When incorporating a Singapore company, the law mandates the appointment of at least one resident director on the board of the company. The company can also have non-resident directors as long as there is at least one resident director.
It is important to understand the laws pertaining to company directors. This article will discuss the different regulations regarding the payment of non-resident directors in Singapore.
Non-resident directors and taxation
Singapore levies various taxes on an individual according to his or her tax residency status in the country. The country determines this status on the basis of the number of days an individual resides in Singapore in a calendar year. A company director who is physically present in Singapore for less than 183 days in the year preceding the Year of Assessment (YA) is considered a non-resident director. Taxable income of a non-resident director is the portion of his income that is subject to tax.
A non-resident director’s taxable income is the remuneration in the form of cash as well as non-cash payments made by the company which includes:
- Director’s Fees
- Accommodation provided
- Gains from stock options or any other share ownership plan
Capacity and Remuneration
A non-resident director receives remuneration either:
- In his capacity as a Board Director or
- In his capacity as a Board and Executive Director or
- In the form of gains from stock options or stock awards
The following sections state the taxes applicable on the remuneration of the non-resident directors for each of these capacities and the tax returns that should be filed.
Capacity as a Board Director
A non-resident director appointed on the board of a Singapore company may receive remuneration for services performed. On payment of the remuneration to the non-resident director in the capacity of a board director, the employer must:
- Withhold tax at the rate of 22% of the director’s remuneration;
- File Form IR37; pay the withholding tax amount by the 15th of the second month from the date when the director’s remuneration was paid. On payment, a letter of Confirmation of Payment (COP) will be issued to the employer. The director does not have to file a tax return for the withholding tax.
Capacity as a Board and Executive Director
A company can appoint a non-resident director as a director of the company in cases where he/she is involved in running the daily activities and business operations. In order to function in this capacity, the company can appoint the non-resident director as the Chairman, Managing Director, Chief Executive Officer etc. Renumeration received in such capacity will be treated as employment income and therefore subject to employment income tax treatment.
The employer has to file Form IR8A reporting both the employment income of the non-resident in his capacity as an executive director. The employer must provide copy of Form IR8A to the director for tax filing purpose. The non-resident director in turn has to file a tax return declaring the employment income. The Singapore tax authority will then calculate the applicable tax and send a tax assessment letter to the director.
Gains from Stock Options and Stock Awards
The profit from the exercise of stock options or vesting of stock awards is also subject to tax. This profit have to be declared in the tax form as “employment income”. The employer should file the Form IR21A stating the gains from stock options or stock awards.
This form should be filed within a period of 30 days from the date of exercise, assignment, release or acquisition of the shares. The director will receive a tax bill on the amount of tax to pay.
When non-resident director ceases employment
Each employer who appoints a non-resident executive director must notify the IRAS and seek tax clearance when the employee ceases employment as an executive director. This process is known as Tax Clearance. At the point when any employee who is a non-resident Singapore citizen leaves the country for a period exceeding three months, the employer must ensure that the employee pays all his taxes.
In Singapore, very often one or more of the company directors are non-residents. That is because of the large number of foreigners that relocate to Singapore every year. It is best to seek the assistance of a qualified Singapore corporate service provider, to ensure that the company is compliant with the tax laws.
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