How to Pay a Director Properly in a Mauritius Company

Director remuneration in Mauritius is not a single product. A company can reward the person who sits on its board through directors' fees, through a salary under an employment contract, or through a dividend paid as a shareholder. These are three different legal acts. They are approved by different bodies, recorded differently and taxed differently, and mixing them up is one of the most common causes of awkward questions at audit time.

This guide explains each route, how a payment should be authorised and documented, and where the tax analysis changes. It is general information: the right answer depends on your constitution, your shareholders and the director's own tax position, so it should be confirmed by an adviser before you pay anything.

Three ways to pay a director

A director can wear up to three hats at once: officeholder, employee and shareholder. Each hat justifies a different type of payment.

The first two are costs of the company. The third is a distribution of profit and is not a reward for work. A director who owns no shares cannot receive a dividend, however much work they do, and a shareholder who does no work cannot justify a salary.

Directors' fees and attendance fees

Directors' fees pay for the office itself: sitting on the board, attending meetings and carrying the statutory duties described in directors' duties under Mauritian company law. Some companies pay a fixed annual amount, others a fee per meeting, often called a jeton de présence or attendance fee.

What matters in practice is that the right is written down before it is used:

• The constitution may say who sets remuneration and whether it needs a shareholder decision. Read it first; a silent constitution is not permission to pay anything.
• A resolution should record the amount, the period it covers and the people concerned. Where the director is also a decision-maker on the point, the interest must be disclosed. See declaring a conflict of interest as a director.
• The minutes should show who was present, who declared an interest and how the vote went. Board minutes step by step walks through the format.

Fees paid to a resident director who is provided by a corporate service provider are a separate commercial matter, covered in resident director fees. This page deals with remuneration decided by the company for its own directors.

Salary: when a director is also an employee

A director can also be an employee, for example a managing director who runs the day-to-day business. In that case the pay is a salary under an employment contract, and the company then behaves as an employer: it registers with the revenue authority, withholds and pays the employer-side and employee-side charges, issues payslips and files the periodic returns.

The mechanics of those deductions are the subject of the payroll section of this site, starting with payroll in Mauritius and PAYE for employers. Before the first salary, the company should be set up as an employer; registering as an employer explains how.

Two practical points specific to directors:

1. A salary needs real duties. The contract should describe an executive role that is distinct from the board seat. This is where the line between an executive and a non-executive director matters: non-executive directors usually receive fees, not a salary.
2. The amount must be defensible. A salary that is out of proportion to the work and the company's results invites questions from tax officers and auditors, particularly in a small company where the director controls the decision.

Dividends: a different logic

A dividend rewards ownership. It is declared by the board, not agreed in a contract, and it can only be paid when the company passes the solvency test. The steps are in paying a dividend from a Mauritius company and the solvency test.

On the tax side, the Income Tax Act exempts dividends paid by a Mauritius-resident company from income tax in the hands of the recipient (Second Schedule, Part II, Sub-part B, item 1), and no withholding tax is provided for on those dividends. That is a rule about the recipient's tax on the dividend. It does not mean the company's profits were untaxed: the standard corporate income tax rate is 15% of taxable income, and the dividend is paid out of what remains. Details on how profits are taxed are in how a Mauritius company is taxed on its profits.

There are limits to treat carefully:

• A dividend must follow the proportions of shareholdings, unless the constitution creates different classes of shares. You cannot pay one shareholder-director more simply because they work harder.
• Paying a dividend instead of a salary does not turn a dividend into a deductible cost. The company deducts fees and salaries (subject to the usual rules in which business expenses a company can deduct); it does not deduct dividends.
• Where the company is a Global Business Licence holder, dividends paid to another Global Business Licence holder are exempt under a separate item (Sub-part B, item 2). Foreign-source dividends received by a company may benefit from a partial exemption, subject to conditions that include substance. Those cases involve their own conditions and should be analysed individually.

How the tax treatment differs

The table below sets out the logic only. It deliberately gives no rates, because personal tax depends on the director's overall income and residence.

Two cautions apply to every row. First, "generally deductible" is not "always deductible": the expense must be incurred for the business and be reasonable. Second, a director who lives abroad may be taxed in another country on the same payment, which is why tax residence matters. The Director-General can issue a Tax Residence Certificate on request, within the statutory period, provided the required return has been filed and the fee paid; for companies, tax residence turns on incorporation in Mauritius or central management and control there, and a Mauritius-incorporated company managed from abroad is treated differently. For directors based in another country, see for example running a Mauritius company from the United Kingdom.

A decision path

Documenting the payment

Whatever the route, the paper trail is what protects the company and the director. A sensible file contains:

• the constitution clause or shareholder decision that authorises the payment;
• a board or written resolution, with any interest declared (see written resolutions when the board decides without meeting);
• the minutes, kept with the statutory registers;
• supporting documents: fee note, contract, payslip or dividend voucher;
• the entry in the books, so that the amount shows in the annual financial statements.

Directors' loans are a separate subject. Taking money from the company without one of the three routes above often creates a balance that must be treated as a loan; read loans between a company and its directors before using that shortcut.

Common mistakes

• Paying first, papering later. A backdated resolution is a weak defence. Approve before you pay.
• Calling a withdrawal a "fee". If the payment is not for a defined service, it may be a loan or a disguised distribution.
• Dividends without profit. A dividend paid while the company fails the solvency test can expose the directors personally.
• Ignoring the audit trail. An auditor will ask for the authority behind every payment to a director; see audit requirements for what that review involves.

If you want a second opinion on your own structure, you can contact us through the site form, and the request is passed to an FSC-licensed corporate service provider (Management Licence).