Monthly remuneration is the most obvious way to supplement your private wealth through your company. In this article we discuss how salaries are taxed and what the ideal remuneration might be.
How are salaries taxed?
When your monthly salary is calculated, withholding tax – which acts as an advance on personal income tax – is deducted. Every additional euro above a net taxable income of € 46,440.01 (income year 2023) is taxed at 50%, and there is municipal tax on top that as well.
In addition, social contributions are calculated on your gross taxable income, with varying percentages: 20.5% on the first income bracket, followed by 14.16% up to an income of € 107,300.30. Beyond that, contributions are capped. There are also the social insurance fund’s management fees each time. The result of this is a significant (para)fiscal burden.
From a tax point of view, then, a standard monthly salary is not the most attractive option. There are a variety of supplements and alternatives you can consider.
What is the ideal remuneration?
The extent of your ideal remuneration depends on your personal financial needs. For tax reasons, many entrepreneurs opt for a limited salary that covers fixed expenses, meets the conditions for reduced corporate tax (a minimum of 45,000 euros remuneration), and does not incur a high rate of personal income tax. Nonetheless, it is sometimes more interesting to consider taking a lower salary, since the savings in personal income tax and lower social security contributions often outweigh the loss of the corporate tax cut. After all, the reduced rate is only 5% lower than the standard rate, and it only applies to the first 100,000 euros of taxable profit.
A not unimportant consideration concerns the level of remuneration in the context of tax-friendly pension accrual. For example, with a Free Supplementary Pension for the Self-Employed (FSPSE), the maximum amount that you can save each year depends on your annual income. A higher gross annual salary also offers advantages with an Individual Pension Trust (IPT), where a higher income leads to a higher ceiling. Guaranteed income insurance is also often associated with the latter.
Common techniques for increasing net remuneration
To increase your net income, a range of tax-free or beneficial allowances are often chosen. These may include a flat-rate expense allowance, for example, or domestic and foreign daily allowances, a kilometre allowance, meal vouchers, eco vouchers, etc. Which additional compensation can be paid depends on your specific situation, so a nice salary package is always custom made.
Furthermore, it is often possible to let part of your private residence to the company. The rent can best be calculated on the basis of the rent reclassification. If the rent received is higher than this calculation, the excess rent will be taxed as salary.
Finally, it is always interesting, when looking at your salary policy, to consider possible dividends. In specific situations dividends are often a powerful tool for obtaining optimal remuneration. Here too, the different sorts of dividends are subject to strict and specific rules. In the most favourable case, a dividend will result in a total tax burden of 27.27%.
The ideal salary package?
For a company director, there are many options for remuneration, of which a monthly salary is the most expensive. The ideal situation often consists of a balancing act between salary, dividends and other allowances mentioned above. Get proper guidance on this, as the tax rules are often specific and complex.
Our PKF BOFIDI experts will be pleased to give you further advice
Would you like more information about remuneration for company directors? Then please contact our experts.