Withdrawing money from LLC

If you want to withdraw your salary as an entrepreneur, you should do it in the most optimal way from a tax point of view. From a tax perspective, the best thing to do is withdraw your salary, which has an income tax rate of 26%, assuming you have no other businesses outside the main business, and that the company also pays out dividends. Staying at the 26% rate is recommended because any money taken as a salary on top of this will take you higher on the progressive income tax scale.

Instead of salary, money can be withdrawn from the company in other ways. The most common ways are

• fringe benefits
• dividends
• shareholder loans
• renting privately owned space to the company

Paying dividends is in some cases more tax efficient than withdrawing wages, but since the amount of dividends must always be based on financial statements, more rounds of dividends may not make sense. If an entrepreneur wants to pay a second round of dividends within a year, an interim financial statement must be made, which must be confirmed at an extraordinary general meeting, where dividends will also be decided. Thus, two dividend rounds can be a viable option for a self-employed person, but any larger number of financial statements and general meetings results in too much work and outweighs the potential profits that paying dividends might have compared to salary. In the short term, it is advisable to take a salary with an income tax rate of 26% and the rest as dividends.

The percentage of the dividend on the mathematical value of the share affects the taxation of dividends. The mathematical value of the share is calculated on the basis of the company’s balance sheet for the fiscal year ended in the previous year by deducting the company’s assets from its liabilities and dividing the difference obtained by the number of shares in the company.

As an independent software consultant, you are most likely to work through your unlisted limited company. When you receive a dividend from an unlisted company, the dividend amount is divided into taxable capital income and/or taxable earned income, as well as tax-free income. It depends on the mathematical value of the stock, how big the shares are.

When you pay yourself dividends of up to 8% of the mathematical value of the shares, you talk about a capital income dividend.

When the capital income dividend does not exceed €150,000, of that:

• 25% is taxable capital income
• 75% is tax-free income

Dividend exceeding €150,000

• 85% is taxable capital income
• 15% is tax-free income.

If the amount of dividends paid to yourself is more than 8% of the mathematical value of the shares, the excess is called an earned income dividend. Earned income dividend

• 75% is taxable earned income
• 25% is tax-free income.

No fixed tax rate is used to tax earned income. They are taxed progressively, meaning your tax rate increases as your earned income increases.