GmbH - Salary or profit distribution
June 28, 2011 | 30,00 EUR | answered by StB Manuela Ponikwar
Hello,
as the Managing Director of a one-person GmbH, one can determine their own managing director salary within certain limits.
Apparently, it is tax advantageous to pay oneself a high salary, otherwise there wouldn't be an issue with hidden profit distributions.
However, I would prefer to work with a smaller salary and be happy at the end if there is a profit that I can distribute to myself.
The expected profit of the GmbH is approximately 120,000 euros.
I am single with no children.
Now, I would like to know the exact difference in taxation between both options.
a.) low salary (3,000 monthly) plus distribution of the remaining GmbH profit of 84,000.
b.) high salary (10,000 euros monthly) (no GmbH profit).
Best regards
Dear inquirer,
thank you for your inquiry, which I would like to answer as part of an initial consultation considering the appropriate fee as follows:
1) General
As majority shareholder managing director, you earn income from employment through the managing director activity (§19 EStG) and from capital assets as a shareholder (§20 Abs. 1 Nr. 1 EStG).
In the scope of your salary, all income in money and money's worth (e.g. private use of a car) that are caused by the employment relationship are included. For the GmbH, this 'personnel expenses' represent operating expenses that are tax deductible and reduce the company's profit = lower tax burden.
However, in the case of a controlling shareholder-managing director, more extensive benefits may occur, which reduce the assets of the GmbH and are only caused by the relationship with the company. This means that the benefits do not stand up to a third-party comparison, i.e. an externally hired managing director would not receive them. This is known as a hidden profit distribution.
As a result, the GmbH cannot claim these expenses as tax-deductible, they are not deductible.
In conclusion, the compensation for your managing director activities should be appropriate to the effort, responsibility, and success of the company. With an annual profit of 120,000 EUR (excluding managing director's compensation), an annual salary of 120,000 EUR would probably not be appropriate, as you may not want to pay that much to an employed managing director.
On the other hand, a gross monthly salary of 3,000 EUR is rather low but may be appropriate considering the company's profit.
In general, I would consider a salary of around 5,000 EUR to be appropriate.
A low salary can also represent a hidden contribution, which increases the acquisition costs of your shareholding and should be credited to the tax deposit account. This would reduce your profit when selling the shares later.
In general, one can orient oneself on relevant salary studies
(e.g. http://www.ftd.de/karriere-management/karriere/:kienbaum-studie-geschaeftsfuehrergehaelter-legen-zu/50166865.html), but one must always consider the values in relation to the economic circumstances of the company.
2) Taxation of salary package
You must pay tax on the managing director's compensation as income from employment at your normal tariff tax rate (for 120,000 EUR salary approx. 35% + Solidarity surcharge + Church tax, for 60,000 EUR salary approx. 28%, for 36,000 EUR salary approx. 21%, each without considering advertising costs or special expenses).
3) Taxation of distribution
When profit shares from the participation in a GmbH are distributed to the shareholders, they are considered income from capital assets (§ 20 Abs. 1 Nr. 1 EStG). If the shares are in your private assets, the distributions are subject to the regulations of the flat-rate tax.
The flat-rate tax rate is 25% + 5.5% Solidarity surcharge + Church tax.
The corporation must withhold this tax on behalf of its shareholders and pay it to the tax office.
If you choose the option for individual assessment in the tax return, the personal tax rate of the respective shareholder applies.
Advertising costs are normally no longer deductible, but in this case, you can use the partial income procedure (§ 32d Abs. 2 Nr. 3 EStG).
This is particularly useful for high costs related to the acquisition of the participation (e.g. financing costs), as they can only be tax-deductible this way.
4) Conclusion
If you are viewed as an individual, a distribution is more tax advantageous for you, as it tends to have a lower tax rate.
However, only the after-tax profit can be distributed, and the distribution does not reduce the company's tax burden.
In contrast, the salary is paid even in a loss situation and (if appropriate) reduces the tax burden of the GmbH.
I hope this information was helpful to you.
Best regards,
Manuela Ponikwar
Tax consultant
www.ponikwar.de
