Tax Implications of Directors' Fees in South Africa

Directors’ fees are a common form of remuneration for directors in South Africa. These fees are paid to directors in recognition of their service to the company. .

Directors’ fees, also known as board fees, are a common form of remuneration for directors in South Africa.

However, many directors are not aware of the tax implications of receiving these fees.

In this article, we will discuss the tax implications of directors’ fees in South Africa and what you need to know to stay compliant.

What are Directors’ Fees?

Directors’ fees are payments made to directors for their services as members of the board of directors.

These fees are usually paid on a monthly or quarterly basis and are based on the director’s level of involvement and responsibilities within the company.

How are Directors’ Fees Taxed?

These fees are taxable income and must be declared on your annual income tax return. The tax rate for directors’ fees is based on the individual’s income tax bracket, which is determined by their total income from all sources.

Directors are also subject to Pay-As-You-Earn (PAYE) tax on their fees if they are considered employees of the company.

Tax Deductions for Directors’ Fees

Directors’ fees are tax-deductible expenses for the company, which means that the company can claim these fees as a deduction from their taxable income.

However, there are limitations on the amount of fees that can be claimed as a tax deduction. The company can only claim up to 20% of its taxable income as a deduction for directors’ fees.

Value-Added Tax (VAT) on Directors’ Fees

Directors’ fees are subject to Value-Added Tax (VAT) at the standard rate of 15%. This means that the company must charge VAT on the fees and pay it to the South African Revenue Service (SARS).

Taxation of Non-Executive Directors’ Fees

Non-executive directors are directors who do not have full-time positions within the company. These directors are generally paid a lower fee than executive directors and are not considered employees of the company.

Non-executive directors are taxed on their fees at the same rate as other forms of income.

Taxation of Executive Directors’ Fees

Executive directors are directors who hold full-time positions within the company and are considered employees of the company.

These directors are subject to PAYE tax on their fees and are taxed at the same rate as other employees.

Executive directors are also subject to fringe benefits tax on any additional benefits they receive from the company.

Taxation of Directors’ Fees for Small Business Corporations (SBCs)

Small Business Corporations (SBCs) are companies with a turnover of less than R10 million per annum.

SBCs have a special tax regime that allows them to pay lower taxes than other companies.

Directors’ fees for SBCs are taxed at a flat rate of 20% and are not subject to PAYE tax.

Withholding Tax on Directors’ Fees

Withholding tax is a tax that is deducted at source from certain types of income, including directors’ fees.

Non-resident directors who receive fees from South African companies are subject to withholding tax at a rate of 20%.

However, this rate may be reduced if South Africa has a double tax agreement with the director’s country of residence.

Tax Implications of Directors’ Fees in South Africa