Director Fee vs. Salary

[David-asia]

I am the director of my private limited, but also an employee.
As the director, personal taxes are 20%, but on salary, much lower.

What fee is required to be paid to the director?

I asked this at a recent corporate tax seminar held by IRAS, but they couldnt give me a definitive answer beyond, "reasonable amount for the services they provide".

Are there any negative consequences with paying a $1 directors fee and the rest in salary?

Thanks,

David

[Strong Eagle]

This is not quite correct. Director's fees and salary are taxed at exactly the same personal income tax rate, assuming you are taxed at resident rates... more than 183 days.

Director's fees are not subject to CPF withholding.

My accountant tells me that if I am a director, all my salary is directors fees, so even when I am working on a project I get paid as a director. I have two cost of sales accounts for my projects... salaries (for others) directors fees for me.

[David-asia]

I see. Misunderstanding on my part.

Thanks for clearing that up.

David

[sundaymorningstaple]

This is not quite correct. Director's fees and salary are taxed at exactly the same personal income tax rate, assuming you are taxed at resident rates... more than 183 days.

Director's fees are not subject to CPF withholding.

My accountant tells me that if I am a director, all my salary is directors fees, so even when I am working on a project I get paid as a director. I have two cost of sales accounts for my projects... salaries (for others) directors fees for me.

Most local working directors actually take a portion of their director's fees as Salary - at least a good enough chunk to allow for a building up of a CPF account. Of course if you don't plan on being here for the long haul, then maybe you would want to take it all as directors' fees. Our working director takes about 1/3'd as salary and the rest as DF. (Pays the mortgage payments on his HDB flat that way as he has a "salary".

[Strong Eagle]

I should add that I pay directors fees and a directors salary. Any bonus I pay myself I pay as fees so as not to incur CPF on the bonus amount.

If you are not PR, this does not matter since you don't pay CPF anyway. It just goes into the same bucket for tax purposes.

Cheers.

[neoshock]

Director Fee are actually rewarded to the director who contribute the time to attend Board of Meeting and his idea to the company. So normally a director of "small" company are not suppose to take bigger amount of Director Fee than Director Salary.

[sundaymorningstaple]

neo, this may come as a shock, but most MD's I know with small SME's take their entire salaries in Director's fees here in Singapore.

[Doris yeo]

I was appointed as a director for my friend's company, but no pay ...

[sundaymorningstaple]

I was appointed as a director for my friend's company, but no pay ...

That wasn't too smart was it. Now you are legally liable for the misdeeds of the MD. You could, under the new rulings coming in to play, be liable for the sins of the company even though as a director your personal wealth is supposed to be protected. You might want to get paid at least if you are going to gamble everything you own.

[C-One]

Hi all, i've noticed on the CPF website and noted that the information in the Employer's Guide state that CPF Contributions are not payable on Directors' Fee VOTED TO THEM AT ANNUAL MEETINGS.

I understand that many companies pay out directors fee more than once per annum and no cpf contributions are made with respect to these fees. No violation of any rules here?

Wondering if there are any general guidance on treatment of such directors fee.


Also in response to the discussion on appointment as a director for a friend's company, as a director, your risk is more of towards misdeeds or negligence of the management of the company and thus acts of omission or negligence or fraud made by existing management of the company will adversely impact you as you are deem to be part of the management.

Protection of personal wealth applies only to an individual in the capacity as a shareholder whose liability is limited to his number of shares. If a shareholder is also a director, his risk exposure will be the same as discussed in the previous para.

Any reason why your friend is using your name as a director of the company?

[Strong Eagle]

You can also approve directors fees an an extraordinary general meeting. Main point is that shareholders have to approved directors fees.

[C-One]

You can also approve directors fees an an extraordinary general meeting. Main point is that shareholders have to approved directors fees.

Noted thanks Strong Eagle. Am i right to assume that the CPF guideline on CPF contributions relating to directors' fee is grey and will apply across all approved directors' fees including those approved in EGM? Or a mere resolution will also suffice?

[Strong Eagle]

I don't think there is anything 'grey' about directors fees and CPF. Directors fees are not subject to CPF.

Note that there non-executive directors (outsiders sitting on the board) and executive directors (company managers also on the the board). Each must have directors fees approved in a EGM or AGM and they are approved by resolution.

I have never seen any guidelines (nor has my accountant) that suggests there needs to be some sort of relationship between executive salary and executive directors fees. As a rule, when I was on a Entrepass P1, I always insured that I had more than the required P1 salary, and if the company had a successful year, the directors were additionally compensated.

You could sit on several boards, not hold a job at all, and pay no CPF.

As a practical matter CPF contributions are capped on $4,500 per month. In order to avoid attracting attention, paying salary at least somewhere near this amount builds a good CPF account.

[C-One]

Noted with thanks!

I guess i was too fixated on the guidance on CPF website which states that directors' fees approved at AGM is not subjected to CPF, which arouse my interest in understanding whether declaring directors' fees besides those approved at AGM are subjected to CPF.

Just curious, for a new small scale start up company, will it be possible for the small time owner/director to not pay himself salary but declare directors fee on a quarterly basis depending on performance of the company? Will this arrangement attract attention or is it within acceptable methods of remuneration without contravening any regulations? Would appreciate your expertise and advice on this matter.

[sundaymorningstaple]

Just curious, for a new small scale start up company, will it be possible for the small time owner/director to not pay himself salary but declare directors fee on a quarterly basis depending on performance of the company? Will this arrangement attract attention or is it within acceptable methods of remuneration without contravening any regulations? Would appreciate your expertise and advice on this matter.

It would depend on whether you are a Singaporean/PR or a foreigner. Directors Fees do not qualify as Employment Pass Income so it would be a no-go if you aren't a citizen/PR.