When you are an executive director shareholder in a company subject to corporation tax (CT), the question of remuneration often arises: is it better to pay yourself a salary or opt for dividends? Here is an accessible guide to help you navigate this complex issue.
There are two main ways of getting paid when you are an executive partner
This is a salary paid to the director for their work. The company deducts it from its profits, which reduces the amount of profits subject to corporation tax (rate of 25% reduced to 15% for profits of up to €42,500 for SMEs).
Dividends are profits distributed to shareholders after corporation tax. Unlike remuneration, they are not deductible from the company's profits.
| Remuneration | Dividends | |
| Income tax | Progressive tax scale with a marginal rate of 45%. | Flat tax (Prélèvement Fiscal Unique - PFU) of 12.8% or progressive scale with a marginal rate of 45% (optional) |
| Social security contributions |
Social security contributions for self-employed workers (TNS) or assimilated employees, depending on the status of the director and the type of company |
Only on the fraction of dividends received by the TNS in excess of 10% of the share capital held.
|
| Social surtaxes | No | 17.2% flat tax PFU |
| Benefits |
The company can deduct the remuneration from its taxable income, which reduces the amount of corporation tax payable
Increased social protection (particularly for assimilated employees) |
Lower taxation thanks to the PFU (30% in total), which is often more advantageous than a high marginal tax rate.
No social security contributions, except on the portion of dividends received by the TNS in excess of 10% of the share capital held. |
|
Disadvantages |
Potentially high tax rate for personal income tax (PIT)
High social security contributions for TNS |
Dividends are paid out of profits after corporation tax, which means that they are first subject to corporation tax before being subject to the recipient's PIT.
There is no social security protection for dividends, except for the fraction of dividends received by the TNS that exceeds 10% of the share capital held. |
The choice between remuneration and dividends depends on a number of personal and financial factors:
If the aim is to minimise the overall tax burden (for the company and the director), it may be appropriate to strike a balance between remuneration and dividends. For example, paying just enough remuneration to maximise tax deductions while benefiting from social protection, then topping up with dividends, may be a good strategy.
For a director who wants to benefit from better social cover (pensions, health insurance, etc.), higher remuneration is more appropriate, although more costly in terms of contributions.
If the company makes substantial profits after corporation tax, dividends can provide a more efficient means of remuneration, particularly for shareholders who are not in a high tax bracket.
To optimise the choice between remuneration and dividends, it is advisable to carry out detailed simulations with the help of a tax lawyer. Each executive director's situation is unique and needs to be studied individually, taking into account the executive director's personal circumstances, the company's level of profits, and short- and long-term objectives. Lobe Law, lawyers specializing in tax and sports law based in Paris 7, is delighted to assist its clients in this respect. Please feel free to contact us!