Advantage of Dividends over the salary?

Da11

Hey there,

I have a question in relation to dividend payments from Irish company to it's resident director and I hope you will be able to help me..

Is there any tax advantage for a director to receive the Dividends instead of the salary from his company since you pay Income Tax, USC and PRSI on gross dividend?

Thank You in advance

srsly78

Nope.

Da11

srsly78 wrote: »

Nope.

Thank you for a super quick answer!


Then the question is - is there any tax advantage/disadvantage for a Company? If dividends are not deductible for Corporation Tax purposes ( you pay CT on your profits before your pay dividents) , then in order for a Director to receive the same net amount CT has to be paid first and then Income Tax etc? Is that correct?



thank you again

srsly78

Yes, if you pay out all the money as salary then there should be no profit and no CT to pay. A small company (such as a small IT consultancy) would typically pay out all profits as salary/bonus, to minimise tax liability.

Also take note of the close company surcharge: https://bradyassociates.ie/tax-library/close-company-surcharge

MarioLuigi

Something that may or may not be applicable depending on the amounts involved - the USC surcharge of 3% of self-employed income over €100k, ie. dividends.

Da11

MarioLuigi wrote: »

Something that may or may not be applicable depending on the amounts involved - the USC surcharge of 3% of self-employed income over €100k, ie. dividends.

This would apply to dividents and salary, so it would be no difference on tax dividents vs salary then?

Da11

srsly78 wrote: »

Yes, if you pay out all the money as salary then there should be no profit and no CT to pay. A small company (such as a small IT consultancy) would typically pay out all profits as salary/bonus, to minimise tax liability.

Yes, the only thing is you might want to leave profits in the company, because at some stage Salary tax ( IT+USC+PRSI) would hit nearly 50 % where Corporation Tax is only 12.5%. It really depend on the amounts we are talking?

srsly78

And whether close company surcharge applies. The law is specifically setup so no advantage can be had from this.

Da11

srsly78 wrote: »

And whether close company surcharge applies. The law is specifically setup so no advantage can be had from this.

Yes if you are professional services company it's another 7.5% on undistributed profits...

Thank you for clearing everything up for me. Much appreciated

Calahonda52

Da11 wrote: »

Yes if you are professional services company it's another 7.5% on undistributed profits...

Its 15% on half undistributed trading income, which is not the same thing.

...
Yes, the only thing is you might want to leave profits in the company, because at some stage Salary tax ( IT+USC+PRSI) would hit nearly 50 % where Corporation Tax is only 12.5%. It really depend on the amounts we are talking?

which is then taxed....

Da11

Calahonda52 wrote: »

Its 15% on half undistributed trading income, which is not the same thing.

Any chance you could give an example on this or something? Thank you...

Da11

which is then taxed....[/QUOTE]

It could be then taxed only 10% when liquidating the company if you meet the criteria for Entrepreneur Relief? Is that possible?

Calahonda52

Da11 wrote: »

Calahonda52 wrote: »

Its 15% on half undistributed trading income, which is not the same thing.

Any chance you could give an example on this or something? Thank you...

No example needed, its the correct language

Glenbhoy

Da11 wrote: »

This would apply to dividents and salary, so it would be no difference on tax dividents vs salary then?

Usc surcharge doesn't apply to salary paid under paye, including directors salaries.