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bigduckontax, Accountant
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I have a client company registered in the UK. This company

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I have a client company registered in the UK. This company has a wholly owned subsidiary in Singapore. The Singapore company does not trade (fundamentally because it does not have the appropriate licence in Singapore to do so) but it incurs local costs such as accountants compliance fees. The UK resident director (of the UK and the Singapore company) has an Employment Pass issued by the Singapore Tax Authorities but to enable her to have this she has had to declare a salary from the Singapore company of S$72,000 pa from this non-trading Singapore Company. She makes legal declarations to the tax authorities in Singapore and pays tax on this in Singapore (roughly S$ xx pa). The Singapore Company has no funds to actually pay the salary and so it has not been paid. In the accounts of the Singapore Company the unpaid salary has been included in accruals. Also the UK company has negative equity and has no funds to pay the salary on behalf of the Singapore company. The question is "Is this Singapore salary liable to tax in the UK on the UK resident (with Singapore tax set-off)?
Hello, I'm Keith and happy to help you with your question.
If she spends more than 183 days in the UK in any one tax year then she is classed as resident and liable for UK taxation on her world wide income.
Therefore her Singapore Income would be part of her world wide income and any tax deducted in Singapore would be allowed, under the Double Taxation Treaty between the UK and Singapore, as a tax credit against he UK tax liability on the same income stream. However in this case the Singapore Company has paid her nothing so no UK tax liability arises and there is nothing to declare. The moneys she has paid to Singapore to retain an Employment Pass, if a necessity for her UK company in order for her to operate, could be allowed against the UK company's Corporation Tax computation of profits.
I do hope I have been able to shed some light on the position.
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Customer: replied 3 years ago.

Hi Keith. Thanks for this encouraging advice. Our original view was that the accrual itself (in the Singapore Company accounts) is an acknowledgement of the existence of an employment liability which could be called in by the individual if they chose to do so (even though the funds don't exist to enable that to happen). Does not the debt between the employee and the Singapore company mean that the salary is "made available" for her to take and as such will be liable to tax in the UK even though funds aren't actually available and she has therefore not been paid. My concern is the "made available" definition. Can you confirm that your advice remains the same and if you could give us some legislative guidance on this, it would be appreciated


But it may be 'made available,' but it cannot be paid so for tax purposes she has no income to declare. She can only be taxed in moneys received and here there is none; one cannot be taxed on notional income. When it is paid, however, it must be declared in the tax year in which it is paid. The Singapore tax credits can then be used to reduce her UK liability on this income, and this income alone. There is a danger here of the moneys she has paid to Singapore being 'money sunk and lost' if no organization can ever come up with the cash owed.
Customer: replied 3 years ago.

Hi Keith. Sorry to bother you again on this but can you look at Income Tax (Earnings & Pensions) Act 2003 s18(1) - especially Rule 3 (a). Does this affect your advice at all


I hold my position. The Act states:

'If an amount is treated as earnings for a particular tax year under any of the following provisions, the earnings are to be treated as received in that year

section 81 (taxable benefits: cash vouchers),

section 94 (taxable benefits: credit-tokens),

Chapter 5 of Part 3 (taxable benefits: living accommodation),

Chapter 6 of Part 3 (taxable benefits: cars, vans and related benefits),

Chapter 7 of Part 3 (taxable benefits: loans),

Chapter 8 of Part 3 (taxable benefits: notional loans in respect of acquisitions of shares),

Chapter 9 of Part 3 (taxable benefits: disposals of shares for more than market value),

Chapter 10 of Part 3 (taxable benefits: residual liability to charge),

section 222 (payments treated as earnings: payments on account of tax where deduction not possible),

section 223 (payments treated as earnings: payments on account of director’s tax).'

Her position is not covered by s.18; there is no tax to declare.

Thank you for your support.