I've run a Sdn Bhd company since last year. We've 0 employee as me and partner running the business by own. We have steady monthly 5 figure business profit. Now we are planning to have payout from company as we didn't draw a single cent since beginning.

We are in equal share stake 50% - 50%. We're thinking of payout director fees monthly (RM5k for each person), as it can be exempted from EPF and Sosco at this moment.

I would like to ask expert what is the pros and cons for redrawing monthly director fees compare to salary in term during application of finance facility(house loan/car loan)?

both no difference. Both must be reported to LHDN and as such will be reflected in your LHDN B form. if you require financing, one of the document asked by the loan officer is your B form.

In simple word, whether director fee or salary is only different in name, the tax treatment is the same.


With regards to not participating from KWSP and Socso, unwise move as these cash outflow can are legitimate tax expense.

Xuzen

Xuzen,

Thanks for your advise. As the form B will only available next yeat April, if end of this year I going to apply for loan on car any diff? Any idea any additional document I needed to provide to loan offcer.

As for the KWSP, yearly I've purchased Insurance Saving Plan of 5.5k which legitimate tax expense.

Thank you

If Form B still not out yet, if bank officer, they will ask you for your previous income tax return. If you are a noob and only started to work, they may ask for a guarantor like your daddy.

Insurance Saving Plans only allow you to tax relief personal portion, not the business portion. KWSP allows both personal and business tax relied. Oops, you mean the insurance agent did not inform you of this ?

My personal financial planning is to avoid the insurance saving plan and buy instead medical and claim the medical portion tax relief.

Xuzen

Thanks Xuzen. The saving plan I have it way back since 2011. So that time I still working hence insurance agent didn't explain much on the business portion.

Thanks for your input on the tax relief for business. Will check that out.

why not declaring it as dividend to avoid further tax in a form of individual income tax thru director fee?

Director Fee is like a Project Basis Fee.
Director Salary/Bonus have to combo with KWSP, which is good in a way that KWSP is tax exempted.

Since you have secure your INCOME, you need to start to have proper tax planning.
Try fully utilize SDN BHD lower band TAX of 19%.

You need to give numbers for people advise accurately.
Different level amount of Ringgit, has different strategy to tackle.

It will be taxed at company level first before it is tax exempted when going into the hand of individual.
So there is no tax avoided in the process.

It is company tax vs personal tax only.

Company tax is flat rated, at 19% (for SME on first 500K profit) and 24%.
While personal income tax is step up type whereby effective tax rate is much lower especially at lower level.

So it may not an advantage going this route, unless for the money exceeds the personal highest bracket, whereby effective personal tax rate become more than company tax.

Difference between director drawing salary vs director fee

Director fee
Once in a year - so you only declare when there is profit. So it gives flexibility in term of amount when there is a profit or based on company profit level.

Director salary
Fixed drawing every month. EPF, Socso payout on director is tax deductible as company expense.

This post has been edited by cherroy: Sep 12 2016, 09:39 AM