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Company directors in New Zealand may receive an income or payment for their services to the company as a director. While director fees are generally paid in money, payment can also be made in part or in whole by the issue of shares. The type of directorship you hold may determine the type of remuneration you receive. Whatever the form of remuneration, it must be transparent, fair and reasonable. In this article, we look at how, as a company director, you can be paid, whether by:

  • salary;
  • directors’ fees; or
  • shares.

Company Policy

The board of your company should have a clear policy for setting remuneration of both executive and non-executive directors. In setting director fees, the company should take into account factors such as:

  • fees in similar organisations;
  • market position; and
  • potential risk and liability.

The board must also be satisfied that any director remuneration is fair to the company and is at a level that is reasonable in a competitive market for the knowledge, skills and experience required. Further, the interests register of the company must record any such remuneration.

Directors’ Salary

If you are an executive director – that is, you are a director and employee of the company – you will likely receive a salary from the company. Your remuneration as an employee is subject to tax under the PAYE rules.  

As an executive director, your remuneration may depend on your performance and you may also receive a termination payment when you retire from office or if your employment as a director ends.

Just like other employees, you also have a right to receive KiwiSaver contributions from the business (if you have enrolled in KiwiSaver). KiwiSaver is a voluntary retirement savings program.

Directors’ Fees

If you are a non-executive or independent director, the board of the company may authorise the payment of remuneration or other benefits by the company to you for your services as a director. Your company’s constitution should include provisions on directors remuneration and reimbursements.

For example, the constitution should outline whether directors can be reimbursed for reasonable expenses such as:

  • travel;
  • office expenses; and
  • accommodation.

In general, the company should reimburse you for accommodation and travelling expenses incurred in connection with company business. However, travel costs of any accompanying family members should not be paid by the company. The company’s constitution will also likely set out any restrictions in relation to the remuneration of directors.  

As a non-executive or independent director, you are acting as an independent contractor and, therefore, the company must withhold tax from the payment of your directors’ fees and pay that tax to Inland Revenue. 

If you are a director of an NZX listed company, the NZX listing rules require that your remuneration is subject to authorisation by shareholders.

Directors’ fees are also subject to tax at a flat 33% rate by the IRD. These fees receive a separate treatment to salary or wage income. There are some exceptions to this, such as when the director is an employee as well and their directors’ fees are a part of their overall remuneration package.

Payment in Shares

You may be paid, in whole or in part, by the issue of shares in the company for which you are a director of. This has the perceived advantage of aligning the interests of both the director and shareholders in that remuneration is subject to company performance and value of the company’s shares. Any share-based remuneration should be subject to approval from the company shareholders before it is implemented.

Payment in Dividends

Dividends are ‘leftover’ profits that the company distributes to shareholders. Both executive and non-executive directors usually have a number of shares that give dividends. Directors are not the only people that have a right to receive dividends, other shareholders receive them as well. However, as directors tend to have a large number of shares, they can receive a reasonable amount of money through dividends.

Dividends are normally taxed by the IRD at a flat rate of 33%, as a “resident withholding tax”. In other words, it is treated separately to salary or wage income. It is important to declare this income to the IRD. If dividend income is not reported to the IRD, a “non-disclosure” rate of 45% will apply to that income. It is often a good idea to get dedicated advice from a tax advisor or accountant if you receive dividends.

Payment to Non-Individuals

The Companies Act 1993 requires that a person holding the office of director is a natural person. However, there may be times when the company contracts with a non-individual for the provision of directorship services. These include:

  • company; 
  • partnership; or 
  • public, local or Māori authority.

In general, if a company receives directors’ fees for directorship services it provides, tax will not be required to be withheld from these payments. However, there are some exceptions to this rule. For example, companies that are non-resident contractor or agricultural, horticultural or viticultural company are exempt.

Where a company appoints a professional director from an accounting or legal firm (a partnership), provided the company has an exemption certificate from the Commissioner of New Zealand Department of Inland Revenue, the company will not be required to withhold tax from its payments to the professional firm for its directorship services.

Not-For-Profit Director Fees

If you are a director of a not-for-profit organisation, you may or may not receive remuneration for your directorship services. There is no requirement for companies to remunerate directors of not-for-profit organisations. However, given the increase in scrutiny of the not-for-profit sector and the subsequent increase in a not-for-profit board’s workload and responsibilities, there is a growing trend toward compensating not-for-profit company board members. Remunerating not-for-profit company directors helps to attract suitably skilled and experienced persons to such directorship roles. It also ensures that the contributions of not-for-profit company directors are appropriately recognised.   

Key Takeaways

Whether you are an executive or non-executive director of a company, you should be aware of the different types of remuneration you can receive for your directorship services. If you need advice about receiving payment for your services as a company director, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

How can company directors be paid?

As a company director, you can receive payment either through a salary, directors fees, or shares.

Can directors of not-for-profits get paid?

If you are a director of a not-for-profit organisation, you may or may not receive remuneration for your directorship services. There is no requirement for companies to remunerate directors of not-for-profit organisations.

Where should the directors remuneration type be documented?

The board of your company should have a clear policy for setting remuneration of both executive and non-executive directors.

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