A limited company pays income tax on 20% of its profits. The personal tax for entrepreneurs consists of a progressive income tax on earned income and capital income, with a tax rate of 30% for capital income below €30 000 and 34% for capital income above €30 000. The means by which and when the funds are repatriated from the limited company to the entrepreneur determines how the income is taxed for personal tax purposes. There are many different solutions to this, allowing the entrepreneur to generate more income for himself from the business.
There are several ways for an entrepreneur to withdraw funds from his business. The most typical are wages and dividends and various tax-free allowances such as mileage and daily allowances. The entrepreneur can also rent at a fair price to the company personally-owned assets such as a commercial building, and thereby generate income from the company. If the company needs finance, the entrepreneur can lend money to the company and receive interest income. When considering how to withdraw funds, it is good to be aware of the items that will reduce the company’s profit for the financial year. For example, a salary will reduce profits, but a dividend withdrawal will not. It is therefore not sensible, for example, to withdraw dividends alone, because the income tax rate on small amounts of salary is below the 20% corporate tax rate for a limited company (although the situation is different if the entrepreneur receives income from other sources).