Singapore company director resident in India

CA Mohit Thareja (Assistant Manager-Accounts & Finance) (1117 Points)
Replied 12 January 2011

Originally posted by : Bhavin
	Hello, I have a query regarding International Taxation. We are planning to setup a new company in Singapore with 3 directors. 2 of the directors are resident in Singapore and have NRI status. The third director is myself and I am resident in India and of Indian origin. Singapore has a tax-exemption for first three years for new companies up to a profit of S$100,000/- and generally a much lower tax regime (corporate/company tax liability is a max of 18%). Singapore also has a DTA (Double taxation agreement) with India. Suppose we make a profit in the company which is credited to the companies Singapore bank account and taxable in Singapore. My question is that if the company issues a dividend to its directors (or if we get capital gain by selling the company etc.), and if this money is remitted from the Singapore company account to my bank account in India, is this amount subject to taxation in India? In case the Singapore tax liability on the profit is zero (since Singapore has relaxed tax laws), can I claim DTA and relief from paying tax in India or will I have to pay full tax in India for income arising from this Singaporean company? Just to reaffirm, I am ordinarily resident in India. Thanks for taking the time to help me understand this! Regards, Bhavin.

please someone reply early..

Pritesh Kamani (Accounts & Finance) (25 Points)
Replied 12 January 2011

Firstly, as you are planning on incorporating a company in Singapore, it shall be separate legal entity being a resident of Singapore.

Secondly, it may be noted that the question of Double Tax Avoidance Agreement comes into picture only in case of income which is taxable in two jurisdictions.

Thirdly, a resident of India being ordinarily resident has to offer his entire Income (global income) for taxation.

The question of dividend distributed by the company and its taxability in your hands requires the consideration as to whether such an income has been doubly taxed in your hands.

As far as dividend distributed by a domestic company is concerned, the person receiving such dividend is exempt from taxability as the company is entrusted with such a liability. However, dividend from companies other than domestic companies is not exempt from tax in India.

As far as my knowledge extends and in consonance with the Indo-Singapore DTAA, dividend distributed by a company in Singapore is not taxable in the hands of the recepient.

As the company is exempt in Singapore from discharging dividend tax liability there is no double taxation hence relief claim may not be allowed. Moreover, in case the company was not exempt also, the case would be one of juridical double taxation and hence, the assessee would not be entitled to refund as tax has been paid by the company on dividend declared through a ''deeming provision'' and dividend from such a company is not exempt in India U/s. 10(34) (as the company is not a domestic company). Relief can be claimed only when tax has been actually paid and such a tax is paid by the assessee himself.

The question of selling the shares and capital gains on transfer of such shares, the Indo-Singapore DTAA settles the position by subjecting to tax in Singapore as the shares are situated in Singapore and therefore there shall be no tax payable on such transfer in India, however, the provisions of Singapore Income Tax shall apply accordingly.

I hope this suffices your cause.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 12 January 2011

your case is more related to FEMA, rather than incometax

please read the attached file to understand the basics

Attached File : 47 60901.pdf downloaded: 322 times

Bhavin (Director) (25 Points)
Replied 12 January 2011

Thanks a lot for all the replies.

@ Pritesh - your answer is very detailed and extremely helpful.

@ Sharma - I understand that there are some FEMA related rules applicable when this money is remitted but my question was specifically to understand the tax implication and gather advice on how to structure this company or receive income from it with minimum tax liability.

I also found this information on a site which talks about the DTAA between Singapore and India. According to that article, there are 2 ways in which I can receive income from this company without facing tax liability in India. The 2 ways are if I get "Director's fees" since I am a stake holder and director in this company. The second way is by means of Capital Gains by selling shares in the company to a third party (as correctly identified by Pritesh as well). I am not sure if my understanding of it is correct.

If anyone has any other suggestions regarding structuring this company or creating transactions so that Indian tax liability is nil/minimal, please let me know. Your advice is highly appreciated.