What type of taxes do you pay personally after corporation taxes?

[DaveFischer]

I always see people talk about just paying 12,5% of 15% of corporation tax, but that just means the corporation has paid taxes. You still have to pay yourself from the corporation and pay taxes over that right?

I have experience with the set-up in the UK and the Netherlands:

UK:
1. Dividends (taxed at lower rate, you'll end up paying around the same as the income tax brackets eventually)
2. Salary (this isn't tax-efficient, but you wouldn't pay corporation tax, as it's an expense)

NL:
1. Self-employed people just pay income taxes while having some small tax deductions, although people are working to increase taxes on people with their own business.

If you are in a country that doesn't tax foreign sourced income, you could just pay yourself a salary and not even pay corporation tax.

But what taxes do you normally pay after paying your corporation taxes? Most countries don't have a dividend tax system as the UK. If you would pay first corporation tax and then an income tax without expensing it, you'd end up paying 15%+e.g.40%, more than just working as a normal employee.

The term dividend in the UK and the Netherlands is also different. In The Netherlands we normally speak of dividend as stocks paying dividend. In the UK we speak of dividend when corporations want to pay their shareholders their profits.

 

[Sols]

This is an under-discussed topic. I see a lot of focus on corporate tax but unless you plan to keep the money in the company forever, that's only half the puzzle solved.

Depending on where you live, where the company is incorporated, and other circumstances, you can pay yourself in a few different ways:

• Salary - subject to income tax and possibly social security contributions.
• Dividends - subject to capital gains tax and/or income tax (varies).
• Contractor - engage yourself as a consultant for your company, subject to income tax and/or corporate tax. VAT/GST/sales tax might also be a concern.
• Loans - this is complicated, but the general idea is you take out a loan from the company. This might be tax free at first but if the loan is written off rather than repaid, you may be at that moment liable for income and/or capital gains tax. Even if it's repaid, you need to be careful.

 

[Brianthedog]

From my research, the only way to really significantly, legitimately lower your tax rate is to move to the low taxation country & be able to prove tax residency.

Live in the Bahamas/Panama/Anguilla/Belize etc 7 months of the year, and the UK/NL the other 5.

 

[JustAnotherNomad]

Live in the Bahamas/Panama/Anguilla/Belize etc 7 months of the year, and the UK/NL the other 5.

No, it’s not that easy. You need to be properly gone, spending 5 months in your home country, maybe even in your own apartment (even if it’s rented) is usually EASILY enough to keep you liable for taxes there.

 

[JustAnotherNomad]

I always see people talk about just paying 12,5% of 15% of corporation tax, but that just means the corporation has paid taxes. You still have to pay yourself from the corporation and pay taxes over that right?

Yes, you are right, but there are several ways you can avoid paying taxes:

- No tax (UAE, BVI, Qatar, ...): Some countries generally don’t charge tax. You could even pay yourself a high salary from the company and there would be no tax to be paid.

- No tax on dividends (Estonia, Cyprus, I think since recently also Latvia): Dividends are not taxed as you have already paid corporate income tax. There may be additional rules you need to meet for this to work.

- Territorial tax (Thailand, Panama, Paraguay, Georgia, Portugal’s NHR system, ...): You don’t pay tax on “foreign-sourced” income. So if the dividends come from a foreign company, they are usually tax exempt. However, also in this case, you have to study the rules carefully. If you work from your residency country, such work usually won’t be exempted from tax. Sometimes you can’t work for the company at all, you would have to be a passive investor. So do check the rules. Then check them again.

- Remittance-based taxation (UK non-dom, Malta non-dom, Singapore, ...): You only pay tax on foreign-sourced income (again, check the definition carefully) if it is remitted to your residency country. So if you leave the money in a bank account abroad, there is no tax.

 

[xipoid]

If UK tax-resident you can liquidate your company and pay a special Entrepreneurs Relief rate of 10% CGT, up to £1m (this is a lifetime allowance). You have to wait two years before opening a similar limited.

 

[Dandyline]

I always see people talk about just paying 12,5% of 15% of corporation tax, but that just means the corporation has paid taxes. You still have to pay yourself from the corporation and pay taxes over that right?

I have experience with the set-up in the UK and the Netherlands:

UK:
1. Dividends (taxed at lower rate, you'll end up paying around the same as the income tax brackets eventually)
2. Salary (this isn't tax-efficient, but you wouldn't pay corporation tax, as it's an expense)

NL:
1. Self-employed people just pay income taxes while having some small tax deductions, although people are working to increase taxes on people with their own business.

If you are in a country that doesn't tax foreign sourced income, you could just pay yourself a salary and not even pay corporation tax.

But what taxes do you normally pay after paying your corporation taxes? Most countries don't have a dividend tax system as the UK. If you would pay first corporation tax and then an income tax without expensing it, you'd end up paying 15%+e.g.40%, more than just working as a normal employee.

The term dividend in the UK and the Netherlands is also different. In The Netherlands we normally speak of dividend as stocks paying dividend. In the UK we speak of dividend when corporations want to pay their shareholders their profits.

Of course, Corporate tax is the least thing to worry about. Taxes on dividends are different for different countries.

In Scandinavia you usually pay up to 60% tax + VAT.

 

[Martin Everson]

Just live in a tax free country...lol. Pay your corporate tax if you want to use a European company and be done. UK does not have any WHT on dividends for a UK company.

Alternatively setup an Estonian company. Live in tax free country (not Estonia blacklisted) and pay yourself an employee salary tax free. i.e don't pay dividends that are subject to corporate tax but pay yourself a salary which is not subject to tax in Estonia or subject to tax in your tax free country.

In Scandinavia you usually pay up to 60% tax + VAT.

Good Lord....my eyes watered. More than 50% tax and you should be classified a government worker as your working for the state not yourself.

 

[Dandyline]

Just live in a tax free country...lol. Pay your corporate tax if you want to use a European company and be done. UK does not have any WHT on dividends for a UK company.

Alternatively setup an Estonian company. Live in tax free country (not Estonia blacklisted) and pay yourself an employee salary tax free. i.e don't pay dividends that are subject to corporate tax but pay yourself a salary which is not subject to tax in Estonia or subject to tax in your tax free country.



Good Lord....my eyes watered. More than 50% tax and you should be classified a government worker as your working for the state not yourself.

Yes, it's really crazy.

And if you want to have a 10 000 EUR salary per month pre tax, the company first need to pay an employer-fee (hidden-tax) of around 32% and then the income tax of around 50%.

So if you want to get 5000 EUR taxed in your account as a salary, the total cost for the company is around 13 200 EUR.

 

[Martin Everson]

Yes, it's really crazy.

And if you want to have a 10 000 EUR salary per month pre tax, the company first need to pay an employer-fee (hidden-tax) of around 32% and then the income tax of around 50%.

So if you want to get 5000 EUR taxed in your account as a salary, the total cost for the company is around 13 200 EUR.

Wow.....

Sad bit is I actually lived in Sodermalm and went to Berlitz language school to learn Svenska but never worked there. Didn't end up becoming fluent as every man and his dog refused to speak it with me as they all wanted to practice their English and most spoke it fluently.

I had friends who had businesses but I never saw them complain to me about taxes although I knew they were sky high. Seems the Swedish just accept high taxes or am I wrong.....lol.

 

[John Andrews]

Seems the Swedish just accept high taxes or am I wrong.....lol.

https://en.wikipedia.org/wiki/Stockholm_syndrome

 

[John Andrews]

On a serious note, I have a local company which "works" for my offshore business...this allows me to deduct various expenses in order to reduce taxable income, instead of paying tax on dividends.