Director's Salary vs. Dividends: Which Saves More Tax?

Written by the team at Prompt Plus Accounting · About us · 2026-09-10 · Updated 2026-09-04

A comparison of the tax burden between a director's salary and dividends, including how to calculate the dividend tax credit, with worked examples to make it clear.

Business owners who are both shareholders and directors often wonder which form of compensation from the company is best: a "director's salary" or "dividends." The two carry very different tax consequences, and there is no one-size-fits-all answer as to which is better, it depends on the company's profit structure and each business's specific circumstances.

Director's Salary: How Is It Taxed?

A director's salary or regular compensation is treated as assessable income under Section 40(1) of the Revenue Code (the same category as a regular employee's salary). The key points are as follows:

• Deductible as a company expense. A director's salary counts as a tax-deductible expense for the company, reducing net profit before corporate income tax is calculated. That said, the amount must be reasonable relative to the workload and market standards, otherwise the Revenue Department may treat it as a personal or gratuitous expense, which is a disallowed expense under Section 65 ter (8).
• The director is taxed at progressive rates, ranging from 0-35% based on net income brackets. The company is required to withhold tax and remit it every month via Form PND 1 (ภ.ง.ด.1).
• Can be paid every month without waiting for profit, since it is a normal operating expense, unlike dividends, there is no need to wait for accumulated profit.

Dividends: How Are They Taxed?

Dividends are a share of profit paid to shareholders, treated as assessable income under Section 40(4)(b), with key differences from salary:

• Not deductible as a company expense, because dividends are paid out of net profit that has already been subject to corporate income tax, not a pre-tax expense.
• Subject to 10% withholding tax. The recipient can choose to have 10% withheld as final tax (with no need to include it with other income), or elect to include it when calculating personal income tax and claim the dividend tax credit under Section 47 bis.
• Requires sufficient retained earnings and must be approved by a shareholders' meeting before payment, it cannot be paid at will the way a salary can.

The Key Point: The Dividend Tax Credit

Many people worry that dividends are taxed twice, the company already pays 20% corporate income tax, and then the shareholder pays tax on the dividend again. To reduce this double taxation, the law provides a dividend tax credit under Section 47 bis, calculated as follows:

Dividend Tax Credit = Dividend Received × [Corporate Income Tax Rate ÷ (100 − Corporate Income Tax Rate)]

For example, if a company pays corporate income tax at 20% and distributes a dividend of 80 baht, the tax credit = 80 × (20 ÷ 80) = 20 baht. The shareholder can use this credit to offset the tax they owe, and if the shareholder's personal tax rate is lower than the corporate tax rate the company paid, they may even be entitled to a tax refund.

A Comparative Example

Suppose ABC Co., Ltd. is an SME (paid-up capital not exceeding 5 million baht, revenue not exceeding 30 million baht) with profit before director compensation of 1,000,000 baht, and the same person is both the sole director and 100% shareholder.

Scenario 1: Paying a Director's Salary of 1,000,000 Baht

• The company deducts the full amount as an expense, leaving zero pre-tax profit, no corporate income tax is owed.
• The director includes the 1,000,000 baht salary when calculating personal income tax at progressive rates (after applicable deductions and allowances).
• A word of caution: paying a salary that exactly equals the entire profit like this carries a practical risk that the Revenue Department will question whether the amount is reasonable, particularly if it does not align with the workload or market standards. The company should keep supporting documentation, such as a shareholders' meeting resolution approving the compensation and a clear scope of work, to guard against the expense being disallowed.

Scenario 2: Paying Out Everything as Dividends

• The company must first pay corporate income tax at the SME rate (exempt on the first 300,000 baht, 15% on 300,001-3,000,000 baht). On profit of 1,000,000 baht, tax comes to roughly 105,000 baht, leaving 895,000 baht in net profit available for dividends.
• When the 895,000 baht dividend is paid, 10% withholding tax (89,500 baht) is deducted immediately, or the recipient can choose to include it in their personal tax calculation and claim the credit back.

As you can see, there is no fixed answer, since it depends on the personal tax rate the director would otherwise pay compared with the corporate tax rate the company pays, along with other tax benefits available to each party.

Factors to Consider When Planning

• The director's net income level. If the director's net income falls into a high tax bracket (say, 30-35%), receiving dividends with the tax credit may work out cheaper, since the credit helps offset some of the double taxation.
• The company's corporate tax rate. An SME with profit that falls into the exempt bracket or the 15% rate will get more benefit from the tax credit differential than a company paying the standard 20% rate.
• Consistency of cash flow. Salary can be paid consistently every month without waiting for profit, which suits a director who needs reliable income, whereas dividends depend on business performance and shareholder meeting approval.
• Impact on social security entitlement. If a director receives a salary and makes the normal social security contributions, they receive social security coverage, medical care, old-age benefits, unemployment benefits, and so on. Dividends are not considered wages, so no contributions are made and no additional social security entitlement is created. A director who receives compensation entirely as dividends, with no salary at all, therefore has no social security coverage from that income.
• Reasonableness of compensation. Whichever method is chosen, it is important to keep documentation showing a clear business rationale, particularly for a director's salary, which must be demonstrably necessary to the business.

Summary

There is no fixed answer as to whether a director's salary or dividends save more tax, since it depends on multiple factors together, the company's corporate tax rate, the director's income level, and cash flow needs. In practice, many SMEs use a mix of both: paying a reasonable director's salary to reduce pre-tax profit, and distributing the remaining profit as dividends, to spread the tax burden as evenly as possible. If you are not sure how your business should approach this, it is worth consulting an accounting and tax professional to run the numbers based on your company's actual figures.

This article is general information, not advice for a specific case. Please consult us before making a decision.