SeriousQ wrote:Thank you, Super Eagle, for sharing. I may have to change my Company Secretary/Accounting agency as they seem unwilling to share any advice (despite their ad claims), which makes me quite frustrated not knowing where to turn.
My family expat but I maintain Singapore citizenship after much consideration.
Thus far, in my bookkeeping to the agency to prepare the Balance Sheet, I post Director's Fees & Director's Salary under "EXPENSES". This reduces the corporate tax as well. May I presume that Dividends are also posted similarly - under EXPENSES? Before reading this forum, I thought I had to post all profit take-outs under "Director's Fees". That would surely result in a high personal tax bracket. So to avoid this instant jump in personal income tax, I only need to take out my profits under Dividends and not Directors Fee?
I've asked this question (on profit-taking options) to many accountants but their replies have not been coherent. The last reply from the same agency I hire, was to splurge the profit on buying company equipment and to expense more if I wish to reduce corporate tax or personal income tax - a pathetic answer if you wish to preserve cash flow for future expansion or other growth needs.
Thanks for pointers on copyright as well. I dig out that article again. Title: Photographer wins $1.2 million from companies that took pictures off Twitter
They really trip up over there.
Dividends are recorded NOT as an expense. I'll use a very simple income sheet and balance statement to demonstrate.
End of Year P&L
Income: 10,000 (credit entry)
Expense: 6,000 (debit entry)
Net Profit: 4,000
Balance Sheet, End of Year (assumes no other assets)
Assets:
Cash in Bank: 4,000 (debit entry)
Liabilities and Net Worth
Retained Earnings: 4,000 (credit entry)
Now, you issue a directors resolution on Jan 1 for dividends to be paid on March 1.
Assets
Cash in Bank: 4,000
Liabilities
Dividends Payable: 4,000 (credit)
Net Worth
Prior Retained Earnings: 4,000
Dividends to be paid: 4,000 (debit)
Current Retained Earnings: 0
Now, you actually pay the dividend out.
Credit cash for 4,000 - new balance = 0
Debit Dividends payable for 4,000 - new balance = 0
So, you see there is no expense entry. If you wanted to pay directors fees, then that would be an expense so that your P&L would look like this.
End of Year P&L
Income: 10,000 (credit entry)
Expense: 6,000 (debit entry)
Directors Fee Expense: 4,000
Net Profit: 0
With a net profit of 0, there would be no retained earnings to be added to the balance sheet.
You need to pay corporate income tax on net profit of the company. Corporate tax rates are 17 percent, and depending upon how large your company is and how long it has been in business, you may pay substantially less.
So, if your profit is large and you take it as directors fees, your personal income tax rate could go as high as 20 percent. You need to do the math on your income to see which gives you the better tax advantage. Singapore's relatively flat personal income tax probably gives the advantage to a salary unless your income is extremely large.
I really don't know how Singapore operates when looking at dividends versus getting paid a salary but I can tell you how it works in the USA. Both salary and dividends are subject to income tax. However, dividends are not subject to social security tax. So, some people try to escape social security tax by paying a very low salary then paying large dividends.
The US government will not allow this if the salary paid doesn't meet certain standard minimums. For example, if you were running a company with 20 employees, bringing in 6 million in revenue per year, the IRS would want to see that your salary was in line with others running that size business... so you would not be allowed to pay yourself $20,000 and then take another $150,000 in dividends. You might have to pay yourself $100,000 and take $50,000 in dividends.
I suspect Singapore has similar rules in place to stop tax avoidance but I've not researched it.
