Director’s fees or salary? Different rules.
"Just pay yourself as a director, same thing." It isn’t. A director’s salary is employment income under a contract. A director’s fee is a payment for holding office, approved by shareholders. They’re taxed on different timing, one attracts CPF and one doesn’t, and the company can only deduct a fee once it has been properly approved. Get the label wrong and the deduction, the CPF and the withholding all go wrong with it.
In this article
Two kinds of payment
Salary is what a director earns as an employee of the company: monthly, contractual, with all the usual employment treatment. Fees are what a director receives for the office itself — attending board meetings, carrying the legal responsibility — and they are typically decided once a year, in a lump, looking back. Many owner-directors draw both: a salary for running the business day to day, and a fee voted at year-end.
The approval step people skip
Fees are not the director’s to award themselves. They have to be approved by shareholders, usually by resolution at or around the AGM, either in advance for the coming year or in arrears for the year just ended. Until that approval exists, IRAS does not treat the fee as incurred, which means the company cannot deduct it and the director is not yet taxable on it. We see this go wrong in one of two ways: fees paid out without a resolution, or a resolution drafted years later to "cover" payments already made. Both are fixable, neither is pretty.
The timing wrinkle: fees approved in arrears are taxed in the year of approval, not the year of service. A fee for last year, voted this year, lands in this year’s personal return. Plan for it.
CPF: the practical difference
For a director who is a Singapore citizen or permanent resident, salary attracts CPF contributions like any other employee. Director’s fees do not. That is the honest reason many owners lean towards fees — and the reason IRAS and the CPF Board look at whether a "fee" is really disguised salary. If the director works full-time in the business, is paid monthly, and the amount looks like wages, calling it a fee doesn’t change what it is. Rates and ceilings for CPF change; the principle doesn’t.
Non-resident directors and withholding
Fees paid to a director who is not tax-resident in Singapore are subject to withholding tax: the company deducts tax before paying and remits it to IRAS by the due date. This catches foreign-owned companies constantly, especially where the overseas owner sits on the board and takes a fee. The withholding rate and deadline are IRAS’s to set; the obligation to withhold is yours, and failing to do it is a company offence, not the director’s problem.
Which one, and when
Salary suits the working director who wants CPF, a predictable monthly figure, and something a bank or an ICA officer can read as employment. Fees suit the non-executive, the overseas director, or the year-end top-up once profit is known. Most owner-managed companies end up with a mix, sized each year against the company’s profit and the director’s own tax position. Sizing it is a conversation, not a formula, and it should happen before the AGM, not after the return is filed.
Paying yourself and not sure which label?
Send us how you’re currently paid and whether you’re resident. We’ll set the mix, draft the resolution and get the approval on record before year-end.
This article is general information, not legal, tax or financial advice. Thresholds, rates, penalties and filing rules are set by ACRA, IRAS, MOM and the relevant legislation and change over time; we have deliberately left the figures out. Please verify the current position or talk to us before making decisions. Morphrix Solutions Pte. Ltd. (formerly AG Solutions).