Tax Treatment of the amount paid to Independent Directors by Company


For the amount we paid to independent directors, how can the company handle the withholding tax, is it based on "Wages and Salaries" or based on  the "Perjury" for withhold personal income tax ?  Independent directors do not serve, is it that it need to follow the three(3) over-progressive rates to do so?  Is it needs to issue invoice?

[ Answer 1 ]

"State Administration of Taxation on Personal Income Tax of Certain Explicit Policy Implementation Issues Notice" ( Guo Shui Fa [ 2009 ] No. 121 ) No. 2 regarding taxation of directors' fees provisions state:-

  • 1.   "State Administration of Taxation on Issuance of "Individual Income Tax Provisions on Several Issues" Notice" ( Guo Shui Fa [ 1994 ] 89 No.) Article 8, director fee of perjury project method of taxation applies only to individuals as directors, supervisors, it is not the company office, or an employment situation.
  • 2.   Individual people in the company (including affiliates), employer, and as a director, supervisor, it should be directors fees, charges and supervisors for personal wage income that combined with unified by the wage and salary income that project to pay personal income tax.
  • 3.    "State Administration of Taxation on Foreign Direct Investment Enterprises Held Management Positions Directors Personal Income Tax Issues,"   ( Guo Shui Fa [ 1996 ] No. 214 ) Article 1 stops for execution.

Accordingly, the Directors may, in accordance with the representation of the company, to determine the specific provisions that applicable.


[ Answer 2 ]

For those independent directors who do not work in the company, the amount that the company pays for directors' fees are resulting as the labor compensation and it shall be calculated at the rates that applicable are on progression and pay personal income tax which is applicable to the problem described in three(3) progressive rates.


[ Answer 3 ]

For wages and salaries, the distinction between them is a question of perjury.  "State Administration of Taxation on the Issuance of "Individual Income Tax Provisions on Several Issues" Notice" ( Guo Shui Fa [ 1994 ] No. 089 ) it provides that wages and salaries are non-independent personal services activities, namely, the organs, organizations, schools, military, enterprises, institutions and other organizations that are in the office, employment and get wages; perjury is engaged in a variety of personal with independence skills, the provision of services in respect of remuneration.  The main difference between the two is that the former one is in existence of an employment relationship and that being hired, but the latter is non-existence of such relationship.

"Sales Tax Items Explanation (Draft) ", it provides that the service refers to the use of equipment, tools, sites, information or skills to provide services for the business community.

According to the above provisions, the independent directors with skills to provide services to the community and obtain directors' fees should be paid sales tax based on its labor income and the issuance of "services" invoices.