Director Fee and Director Remuneration for Malaysia Companies
In Malaysia, the compensation paid to company directors can generally be categorised into two main types which are director fees and director remuneration. While both forms of compensation are paid to directors for their services, they differ in terms of nature, approval process, and taxation. Understanding these differences is crucial for compliance with the Companies Act 2016 and the Income Tax Act 1967.
- Definition and Nature
Director fees are payments made to directors in their capacity as members of the board of directors. These fees are generally fixed and are meant to compensate directors for their oversight, governance, and participation in board meetings. Director fees typically do not vary based on company performance.
Director remuneration refers to any additional compensation paid to directors beyond their fees. This may include salaries, bonuses, benefits-in-kind, allowances, or other financial incentives, particularly for executive directors who take on management roles in the company.
- Approval Process
Under Section 230(1) of the Companies Act 2016, director fees for public and listed companies must be approved by shareholders during a general meeting. This requirement ensures transparency and prevents directors from unilaterally determining their own fees.
In contrast, for private companies, the board of directors may approve director fees, subject to the company’s constitution. However, the company must notify shareholders of this decision within 14 days of its approval.
Board approval is not required for the director remuneration, as it is governed by the employment contract between the company and the director.
- Tax Treatment
Monthly Tax Deduction (PCB) is mandatory for both director fees and director remuneration, which the company must deduct before paying the director and remitted to the Inland Revenue Board of Malaysia.
In addition, director remuneration is subject to the following statutory contributions:
(1)
|
Employee Provident Fund (KWSP)
|
(2)
|
Social Security Organisation (PERKESO)
|
(3)
|
Employment Insurance System (EIS)
|
(4)
|
Human Resource Development Fund (HRDF)
|
- Applicability to Executive and Non-Executive Directors
Executive directors are actively involved in managing the company and may receive both director fees and remuneration. Their remuneration often includes salaries, bonuses, and other incentives linked to company performance.
On the other hand, non-executive directors primarily provide oversight and governance without being involved in day-to-day management. They typically receive only director fees and are not entitled to salaries or performance-based incentives.
- Accounting and Reporting
Both director fees and remuneration must be properly recorded in the company’s financial statements and disclosed in the annual report. Adherence to Malaysian Financial Reporting Standards (MFRS) and corporate governance principles ensures transparency in director compensation.
Understanding the distinction between director fees and director remuneration is essential for regulatory compliance and corporate governance in Malaysia. Director fees, which are primarily for board participation, require shareholder approval and are subject to PCB, while director remuneration encompasses broader compensation elements and is taxed similarly to employment income. Proper classification and adherence to legal requirements ensure transparency and accountability in corporate governance.
Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification. |
