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Director Remuneration - Fee or Salary

First, lets make sure we have same understanding, Director here mean the person named in Section 58 as Officer of the Company under the Companies Act 2016 (#CA2016) (or Form 49 under Companies Act 1965)


What is Director Remuneration?

* Anything paid/payable to Director or benefits given to Director for his/her enjoyment, e.g. motor vehicle, accommodation.

* Salary

* Fee


What is Director Fee ?

Some of the definition of Director Fee ...

(https://www.lawinsider.com/dictionary/directors-fees)

Companies Act 2016 did not define Director Fee but Section 230 stipulates the approval procedure.


So, how is Director Fee different from Salary payable to Director?

  • Some Director sits in the Board (Section 210, 211 CA2016) but may not be involve in day to day operation.

    • Director fee is appropriate as he/she provide service as Board member, attending meeting and participating the Board decision.

  • Some Director involves in day to day operation as "employee" of the company.

    • Salary would be appropriate as he/she employed to serve the company.


PCB (income tax) ?

  • Regardless Fee or Salary, income received by Director is subject to Income Tax (PCB)


EPF ?

  • Fee - not subject to EPF Contribution

  • Salary - subject to EPF Contribution as other employees

Socso & EIS

  • Fee - not subject to Socso / EIS Contribution

  • Salary - subject to Socso / EIS Contribution as other employees

Documentation

  • Salary - Employment Contract; Payslip; EA Form

  • Fee - Director Resolution; Member Resolution; EA Form


FAQ

Can Director Fee be paid on monthly basis ?

  • If qualify as Fee, approved by Board and by Member, it is up to the company to pay in one lump sum or monthly (like installment);

  • If full Fee can be received in Jan, why would Director agree to have it paid over next 12 months? (usually won't be due to cash flow issue)

  • If paid monthly before approval of Board and Member via resolution, EPF might impose penalty for non-compliance. (i.e. salary in-nature but name it as Fee to avoid EPF contribution)



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