On 11th of June 2018 the Ministry of Finance has published Opinion about the tax treatment of compensation to the director who is not founder or member of the company, and performs the duties of the director without employment. According to this Opinion of the Ministry, every company with the director engaged without employment has an obligation to:
– concludes the Contract on the rights, obligations and responsibilities of the Director;
– Calculate and pay taxes and contributions to the agreed remuneration / compensation (even if the agreed compensation has not been paid).
If the amount of the director’s compensation is not contracted, or it is agreed that the director performs work without compensation, taxes and contributions would be calculated on the prescribed amount of the minimum salary and minimum contribution base. It is important to mention that the minimal amount of compensation is not proscribed with the Law (as it is for the salary), so the amount of the compensation can be symbolic. However, if the director’s compensation is extremely low, and without a valid factual reason, the Tax Administration can treat such a low compensation as an attempt to avoid paying taxes. In this case the Tax Administration can also demand that taxes and contributions be calculated on the amount of the minimum salary and minimum contribution base.
Because of above mentioned, it is recommendable to draft the contract with the director with detail explanation about compensation of the director who works out of employment, especially if the compensation is symbolic. The purpose of the detailed explanation is to justify the defined amount of compensation and to prevent Tax authority to calculate the taxes and contributions on higher amount. The concrete explanation depends on the circumstances of each particular case. For example, our opinion is that if one person is a director in several related legal entities, there is economic justification that the fee in some of them is symbolic. Also, participation in the profit of the company can be a justifiable reason for the low fixed remuneration of the director.
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