gov.sg/irasHome/page04_ektid1796.aspx)

George

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Re: Questions on Directors fee for Pte Ltd Company

Postby Strong Eagle » Sun, 29 Jul 2012 4:58 pm

togeorgemathew wrote:
sharon lee wrote:Are we able to draw out 'salary' and treat them as director fees instead? Director fee amount might not be consistent monthly, is that ok?

In addition, can a pte ltd coy pay the monthly loan instalment of the director's car out of company accounts?


Hi Sharon,

Directors Fee requires a board resolution signed by your husband and yourself authorizing it. If the amount is not consistent monthly it is best to account for your monthly drawings as "Loan to Director" and declare a lumpsum Directors Fee at the year end. You do have to accrue a notional interest on the loan taken out at 5.38% per annum (see http://iras.gov.sg/irasHome/page04_ektid1784.aspx for details)

Yes the company can pay the monthly loan installment of director's car, however the expense is not deductible tax wise for the company (http://iras.gov.sg/irasHome/page04_ektid1796.aspx)

George


While not incorrect, this really isn't the best way to go. Why subject yourself to interest payments on loans when it is not necessary?

I don't see why the OP needs to resort to directors fees at all. Salary can easily be set up as a base plus commission or bonus... easy to make a variable salary.

But again... the OP needs to confirm that they are PR's/SG citizens because the rules are different.

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Re: Questions on Directors fee for Pte Ltd Company

Postby togeorgemathew » Sun, 29 Jul 2012 5:43 pm

Strong Eagle wrote:
But again... the OP needs to confirm that they are PR's/SG citizens because the rules are different.


Agree Strong Eagle. The immigration status will impact tax, CPF.

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Re: Questions on Directors fee for Pte Ltd Company

Postby Strong Eagle » Sun, 29 Jul 2012 5:44 pm

togeorgemathew wrote:
Strong Eagle wrote:
But again... the OP needs to confirm that they are PR's/SG citizens because the rules are different.


Agree Strong Eagle. The immigration status will impact tax, CPF.


And the minimum draw they must take to meet income requirements for the work pass.

Cheers.

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Postby sharon lee » Mon, 30 Jul 2012 10:28 am

Thanks for your valuable advise. Both of us are Singapore citizen.
to avoid on the interest (loan to director), what others do you advise? Can I just do up a director fee resolution and indicate a range for the director fee instead? Will record the actual paid out as director fee and declare in IRAS when due course.

Is this viable?

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Directors Fee

Postby togeorgemathew » Mon, 30 Jul 2012 11:40 am

Hi Sharon,

Yes what you have proposed in terms of a resolution with a range for Directors Fee is viable. In your case as Singapore citizens its only personal tax that comes due on this every April for the previous year.

Best wishes.

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Postby sharon lee » Mon, 30 Jul 2012 1:58 pm

Hi togeorgemathew,

Thanks for your valuable advise!

ok, in that case i will do up director resolution for the director fees.
do you by any chance have any sample template on this? As i'm also a director but I wont be drawing out any director fees as I'm working full time in another company. Only my husband will be having this director fees.
How do i indicate such things in the director resolution? also do i need to state article number in the header of the director resolution? *blurred*


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