Should you pay yourself director's fees or director's salary? Director's fees are NOT subject to CPF (saving you 37% total). Director's salary IS subject to CPF (employer 17%, employee 20%). However, director's fees must be approved by shareholders at AGM under Section 168 of the Companies Act. Both are tax-deductible for the company, but timing differs.
No CPF (0%). Must be approved at AGM. Taxed in YA of approval.
CPF applies (employer 17%, employee 20% for age ≤55). Taxed when paid.
Fees save ~S$37,000 in CPF compared to salary
Key Takeaways
- Director's fees = NO CPF — On S$100,000 of fees, you save S$37,000 in combined employer and employee CPF contributions.
- Salary = CPF applies — Total CPF cost is 37% of gross salary.
- Fees require AGM approval — Under Section 168 of the Companies Act, director's fees must be approved by shareholders at an Annual General Meeting (AGM).
- Tax timing differs — Salary is taxable when paid. Director's fees are taxable when the AGM approves them.
- Foreign directors face 24% withholding tax — Proper structuring can mitigate this.
Fast Facts
Key Differences: Director's Fees vs. Director's Salary
Many director-shareholders do not realise there are two distinct ways to take money out of their company. The choice has significant implications for CPF, tax timing, and legal compliance.
| Factor | Director's Fees | Director's Salary |
|---|---|---|
| CPF treatment | NO CPF (0%) | CPF applies (17% employer + 20% employee) |
| Legal requirement | Must be approved by shareholders at AGM (Section 168) | Standard employment contract, no shareholder approval needed |
| Tax timing | Assessable in YA of AGM approval | Assessable in YA when received |
| Tax deductibility for company | Yes (if properly approved) | Yes |
| Employment Act protection | Not covered | Covered (if employee) |
| Board resolution required | No — shareholder approval only | Yes — board resolution for director's employment contract |
CPF Treatment: Why Director's Fees Save You 37%
Under the CPF Act, director's fees are specifically excluded from the definition of "wages" for CPF purposes. This means:
- No employer CPF contribution — Your company saves 17%
- No employee CPF contribution — You keep the full 20%
- Total savings: 37% of the amount paid as fees compared to salary
Salary: Employer pays S$17,000 CPF, employee contributes S$20,000 CPF. Total S$37,000 locked in CPF.
Fees: Zero CPF. You receive the full S$100,000 (less personal income tax).
Difference: S$37,000 more cash in hand.
Legal Requirements: Section 168 of the Companies Act
This is where many directors get it wrong. Under Section 168 of the Companies Act, director's fees must be approved by shareholders at an Annual General Meeting (AGM).
- Approval must be given before the fees are paid (or ratified at the following AGM)
- The resolution must specify the total amount of fees for the financial year
- Without proper shareholder approval, the fees are technically invalid and could be challenged
Tax Timing: When Are Director's Fees Assessable?
The tax treatment differs significantly between salary and director's fees:
| Aspect | Director's Salary | Director's Fees |
|---|---|---|
| Tax timing | Year of Assessment (YA) when received | YA when approved at AGM (can be years later) |
| Reporting | Included in Auto-Inclusion Scheme (AIS) | Reported separately as director's fees |
| Withholding tax for non-residents | 15% (subject to tax treaty) | 24% (unless treaty relief applies) |
Which Should You Choose? A Decision Framework
Choose Director's Fees When:
✓ You are a director-shareholder
✓ You want to maximise cash in hand
✓ You already have sufficient CPF savings
✓ You have proper AGM approval in place
✓ You are a tax-resident director
Choose Director's Salary When:
✓ You need CPF contributions for housing or retirement
✓ You want Employment Act protection
✓ You need to demonstrate regular employment income for loans or visas
✓ You are a foreign director requiring an Employment Pass
Non-Resident Directors: Withholding Tax Considerations
If you are a director who is not resident in Singapore, special rules apply:
- Director's fees paid to non-resident directors are subject to 24% withholding tax
- The company must withhold 24% from the fee payment and remit it to IRAS
- If the director's country has a Double Tax Agreement (DTA) with Singapore, the withholding tax rate may be reduced (typically to 8-15%)
Common Mistakes Directors Make
| Mistake | Consequence |
|---|---|
| Paying director's fees without AGM approval | Fees may be invalid; possible CPF reclassification + back-contributions |
| Misclassifying salary as fees to avoid CPF | CPF arrears + interest + penalties; director personal liability up to S$10,000 |
| No board resolution for director's employment contract | Contract may be unenforceable; disputes over terms |
| Ignoring withholding tax for non-resident directors | Company liable for unpaid tax + penalties |
Get your director pay structure right — and keep more of what you earn.
Terra Advisory Services helps director-shareholders structure director's fees and salary to minimise CPF, optimise tax timing, and ensure full legal compliance. We also handle AGM approvals, tax filings, and corporate secretarial requirements — one team, one point of contact.
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Incorporating or restructuring a business in Singapore is a major legal and financial decision. We provide dedicated, personal service from our first conversation to your ongoing annual filings.
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Frequently Asked Questions
Can I pay myself only director's fees and no salary?
Yes, many director-shareholders do this. However, you must ensure proper AGM approval is in place. Also consider that without salary, you will not have CPF contributions or Employment Act protection.
Do I need to pay CPF on director's fees?
No. Under the CPF Act, director's fees are specifically excluded from the definition of wages for CPF purposes. However, the fees must be genuine director's fees — not disguised salary.
What happens if I forget to approve director's fees at AGM?
You can ratify the fees at the next AGM. However, IRAS may treat the fees as assessable in the year they were paid rather than the year of approval.
I am a foreign director living overseas. How does this affect me?
Director's fees paid to non-resident directors are subject to 24% withholding tax. You may be eligible for reduced rates under a Double Tax Agreement (DTA).
Can my company deduct director's fees for corporate tax?
Yes, director's fees are tax-deductible for the company, provided they are properly approved by shareholders and are not excessive.
What is the difference between director's fees and dividends?
Director's fees are payments for services as a director and are tax-deductible. Dividends are distributions of company profits to shareholders and are not deductible.