Director’s remuneration – What should I know about this as a SME owner ?
There are generally 2 kinds of payments to a company director, a remuneration related to being an employee under a contract of service (eg salaries, commissions, allowances etc) and remuneration related to being an officer of the Company for the performance of statutory or governance duties under the Company Act, Constitution or Company governance (eg director’s fee).
All appointment of directors need to be approved by the Board and also any remuneration to the directors including any remuneration as an employee under contract of service and directors’ fees. The latter further requires approval of the shareholders in an AGM before any directors’ fees can be paid to the directors. (for details on how much is a reasonable directors’ fees and the components of what constitutes directors’ fees, read the article on “If money go before, all ways do lie open.” But how much directors’ fee is enough? March 28, 2019”)
The salaries and fees paid to directors, once approved by the Board or if necessary by shareholders in AGM, should be disclosed as part of the company’s expenses in its annual report. For public listed companies, the report should set out the names of directors and at least the top 5 key executives (who are not also directors) earning remuneration which falls within bands of S$250,000 with a breakdown (in percentage terms) of each director’s remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, and stock options granted and other long-term incentives. Companies are however encouraged, as best practice, to fully disclose the remuneration of each individual director.
Generally, director’s fees is taxed at the Company’s country of residency, the country where all the functions of the directors in determining and controlling activities to earn the profits of the company are carried out. It will be treated as income of the year in which you are entitled to the fee and is usually the date that the directors’ fee is approved by the Board and AGM. Any directors’ fees paid in advance even if it is approved by the Board and AGM, would only be taxed at the earliest date on which the director can be entitled to the director’s fees when the services is rendered.
Directors’ fees is not taxed in Singapore if it is derived from a company that has no presence in Singapore, even if the directors may, on some occasions, conduct their meetings in Singapore. However, only fee attributable to attending board meetings in Singapore is not liable to Singapore tax. All other payments made for discharging duties carried on within Singapore will be taxable.
Unlike payments to the directors under contract of service eg salaries, commission etc, which are usually subjected to CPF contributions, directors’ fees are not subjected to CPF contributions.