Director's fee

Many auditors and tax agents advise Director's to accrue for directors' fee to reduce the profit that is to be taxed at corporate rates.

There are several considerations before using this technique.

1. You have to know your personal income OTHER than those from your company. What is your effective tax rate?

Example,

Corporate tax rate: 20% BUT for the first $100,000, the effective tax rate is about 10% So any other personal income HIGHER than 10% , directors' fee should NOT be declared.

2. Should you declare bonuses before declaring directors' fee?

Example,

Assume that your have $50,000 to be distributed and you DO NOT want to pay taxes at corporate tax rates.

If you declare $50,000 as director's fee - tax is S$1,750
(Assuming no other income and without calculating for tax relief)

If you declare $50,000 as a bonus - tax is S$900

You save - S$850!! Why?

When you pay bonuses, you will be given a relief for the 20% CPF that is deducted from your bonus.

Therefore,

Income - S$50,000
Less:
CPF - S$10,000 (20%)

Chargeable income - S$40,000

First S$30,000 S$350
Next S$10,000 S$550
Total S$900

This example does not take in the consideration that CPF is payable for the bonus by the Company. This will reduce the corporate profit FURTHER.

Plus, it will increase your NON-taxable income (CPF of 20% and 13%)