What is a Non Executive Director (NED)?
A non-executive director is a member of a company’s board of directors who is not part of the executive team. A non-executive director typically does not engage in the day-to-day management of the organisation but is involved in policy making and planning exercises.
NEDs play a key role in good corporate decision making hence the importance of engaging honest and experienced non-executive directors despite the size or status of an entity. They can make valuable contributions in determining corporate strategy and provide guidance on achieving strategic goals and the allocation of corporate resources to support strategic plans.
The independence, objectivity and business acumen of NEDs compliment the detailed knowledge and experience of executive management. They are responsible for managing the affairs of a company through board meetings. There were previous concern with the previous tax regime of NEDs. Their effective tax rate was higher compared to their compatriots in business. Unlike companies, independent contractors etc, NEDs hardly have expenses attached to board fees hence they were taxed on gross fees.
The Minister addressed this anomaly through pronouncement made in the Finance Bill number 3 of 2019. With effect from 1 January 2020 non-executive directors were relieved of the onerous burden which were hanging on them.
NED Fees subject to withholding tax?
If no other amount constituting remuneration is payable to the director by the corporate body, the non-executive directors’ fees are subject to Withholding Tax on Directors’ fees.
Who withholds tax on the NED fees?
The tax is deducted and remitted to the Commissioner by the company paying the fees, within ten days of the date of payment.
What is the rate of the Withholding Tax on NED Fees?
The director’s fees payable to non-executive directors are subject to 20 percent withholding tax in terms of the 33rd Schedule of the Income Tax Act.
When and how should the withholding tax on NED fees be remitted to ZIMRA?
The tax is deducted and remitted to the Commissioner by the company paying the fees, within ten days after the date of payment
Are there any other tax requirements for NED fees besides the Withholding Tax on directors’ fees?
With effect from 1 January 2020, fees accruing to a NED are now subject to a final withholding tax of 20%. This means non-executive directors are no longer required to pay Quarterly Payment Dates (QPD) on the directors’ fees or declare the fees on Income Tax. With effect from 1 January 2020, non–directors are no longer required to produce a tax clearance certificate upon receiving fees. In cases where the non-executive director earns or is entitled to an amount equal to US$40,000 in respect of fees or other business income, in a tax year, they must register for VAT in terms of the VAT Act [Chapter 23.12]. In such a case, the director will be liable to pay and file VAT returns.
