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Director Fee vs. Salary

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c_salvarin
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Postby c_salvarin » Mon, 08 Mar 2010 11:23 pm

Hello people,

I just saw this post very useful to me.

The thing is I am openig Pte Ltd. with only myself as a director/shareholder. So, I just would like to understand after I incorporate the company, what should I do regarding the salary & director's fee:

Step 1. AGM stating director fee?
Step 2. Employment agreement with my company and myself? (sign by myself in both side?)
Step 3. EGM if I want to pay director fee to myself again?

Could somebody help share what you guys do in practice? Thanks so much & Cheers!

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Director's fee vs salary

Postby Wayne Soo » Sun, 04 Apr 2010 2:06 am

Hi all

The main difference is that salaries paid to directors do attract CPF and needs to be paid every month, while director fees do not attract CPF and can be paid out as and when co cash flow permits.

Amounts saved in CPF is tax-exempt, whereas if fee is paid, you can take home the total amount. But taxable on the full amount. So it depends on what you want.

The final quantum can be passed in a resolution at year end. This is what most SMEs do.

Directors can be remunerated 100% by fees rather than salaries. No issue about this. There is also no fixed / reasonable amount to be paid to directors - they can work for free if they wish!
H W SOO & Co, Certified Public Accountants

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Re: er.

Postby pulpy » Tue, 27 Apr 2010 10:59 pm

Doris yeo wrote:I was appointed as a director for my friend's company, but no pay ... ;)


why did your friend do that?

if they evade tax, u're also liable.

bad things will also be your responsibilities since u're the director and u cannot claim" i don't know."

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Director fee - One Director Comapny

Postby loyalstar » Thu, 17 Jun 2010 12:23 pm

Answering your questions:

From what I can read you are talking about a one Director Company. Provided you can be a director (foreigner cannot be sole director of a pte ltd company), then the steps to take will be:

Steps 1: You can start paying yourself first month (or first day if you like) after incorporation; Director's fee is a formality at the first AGM with can be held as long as 18 months later, but not longer.

Step 2 : Employment letter is a good practice, it can be done without as you are actually your own company. And the employment letter can be useful for other purpose too. like employment pass application etc.

Step 3. Explained in Step 1 already (Approval is given at the end of the year when you hold AGM for the previous financial year. At the AGM you can either approve the figure already paid, or more, that case, Company will pay you the additional sum.

Director's fee or salary makes no difference if you are a tax resident. But it is very different if you are not... its a little too complex to put everything down as there are a lot of issues/ explanation indeed to give the full pix.

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Best regards,
Loyalstar

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Director fee vs Director remuneration vs salary

Postby loyalstar » Thu, 17 Jun 2010 12:30 pm

Just to clear up a little on the terms:

(1) Director's fee - someone has explained in this strings of postings that Directors fee are more contributions like business ideas/ directions/ biz development etc. activities for for steeing the directions of the Company;

(2) Director's Salary - this is what it is, you sell your time to the company, you get compensated;

Director's remuneration is (1) + (2) above. And the total Director's remuneration will have to be approved at the next coming AGM.

Cheers.


Strong Eagle wrote: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.
Best regards,

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Postby loyalstar » Thu, 17 Jun 2010 12:40 pm

Just to add a little, what you do is okay.

But just be very careful on your tax-residency status. Because as non-resident, you will have to pay 20% on your director's fee. and 15% if it is salary. If you are a tax-resident, these are thrown income a single pool and be subjected to a progressive rates like citizen/spr.

For tax residency, A director (or any person for that matter) needs to be physically present in Spore for >183 days.

C-One wrote: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.
Best regards,

Loyalstar

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Re: Director fee - One Director Comapny

Postby Strong Eagle » Thu, 17 Jun 2010 6:46 pm

loyalstar wrote:Answering your questions:

From what I can read you are talking about a one Director Company. Provided you can be a director (foreigner cannot be sole director of a pte ltd company), then the steps to take will be:

Incorrect. A foreigner can indeed be a sole director of a company. Need to have an independent secretary to do this, regardless of being a foreigner or PR or citizen.

Steps 1: You can start paying yourself first month (or first day if you like) after incorporation; Director's fee is a formality at the first AGM with can be held as long as 18 months later, but not longer.

Step 2 : Employment letter is a good practice, it can be done without as you are actually your own company. And the employment letter can be useful for other purpose too. like employment pass application etc.

Step 3. Explained in Step 1 already (Approval is given at the end of the year when you hold AGM for the previous financial year. At the AGM you can either approve the figure already paid, or more, that case, Company will pay you the additional sum.

Director's fee or salary makes no difference if you are a tax resident. But it is very different if you are not... its a little too complex to put everything down as there are a lot of issues/ explanation indeed to give the full pix.

Not bad advice but what is missing here is the difference between an outside director and a person who is a director and holds a position within the company. Outside directors can only receive fees for services. Those working for the company can receive a salary that does not have to go before the board of directors. Fees and bonuses paid in a director capacity do require directors approval.[/brown]

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Re: Director fee - One Director Comapny

Postby loyalstar » Sat, 19 Jun 2010 1:46 pm

Hi Strong Eagle, I try to search within the Statutes some relevant section on this point. This is what I have got:

145. —(1) Every company shall have at least one director who is ordinarily resident in Singapore and, where the company only has one member, that sole director may also be the sole member of the company.

How would you define "ordinarily resident". Do you take it to be tax residency? I read it ordinarily resident to be Citizen or SPR. You want to clarify?

Anything to the contrary, I still stick to my line: A foreigner cannot be the sole Director of a locally registered pte ltd comapny in Singapore. To do so is risky unless "Ordinary Resident" is explicitly defined.

Hey I find this one in ACRA website:

1. What does ordinarily resident mean?
Ordinarily resident refers to the usual place of stay of a person.

2. What does ordinarily resident in Singapore mean?
Generally, an individual is accepted as ordinarily resident in Singapore if the individual:
(a) provides a local residential address;
(b) is a Singapore Citizen, Singapore Permanent Resident, EntrePass holder, Employment Pass holder or Dependant's Pass holder; and
(c) proves that he/she is long-staying (i.e. he/she can legally remain in Singapore for a long period).
Please note that the above conditions are non-exhaustive as other factors may be taken into consideration.


Okay Strong Eagle, position is clear. NOT EVERYONE can be sole director. The person needs to be ordinarily resident as defined in ACRA. By the way, I am an Approved Independent Secretary myself. Still need to thank you though. Before, I always encouraged my clients to find a Citizen or SPR as Nominee Directors when needed. But though the definition has exanded it is still safer to stick to Citizen/SPR as others can be very mobile indeed. Cheers. I learned something extra.



Strong Eagle wrote:
loyalstar wrote:Answering your questions:

From what I can read you are talking about a one Director Company. Provided you can be a director (foreigner cannot be sole director of a pte ltd company), then the steps to take will be:

Incorrect. A foreigner can indeed be a sole director of a company. Need to have an independent secretary to do this, regardless of being a foreigner or PR or citizen.

Steps 1: You can start paying yourself first month (or first day if you like) after incorporation; Director's fee is a formality at the first AGM with can be held as long as 18 months later, but not longer.

Step 2 : Employment letter is a good practice, it can be done without as you are actually your own company. And the employment letter can be useful for other purpose too. like employment pass application etc.

Step 3. Explained in Step 1 already (Approval is given at the end of the year when you hold AGM for the previous financial year. At the AGM you can either approve the figure already paid, or more, that case, Company will pay you the additional sum.

Director's fee or salary makes no difference if you are a tax resident. But it is very different if you are not... its a little too complex to put everything down as there are a lot of issues/ explanation indeed to give the full pix.

Not bad advice but what is missing here is the difference between an outside director and a person who is a director and holds a position within the company. Outside directors can only receive fees for services. Those working for the company can receive a salary that does not have to go before the board of directors. Fees and bonuses paid in a director capacity do require directors approval.[/brown]

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Best regards,

Loyalstar

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Postby Strong Eagle » Sat, 19 Jun 2010 5:27 pm

People who are "ordinarily resident also include EP's and DP's. DP can most certainly serve as a director, and can form a private limited. EP maybe can serve as a director depending upon circumstance, EP who got the EP thru Entrepass may most certainly be a director.

FWIW, I formed a company via Entrepass... I was director... brought in another expat formerly on EP and made him MD as an EP... also a director, obviously.

PS: We did also pick up a nominee director who enabled us to form a company before my Entrepass was approved. Once approved and I had the EP for my company, I became the director and nominee director was removed.

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Re: Director Fee vs. Salary

Postby tadbubs » Tue, 09 Jun 2015 10:44 pm

If my close friend (Singapore PR working for another corporation) becomes my new company director (pte. ltd.) someone told me I would have to pay her at least $1200- $1500 as contribution towards her CPF. Is there any way other option? Or should I go to one of the local audit/secretarial/audit firms to handle all the stuff? I could sure use the advice.

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Re: Director Fee vs. Salary

Postby livingontheedge » Tue, 09 Jun 2015 11:08 pm

If the Director is part of your headcount & payroll and earns a salary - then yes. If only paid director fees, then no CPF.

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Re: Director Fee vs. Salary

Postby tadbubs » Tue, 09 Jun 2015 11:17 pm

Thank you Living'. Can I appoint her as "paid director" with only myself under the company as an employee?

Do I need to engage a company to get all this done or can I do it myself?

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Re: Director Fee vs. Salary

Postby livingontheedge » Tue, 09 Jun 2015 11:27 pm

Yes you can employ yourself one person as an employee. Need to get your corp sect to do this for you and a Director Resolution and AGM on his fees.

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Re: Director Fee vs. Salary

Postby tadbubs » Tue, 09 Jun 2015 11:33 pm

Thanks. I'm new at all this as my former director (accountant/friend) is resigning. Difference of view on obliging his consistent requests to join his many MLM projects. He's staying on to handle the accounts and stuff but, wants out of directorship. Its all confusing to me but, I've gotta go at this from scratch as there is little guidance coming from that end (sheesh). So, greatly appreciate your feedback and guidance. Heaps-of-thanks.

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Re: Director Fee vs. Salary

Postby Strong Eagle » Tue, 09 Jun 2015 11:44 pm

@tadbubs - Are you also a director? Are you the managing director? What will this person be doing for the company?

If you are simply acquiring a person to be your normally resident director, then you don't need to pay this person much of anything. I had a local person take on the role of normally resident director after I left the country and before I wound the company down.

If however, this person has day to day duties within the company, or is an active manager, then most likely there will be the expectation that you pay a salary for work performed.


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