Owner-managers in Singapore often ask how they should take money out of their own company. The three usual routes are director fees, salary and dividends, and each one is treated differently for tax and CPF purposes. This guide explains director fees vs salary vs dividends, including the tax and CPF implications in Singapore, so that you understand the general rules before you decide how your company should pay you.
The right mix depends on your residency, your role in the company, its profits and its cash position. Understanding director fees vs salary vs dividends early also helps you avoid filing errors with IRAS and CPF Board later.
Who this applies to
This topic is relevant to:
- Owner-managers and sole directors of Singapore private limited companies.
- Directors who are also shareholders and who work in the business full time.
- Non-executive or non-resident directors who receive fees for board service only.
- Shareholders who do not work in the company but receive a share of profits.
Singapore citizens and Permanent Residents are treated differently from foreigners for CPF, so your status matters. Individuals holding an Employment Pass or other work pass are not covered by CPF contributions.
Key rules and requirements in Singapore
Director fees
Director fees are payment for acting as a director, not for day-to-day work. Under the Companies Act and most company constitutions, fees must be approved by shareholders in a general meeting before they are paid. They are taxable income of the director, reported by the company through Form IR8A, and generally deductible for the company if they are genuinely incurred for the business. Director fees are not treated as wages for CPF purposes, so no CPF contributions are payable on them. If the fees are paid to a non-resident director, the company may need to withhold tax and pay it to IRAS.
Salary
Salary is payment for work done as an employee. A director who performs executive duties can be an employee as well, with a written employment contract. Salary is deductible for the company and taxable for the individual. For Singapore citizens and Permanent Residents, CPF contributions are due from both employer and employee, subject to the Ordinary Wage and Additional Wage ceilings set by CPF Board. The company also reports salary on Form IR8A and must observe the Employment Act where it applies.
Dividends
Dividends are a distribution of profits to shareholders, not a payment for services. Singapore operates a one-tier corporate tax system, so tax paid by the company on its profits is final and dividends received by shareholders are exempt from tax. There is no CPF on dividends. However, a company can only pay dividends out of profits, and the directors must be satisfied that the company will remain solvent after the payment. Dividends are not deductible expenses for the company.
Step-by-step process
- Confirm each person’s role: director only, employee only, or both, and record this in writing.
- Check the company’s constitution and any shareholders’ agreement for rules on remuneration.
- Review the latest management accounts to see available profits and cash flow.
- Decide the mix of fees, salary and dividends, and compare the combined tax cost for the company and the individual.
- Obtain the necessary approvals: shareholders’ approval for director fees, and a directors’ resolution to declare dividends.
- Run payroll and submit CPF contributions by the deadline each month for salary.
- File Form IR8A and related forms through the IRAS myTax Portal, and update records on the ACRA BizFile+ portal where relevant.
- Keep minutes, resolutions and calculations for at least five years.
Common mistakes to avoid
- Paying director fees without shareholders’ approval, which can leave the payment open to challenge.
- Treating regular salary as director fees to avoid CPF. CPF Board and IRAS look at the substance of the payment, not the label.
- Declaring dividends when the company has insufficient profits or retained earnings.
- Failing to document dividend resolutions and withdrawals from the director’s loan account.
- Forgetting withholding tax obligations on fees paid to non-resident directors.
- Assuming that the lowest personal tax route is always the best overall, without considering the 17% corporate tax paid before a dividend is declared.
Practical examples
Consider a Singaporean owner-director who works full time in a small consulting company. The company may pay a modest monthly salary, which attracts CPF contributions and builds retirement savings, and then distribute surplus profits as dividends at year end. The salary is deductible for the company, and the dividends are not taxed again in the shareholder’s hands.
Now consider a company with a non-executive director who attends quarterly board meetings but has no executive role. Here, director fees approved by shareholders are appropriate. No CPF is payable, and if the director is not a Singapore tax resident, withholding tax may apply.
Finally, consider a start-up in its first year with little profit. Dividends may not be possible, so a reasonable salary or no payment at all may be the more practical route, with the founder reviewing the position once the company is profitable. These examples are illustrative only and do not replace advice on your own facts.
How a corporate secretary can help
A corporate secretary in Singapore prepares the resolutions, minutes and shareholder approvals that support each payment. Raffles Corporate Services can also help with ACRA filings, compliance reviews, accounting, tax computations and payroll support, so that director fees, salary and dividends are recorded consistently across your statutory records and your IRAS filings.
Frequently Asked Questions
Can a director receive both director fees and salary?
Yes, provided the director genuinely performs both roles and the amounts are properly documented and approved. Salary is for executive work, while fees relate to board service.
Is CPF payable on director fees?
Director fees are generally not treated as wages for CPF, so no CPF contributions are payable on them. CPF applies to salary paid to an employee who is a Singapore citizen or Permanent Resident.
Are dividends taxable in Singapore?
Under the one-tier system, dividends paid by a Singapore tax resident company are exempt from tax in the shareholder’s hands. The company will already have paid tax on its profits.
Can I pay myself dividends if the company made a loss?
Dividends must be paid out of profits. A company with accumulated losses and no distributable profits should not declare dividends.
Do I need shareholders’ approval for salary?
Not usually for an employee’s salary, but your constitution may require approval for remuneration of directors, so check it before you set the amount.
Key takeaways
- Director fees, salary and dividends serve different purposes and should not be used interchangeably.
- Salary attracts CPF for citizens and Permanent Residents, while director fees and dividends do not.
- Director fees need shareholders’ approval, and dividends need sufficient profits and a directors’ resolution.
- Dividends are tax-exempt for shareholders but are not deductible for the company.
- Good records protect you in any IRAS or CPF Board review.
Requirements may change, so always check the latest guidance from ACRA, IRAS or MOM, or consult a professional adviser.
If you would like to find out more about how Raffles Corporate Services can assist with your company’s compliance and corporate secretarial requirements, please get in touch with the team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services
Disclaimer: This does not constitute legal advice. If you require legal advice, please contact a lawyer.