However, due to this common practice, which has begun to take the lead as well as for companies where this is fully justified for directors, and for companies that solely wanted to avoid any obligations on the engagement of directors, on June 11, 2018, The Ministry of Finance issued a surprising and rather infamous Opinion. It points out the new stance of the Ministry, which means that the compensation for the director’s work is considered a mandatory element of the Agreement on Regulating the Rights and Duties of the Director.
Furthermore, The Ministry has found that, regardless of the fact whether the director will waive his proclaimed right or not, the income tax, with a 20% tax rate, should be paid considering the “fair compensation” as a taxable amount.
It is interesting how on one hand, the Opinion orders that payment must not be avoided (which you might think is the aim of the rule), whereas on the other hand, it still allows the director not to exercise his right. This is a bit contradictory and sure raises a question: What was the purpose of this decision and who is it protecting?
So, if the director is not being paid by the company, whereas the income tax and social insurance are paid as a deduction from payment, which means upon payment, what payment could these obligations be deducted from?
All in all, what would be the fair compensation, for example, for the director that is just a long-distance supervisor?