Tax Obligation of Non-Resident Director in Singapore
Board directors play a pivotal role in the governance and strategic direction of a company. Whether as a non-resident or executive director, their responsibilities extend beyond mere oversight to shaping the future trajectory of the organization. However, with these roles come tax obligations, particularly in a jurisdiction like Singapore. Here’s a breakdown of taxation and obligations for board directors in various capacities.
Definition and Roles
A board director is a member of a company’s board of directors, entrusted with overseeing management and making crucial decisions on behalf of the company. Generally, they can also serve as executive directors, taking on roles such as Chief Executive Officer (CEO) or Chairman, and actively participating in the daily operations of the business.
Tax Residency Determination
Tax residency in Singapore for board directors hinges on their physical presence in the country during the year preceding the Year of Assessment (YA). If a director spends less than 183 days in Singapore, they are considered non-residents, subjecting their payments to withholding tax. Conversely, if their physical presence exceeds 183 days, they are deemed residents, exempt from withholding tax.
Scenario 1: Remuneration as a Non-Resident Director
For non-resident directors receiving remuneration from a Singapore tax-resident company, the employer must withhold tax at 24%. This rate was 22% for income due and payable from 1 Jan 2016 to 31 Dec 2022. Employers are required to e-file and remit withholding tax by the 15th of the second month from the payment date. Directors in this category are not obligated to file tax returns individually, as the tax is already withheld by the employer.
Scenario 2: Remuneration as an Executive Director
Executive directors receiving remuneration as employment income from a Singapore tax-resident company have slightly different obligations. Employers must prepare Form IR8A to report all director’s remuneration and salaries. This includes director’s remuneration received in the capacity of a board director and any salary earned in an executive role. Form IR8A should be provided to the employee by 1 March for tax filing purposes. Additionally, the executive director require to submit tax clearance when ceases employment.
Director’s Obligations
Directors must declare their employment income in their tax return for the relevant Year of Assessment and settle any tax liabilities upon receipt of the tax bill.
Conclusion
Understanding these tax obligations is crucial for board directors to ensure compliance with Singapore’s tax laws. Failure to adhere to these requirements can result in penalties and legal consequences. Therefore, directors and employers alike must stay informed and fulfill their respective obligations promptly and accurately.
Disclaimer: This article is for informational purposes only and does not constitute any professional advice. Feel free to contact us to consult with our professional advisors team for personalized advice and guidance.
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