Payroll & HRDirector's fee

What are the differences between Director’s Fee and Director’s Salary?

A director who is being appointed by the company can be remunerate by salary and/or director’s fee. Generally, a director is an employee of the company which is appointed by the shareholders. The duties of a director involved in managing the affairs of the company as well as ensuring the regulatory compliance is fulfilled. Therefore, depending on the contract terms for the appointment of directors, the remuneration package may differ.

1. Director’s Salary

In Singapore, employers are required to contribute CPF for the local employee at a percentage base on the monthly salary. On top of that, employers must pay the Skill Development Levy (SDL) for all employees working in Singapore. This include foreign and local employees. Thus, company who employed a local director will have to contribute CPF and pay the SDL on a monthly basis.

2. Director’s Fee

In contrast, payment of director’s fee does not require the company to contribute CPF and SDL. This is because, director’s fee is deemed as a payment for the contract for service and is not consider as an employee’s remuneration. Typically, the director’s fee has to be approved during AGM and can be payable in arrears or in advance.

In some cases, company may include both director’s salary and fee for the remuneration package.

What is the tax rate for director's remuneration?

Generally, any income such as salary, bonus, commission, director’s fee and any benefit in kind is taxable in Singapore.

Computation of the tax payable for director’s salary is pretty straightforward. The salary received for the year will be tax at the prevailing resident tax rate base on the income level.

Where director’s fee is taxable in Singapore, it will be treated as income of the year in which the director is entitled to the fee. This is usually the date of the company’s annual general meeting or when the director’s fee is approved by the board of the company.

i. Director's Fees Approved in Arrears

For director’s fees approved in arrears, the director has already provided the services for the accounting year concerned. However, the director’s fees must be disclosed to and approved by members of the company before they can be paid to him. Hence, the earliest date on which the director is entitled to the director’s fees, is the date the fees are voted and approved at the company’s AGM.

ii. Director's Fees Approved in Advance

For director’s fees approved in advance, the director may not have rendered the requisite services for the accounting year concerned when the fees are approved at the company’s AGM. Hence, the earliest date on which the director can be entitled to the director’s fees, is as and when he renders his services.

For tax submission, the director needs to declare the director fee he received which has already render the requisite service for the financial year

Tax for non-resident Directors

Similarly, the director’s fee is taxable for non-resident director as well. The definition of a non-resident director is whereby the director physically presence in Singapore is less than 183 days in the year before the year of assessment (YA).

To fulfil the tax obligations, the company has to withhold 22% of the director’s remuneration. The director does not need to file the tax return as the company has already withheld the tax and e-filed to IRAS.

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