Does a ‘Nominee Director’ Exercise Central Management and Control?

Written By Yuseff Murphy

This week we were asked by a prospective client to source them some quotes for incorporating a new company in Singapore with related company services. Having messaged a number of service providers who are very effective, efficient and professional company secretaries and service providers we were surprised by how many offer ‘nominee director’ services with the prospective client being an Australian tax resident. Why our surprise?

Australia applies a central management and control test to the question of where an overseas registered company is tax resident. This means that whether the company was incorporated in Sydney, Singapore, or the Seychelles it will be taxable for corporate income tax in Australia if it is centrally managed and controlled within the country. The question then becomes what does central management and control mean in the context of a resident tax payer with an overseas company.

Some of the high risk factors for an overseas company being taxable in Australia are set out in the ATO’s practical compliance guidelines (PCG 2018/19):

  • There are facts, or the absence of facts, suggesting central management and control in Australia;

  • There is an artificial or contrived arrangement; and

  • A tax avoidance scheme that relies on location of residency.

Why were our alarm bells going of? We received the following notes from a service provider on what their nominee directorship services included (more specifically what they do not):

‘Our Nominee Director should have no operational duties in the Company. Our Nominee Director is a director in name only and will not have any role in the company except to satisfy the statutory requirements of a local resident director for the Singapore Company. The role is non-executive in nature and will not be involved in any management, financial, or operational matters of the Company.  Furthermore, our Nominee Director is not to be involved in the opening and operation of bank accounts, signing of contracts or agreements, signing of financial report and its related documents, etc. As such, at least one Executive Director who is operational and in charge of the decision-making for the Company, will need to be appointed – this person can be either foreign or local.’

Does that sound to you like that director will be exercising central management and control over the company?

Yuseff Murphy