Foreign Directors Fees in Singapore ExplainedDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
It's much easier to become a foreign director in Singapore in this digital world, where you can work remotely from anywhere. However, as a foreign director, your fees will be different from those of the other directors.
In Singapore, individuals pay taxes according to their tax residency status. This means every company must observe the Inland Revenue Authority of Singapore laws regarding payments to non-residential directors.
This guide elaborates on the fees of foreign directors in detail.
Can a Foreigner be a Director For a Company?
Yes. A foreigner can be a director for a company in Singapore. A foreign director fails to live in Singapore for several days (183) in a year as per the country’s regulations. Singapore allows foreigners a 100% shareholding, showing how lucrative it is for foreign business owners.
A foreigner in overseas countries can set up a registered company in Singapore using incorporation services and then get an appointment as a director. However, for the company to be operational, there must be at least one local director who understands the organisation's operations. The resident director can either be a citizen, a permanent resident, or an entre pass holder.
If the company is yours, you can remain the executive foreign director and have a nominee director with little power except on paper. To execute this, you must hire a local company secretary and run the organisation remotely. But you have to sign an agreement with the nominee director that prohibits them from acting on behalf of the company.
Types of Fees That Foreign Directors Can be Paid
Before establishing a company in Singapore or agreeing to be a director, it's best to understand the remunerations. The company should use the Companies Act to decide on the type of fees to pay a director.
However, if your company has its own constitution, the model Constitution can shed more light on the director's fees if there are no alterations. Note that the director's fees are paid to the director for any directorial service they provide for the organisation.
But it's not a guarantee to receive payments as a director for the directorial services offered to the company. Instead, such fees are paid to the director if the company sees fit to do so after a general meeting resolution.
The director's fees include:
- Allowances taxed as Singapore income tax, like food or travel allowance.
- Any benefit the director receives apart from cash, like cars (must be related to directorial services).
- Additionally, the company can pay directors' salaries depending on their contract agreement with the company. Such a director gets paid as a company employee and not as a director. The board must approve this type of payment of directors during a general meeting.
A director who receives a salary from the company is considered an executive director. But independent directors, or non-executive directors, can only receive directors' fees.
For a director to receive the director's fees, shareholders must vote for it according to the Companies Act section 169(1). At least 50% of shareholders must vote on this decision.
Disclosure of Foreign Director’s Remuneration in Report
If your company decides to pay foreign directors' salaries, they must appear on its annual expense report. However, indicating the director's fees in the remuneration report is unnecessary.
But to avoid misunderstandings and for transparency, include all these in your annual report. Having this data on your annual report also helps you meet the country’s regulations and lets shareholders know how the company pays key decision-makers.
Remember, if your company doesn't indicate this data on the annual report, the Singapore government can force them to do so. The law will require you to disclose the compensation amount for each director under Companies Act Section 164A (1).
The circumstances under which the law can compel your company to do this include the following:
- If 10% or more of the company’s members issue a written notice requesting this information.
- If a member or member with 5% of total shares in the company writes a request notice demanding this data.
If your company gets such a notice, you must obtain an audited report showing all the fees paid to every director. You should issue this report within 14 days of receiving official notice. Failure to comply attracts a fine of $10,000 each for the company directors and the company.
Tax Obligations for Foreign Directors
While paying taxes for your company, you must know that this amount will depend on the director's Singapore residency status. A non-resident director should pay tax on any remuneration, whether cash or noncash payments, by the company. This includes salaries, bonuses, directors' fees, and gains from stock or accommodation.
Apart from that, any director travelling to Singapore for a business trip must pay tax on the following non-cash compensation:
- Travelling and business-related entertainment
- Airtickert by the company to facilitate the company’s board meeting.
- Per diem allowances of $141 per day.
But the taxable amount differs depending on the director's capacity and remuneration. Remember, a non-residential director can receive payment as a board or executive director. Alternatively, the foreign director can receive remuneration through gains from stock options or awards.
Let's discuss each below.
Tax Obligation As a Foreign Board Director
As board director in a Singapore company expects to pay tax on every remuneration you receive for your services. Before you receive your compensation, your company must deduct some amounts for tax.
The withholding tax rate is 24%, 22% ( income due and payable from 1 Jan 2016 to 31 Dec 2022). But if your country of residence has a tax treaty with Singapore, this amount might be reduced.
To prove this, your company has to fill out Form IR37 as evidence of withholding tax. However, the non-residential director files a tax return for withholding tax.
The company has to pay the withholding tax by the 15th of the second month after the payment is made. Then the company will receive a Confirmation of Payment (COP).
Tax Obligation as a Board and Executive Director
A foreign director receiving a monthly salary acts as an executive director. The company can mandate this director to be the chairperson, managing director, or chief executive officer; their salary is subject to income tax.
The employer must file Form IR8A indicating the employment income of the foreign director in his capacity as an executive director. After that, the company should give the director a copy of the same form for filing.
On the other hand, the non-residential director has to file a tax return form showing the employment income. Then the Singapore tax authority calculates the applicable tax and gives the director a tax assessment letter.
Tax Obligation from A Director’s Stock Options and Stock Awards
Additionally, a foreign director is subject to tax on the profits from their stock options and stock awards. As a foreign director, you must declare your profits from the stock options and awards on your tax form. This will help with the annual assessment of employment income.
But ensure the company files Form IR21A indicating the gains from either the stock options or stock awards. The company should file the form within 30 days of the shares' release, assignment, or exercise date.
After meeting all the non-residential directors' tax obligations, a company must seek a tax clearance. This should be if the foreign director opts out of executive director duties (ceases out of monthly income). Additionally, the company must ensure that non-residential Singapore citizen pays all the required taxes despite being out of the country.
CPF Contributions for Foreign Director’s Fees
Foreign directors are not subject to CPF contributions, as they may not retire in Singapore. Accordingly, only Singapore Citizens and Singapore Permanent Residents are obligated to make CPF payments. Only local directors will be eligible for the claim.
Singapore's government offers different opportunities for entrepreneurs worldwide to take risks and invest in various sectors. This allows companies to expand their market reach and profit margins.
But you must abide by the Singapore laws and ensure you pay taxes as per the regulations. Also, contribute to the CPF and enjoy your overseas job. Be a foreign director with more powers than the nominee director and operate the company remotely with the help of our company secretary.