Key Takeaways
- Director fees and director salary are both taxable in Malaysia, but they follow different tax and compliance rules.
- Approval requirements for director fees depend on the type of company. Public companies and subsidiaries of listed companies require approval at a general meeting, while private companies may approve director fees through the board, subject to the company’s constitution.
- Director salary is treated as employment income and is usually subject to payroll obligations such as PCB, EPF, SOCSO, and EIS where applicable.
- Executive directors may receive both salary and director fees if the payments reflect genuine operational and board responsibilities.
- The right structure should balance tax, cash flow, statutory contributions, approval requirements, and documentation.
If you are comparing director fees vs salary in Malaysia, think of it this way: Director fees compensate a person for acting as a board member. Director salary compensates a person for actively working in the business.
Many Malaysian business owners use “director fees” and “director salary” interchangeably. However, they are different forms of remuneration with different approval requirements, tax treatment and tax services, payroll implications, and reporting obligations.
This distinction is especially important for SMEs, startups, family businesses, and owner-managed companies where directors often handle both board duties and daily operations.
In this guide, we explain the main differences between director fees and salary in Malaysia, how each is taxed, what approvals may be required, and what businesses should consider before choosing a director compensation structure.
What Is the Difference Between Director Fees and Director Salary?
Although both are forms of remuneration, they are paid for different reasons.
Aspect | Director Fees | Director Salary |
Purpose | Compensation for board duties | Compensation for operational work |
Typical Recipient | Non-executive directors | Executive directors |
Approval Required | Depends on company type and constitution | Employment contract and board approval |
Tax Category | Taxable remuneration / income | Employment income |
Payroll Processing | Not usually monthly payroll, but tax reporting and PCB may still apply | Usually through payroll |
EPF Applicability | Generally not applicable if purely board fees | Usually applicable where the director is an employee receiving salary/wages |
SOCSO / EIS | Generally not applicable to pure board fees, but classification should be checked | May apply to eligible employees’ wages |
Payment Frequency | Annual or periodic | Monthly |
For example, a non-executive director who attends board meetings and provides strategic guidance may only receive director fees. A managing director who oversees staff, operations, and company performance will typically receive a salary.
What Are Director Fees?
Director fees are payments made to directors for carrying out their board responsibilities.
These fees recognise the director’s contribution to governance, oversight, risk management, and strategic decision-making rather than daily operational work.
Common recipients include:
- Non-executive directors
- Independent directors
- External board members
- Directors who mainly provide governance oversight
Unlike salary, director fees are generally not tied to working hours, sales targets, or day-to-day management duties.
What Do Director Fees Compensate?
Director fees typically compensate directors for activities such as:
Corporate Governance: Monitoring company performance and ensuring accountability.
Strategic Oversight: Contributing to major business decisions and long-term planning.
Risk Management: Reviewing compliance, financial reporting, and governance risks.
Committee Participation: Serving on audit, remuneration, nomination, or other board committees.
What Is Director Salary?
Director salary refers to remuneration paid to a director who actively works in the company.
This form of compensation is similar to employee remuneration and reflects operational responsibilities rather than board-only duties.
Examples of directors who commonly receive salaries include:
- Managing directors.
- Executive directors.
- Founder-directors involved in daily operations.
- Family business directors managing departments.
- Directors responsible for sales, finance, HR, operations, or business development.
Director salaries are usually paid monthly and processed through payroll systems.
In many SMEs, the owner-director receives a monthly salary because they effectively function as both a director and a full-time employee of the business.
Can a Director Receive Both Salary and Director Fees?
Yes. A director can receive both salary and director fees if the arrangement reflects genuine responsibilities and is properly documented.
Type of Director | Salary | Director Fees |
Executive Director | Yes | Yes |
Managing Director | Yes | Sometimes |
Non-Executive Director | Rarely | Yes |
Independent Director | Rarely | Yes |
One common misconception is that a director must choose either salary or fees. In reality, executive directors can receive both.
For example, a managing director may receive:
- A monthly salary for operational responsibilities.
- Director fees for participating in board governance activities.
The key is ensuring that the payments reflect genuine duties and comply with relevant tax, payroll, and corporate requirements.
How Are Director Fees Taxed in Malaysia?
Director fees are taxable in Malaysia.
The timing of tax can be more complex than salary because it may depend on when the fee is received, when it becomes receivable, whether the company is a controlled company, and how the fee has been approved and recorded.
In general, director fees should be properly reported for tax purposes. Where director fees are approved but not paid, businesses should be careful because deemed-receipt rules may apply in certain cases, especially for directors of controlled companies.
This can affect:
- Tax reporting periods.
- Individual tax liabilities.
- Company accounting treatment.
- PCB or MTD obligations.
- Cash flow planning.
For this reason, businesses should maintain proper records such as board resolutions, shareholder approvals where required, remuneration schedules, payment records, PCB records, and annual employer tax reporting.
Read More: What Is Indirect Tax in Malaysia? A Complete Guide for SMEs
How Is Director Salary Taxed in Malaysia?
Director salary is generally treated as employment income.
As such, it is subject to many of the same tax reporting obligations that apply to ordinary employees.
Common Tax Obligations for Director Salary
Payroll Processing: Salary is typically processed through payroll systems.
Monthly Tax Deduction (PCB): Companies may need to deduct PCB from director salaries.
EA Form Reporting: Salary and related benefits are generally reported through annual employment income reporting.
Benefits-in-Kind: Company vehicles, accommodation, and other employment benefits may also have tax implications.
Statutory Contributions: EPF, SOCSO, and EIS may apply where the director is treated as an employee receiving salary or wages.
Because salary is recurring and employment-based, it often provides directors with a more predictable income stream compared to director fees.
Are Director Fees Subject to EPF, SOCSO and EIS?
This depends on the nature of the payment and the director’s actual relationship with the company.
Contribution Type | Director Fees | Director Salary |
EPF | Generally not applicable if purely for board duties | Usually applicable where the director is an employee receiving salary/wages |
SOCSO | Generally not applicable to pure board fees, but check if the director is also an employee | Usually applicable to eligible employees’ wages |
EIS | Generally not applicable to pure board fees | May apply to eligible employees’ wages |
For most businesses, director salary is more likely to trigger statutory employment contributions than director fees.
However, companies should review the director’s contract, duties, payment description, and employment status before deciding the correct treatment. This is especially important where the same person is both a company director and an employee involved in daily operations.
What Approvals Are Required Before Paying Director Fees?
Director fees are subject to approval rules under the Companies Act 2016.
For public companies and subsidiaries of listed companies, director fees and benefits must be approved at a general meeting.
For private companies, the board may approve director fees and benefits, subject to the company’s constitution. The approval should be recorded in the directors’ meeting minutes, and shareholders should be notified within the required timeframe.
This means companies should not assume that all director fees are approved in the same way. The correct process depends on the company type and constitution.
Typical Approval Process for Public Companies and Subsidiaries of Listed Companies
Step 1: The board proposes the director fees and benefits.
Step 2: Shareholders approve the fees at a general meeting.
Step 3: The approval is documented in meeting minutes and resolutions.
Step 4: The company proceeds with payment and tax reporting.
Typical Approval Process for Private Companies
Step 1: The board checks the company constitution.
Step 2: The board approves the director fees, if permitted.
Step 3: The approval is recorded in board minutes.
Step 4: Shareholders are notified within the required timeframe.
Step 5: The company proceeds with payment and tax reporting.
Which Is Better: Director Fees or Salary?
The answer depends largely on the director’s role.
Startup Founder
Many startup founders prioritise cash flow. A modest salary may be more practical during the early growth stages while profits are reinvested into the business.
Owner-Managed SME
A combination of salary and director fees may be appropriate when the director handles both operational and governance responsibilities.
Family Business
Family-owned businesses should document remuneration arrangements clearly to reduce misunderstandings and support tax compliance.
Passive Investment Company
Where directors mainly provide oversight rather than operational management, director fees may play a larger role.
The goal is not simply minimising tax. Businesses should also consider governance, compliance, sustainability, documentation, and commercial fairness.
Examples of Director Compensation Structures
Example 1: Salary Only
A managing director runs the daily operations of a trading company.
Compensation:
- Monthly salary: RM12,000
- No director fees
This is common among smaller owner-managed businesses.
Example 2: Director Fees Only
A non-executive director attends quarterly board meetings and participates in audit committee reviews.
Compensation:
- Annual director fees: RM24,000
- No monthly salary
No salary is paid because the director does not manage daily operations.
Example 3: Salary Plus Director Fees
An executive director actively manages the business while also serving on the board.
Compensation:
- Monthly salary: RM15,000
- Annual director fees: RM20,000
This structure recognises both operational and governance contributions.
Example 4: Salary Plus Dividends
A shareholder-director receives:
- Monthly salary; and
- Dividends from company profits.
This arrangement is common among profitable SMEs where the owner is both an employee and shareholder. However, dividends are distributions of profit, not salary or director fees, and should only be paid when the company has sufficient profits and meets company law requirements.
What Common Compliance Mistakes Should Businesses Avoid?
Many director remuneration issues arise because businesses misunderstand the distinction between fees and salary.
Paying Director Fees Without Proper Approval
Companies sometimes approve and pay director fees informally without following the correct approval process. This may create compliance concerns and documentation gaps.
Assuming All Companies Follow the Same Approval Rules
Approval requirements can differ depending on whether the company is a private company, public company, or subsidiary of a listed company.
Treating Director Fees Like Salary
Director fees and salary do not always follow identical tax, payroll, and statutory contribution rules. Mixing the two can lead to reporting and cash errors.
Maintaining Poor Documentation
Important documents include board resolutions, shareholder resolutions where required, employment contracts, remuneration schedules, payroll records, payment vouchers, PCB records, and annual tax reporting records.
Ignoring Tax Timing Rules
The timing of taxation for director fees may differ from actual payment dates in certain situations.
Overlooking EPF, SOCSO and EIS Treatment
Director salary is more likely to trigger employment-related statutory contributions. Pure director fees are generally treated differently, but companies should review the director’s actual role and payment description.
How Should Malaysian Businesses Decide on a Director Compensation Structure?
Before deciding how directors will be paid, businesses should consider:
- Is the director actively involved in daily operations?
- Does the director mainly provide governance oversight?
- Is the director also an employee?
- What approvals are required under the Companies Act 2016?
- What does the company constitution say?
- Will PCB, EPF, SOCSO, or EIS apply?
- What documentation is required?
- Does the structure support the company’s long-term goals?
The most suitable structure is usually one that balances commercial practicality, tax efficiency, regulatory compliance, and proper documentation.
Getting Your Terminology Right
Director fees and director salary serve different purposes and may result in different tax, payroll, approval, and statutory contribution implications.
Director fees generally relate to board duties, governance, and oversight. Director salary generally relates to operational work and employment responsibilities.
For Malaysian businesses, the right structure depends on the director’s actual role, company type, approval requirements, tax position, and documentation practices.
If you need help reviewing director remuneration, tax compliance obligations, payroll matters, or corporate record-keeping requirements, Accounting.my can help. Our team works with Malaysian businesses to simplify accounting, tax, and compliance matters so you can focus on growing your company.
Sources
Primary sources:
- Inland Revenue Board of Malaysia (LHDN)
- Companies Act 2016 / Companies Commission of Malaysia (SSM)
- Employees Provident Fund (KWSP)
- Social Security Organisation (PERKESO)
Secondary commentary sources:
- Malaysian Institute of Accountants (MIA)
- Legal, tax, accounting, and company secretarial firms such as Tay & Partners, YYC Advisors, THKS Corporate Services, KTP & Company, and other professional advisers.
Disclaimer: This guide is for general information only and does not constitute tax, legal, payroll, or company secretarial advice. Director remuneration should be reviewed based on the company type, constitution, director role, payment structure, and current requirements issued by LHDN, SSM, KWSP, and PERKESO.
Frequently Asked Questions About Director Fees VS Salary in Malaysia
Yes. Executive directors may receive both salary and director fees, provided the arrangement reflects genuine responsibilities and complies with applicable approval, tax, payroll, and documentation requirements.
Director fees may be tax deductible subject to Malaysian tax rules, proper approval, commercial justification, and accurate documentation.
It depends on the type of company. Public companies and subsidiaries of listed companies require approval at a general meeting. Private companies may approve director fees through the board, subject to the company’s constitution, with proper records and shareholder notification.
Director fees are generally not subject to EPF if they are purely for board duties. Director salary is usually subject to EPF where the director is also an employee receiving salary or wages.
Yes. Director salary is generally treated as employment income and may be subject to Monthly Tax Deduction, also known as PCB.
Pure director fees for board duties are generally not treated the same as employee wages. However, SOCSO and EIS may apply where the director is also an employee and the payment relates to employment services.
