Director and Board Member Remuneration: Three Payments, Three Rule Sets

If your managing director also owns shares, or your board members receive a monthly payment, there is a good chance three legally distinct events are being booked under one heading. This note is for finance managers and owners who need to know what tax and social security attaches to each, what board resolution has to sit behind it, and which of these payments gets disallowed in an audit.

Three relationships, not one

Most of the problems I see in this area start with a simple conceptual error: treating "money the director receives from the company" as a single thing. Iranian law recognises three separate arrangements.

• Executive director salary, paid for continuous day-to-day work, with the character of wages.
• Attendance fees for non-executive members, paid for participation in board meetings, creating no employer-employee relationship.
• Board bonus, which is not an expense at all but a share of distributable profit, requiring a general meeting resolution.

Each has its own legal basis, tax rate, insurance treatment and supporting document. Blending them into one payroll line is the easiest way to create a finding in an assessment notice.

The executive director is an employee for tax purposes

A managing director who works continuously and draws a salary is a salaried person in tax terms, even if they own the entire company. That means the payment falls under Article 86 at the progressive payroll rates, the director's name goes on the monthly payroll list, the tax is filed and paid by the end of the following month, and the annual salary exemption set in the budget law applies to them as it does to anyone else. Mechanics of the progressive calculation are covered in the note on payroll tax and wages.

The detail most often missed is authorisation. The amount of the director's salary should be fixed by a board resolution, and that minute is your primary defence document if the figure is ever questioned. In limited liability companies I recommend the same discipline through a partners' meeting minute.

Non-executive members and attendance fees

A non-executive member has no operational role and simply attends board meetings. The progressive payroll scale does not apply; the company deducts advance tax under the note to Article 86 at the prescribed rate and remits it, the same withholding logic set out in withholding tax and Article 104. The payment must also be anchored to actual meetings: a fixed monthly amount paid when no meeting took place is very hard to defend.

Board bonuses come out of profit

A bonus under Article 241 of the amended Commercial Code has a different character entirely. It is paid from distributable profit, not from operating expenses, and requires three things: profit for the year, approval by the ordinary general meeting recorded in the minutes, and compliance with the statutory ceiling, which is a percentage of the profit payable to shareholders and differs between public and private joint stock companies. Check the current wording of the article before the meeting approves a figure.

Because the bonus is paid from post-tax profit, it cannot be deducted as a business expense. How it fits into the wider distribution process is covered in profit distribution and its tax treatment.

The three payments compared

Social security

The rule is simple: wherever there is work, subordination and wages, an insurance obligation follows. An executive director belongs on the insurance list. A non-executive member receiving only attendance fees is generally outside the wage relationship, but during a books inspection under Article 47 of the Social Security Act these lines are examined closely, and an account title that does not match the substance of the payment invites an assessment. In the files I have handled, the largest contribution claims came from amounts booked as "management fees" or "consulting costs" where the recipient was the company's own full-time director.

Is there a salary ceiling?

In the private sector, no fixed number exists in the tax code. That is not the same as freedom. Deductibility depends on the amount being reasonable and proportionate to the company's activity; a very large monthly salary in a company with modest turnover quickly turns into a proportionality argument, and part of it is disallowed. State-owned companies and public institutions are subject to separate statutory pay caps that fall outside this note.

A workable procedure

1. State in the minutes whether each board member is executive or non-executive.
2. Issue a contract or appointment letter matching the board resolution.
3. Include executive members on the monthly payroll and insurance lists without exception.
4. Tie every non-executive payment to a dated meeting minute.
5. Withhold the advance tax at payment and remit it within the deadline.
6. Pay board bonuses only after general meeting approval and only from distributable profit.
7. Clear the shareholder current account balance at year end rather than rolling it forward.

Key takeaways

• Salary, attendance fees and board bonuses are three separate events with three legal bases.
• A working managing director is a taxable employee regardless of shareholding.
• Board bonuses come from post-tax profit, need a resolution, and are never deductible.
• No numeric salary cap exists privately, but reasonableness governs deductibility.
• Under Article 198 directors are jointly liable for unpaid tax from their term; resigning does not remove that exposure.