Entrepreneur's Salary and Dividend Solutions in Private Limited Companies
Väätänen, Paula (2019)
2019
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2019052311538
https://urn.fi/URN:NBN:fi:amk-2019052311538
Tiivistelmä
This thesis examines the taxation of an entrepreneur’s salary and dividend income in a private limited company. The overall focus of the study was to determine the most tax efficient ratio between salary and dividend in different case scenario settings that reflected the circumstances of a single business owner in Finland.
The form of the thesis is qualitative. However, the characteristics of a case study are also present in the empirical calculations used to demonstrate the total tax burden accumulation of different salary and dividend solutions. The theoretical framework reviews the Finnish taxation laws regarding income taxation and the taxation of dividends distributed from private limited companies. Furthermore, the legalities regarding the distribution of assets, the capital structure, net assets, and the mathematical value of the shares in a limited company were clarified as they affect the planning and execution of salary and dividend solutions.
The study utilized various professional publications and the Tax Administrations guidelines in addition to the current effective Finnish legislation. To gain dimension on this topic entrepreneurs in private limited companies were interviewed to enlighten the motives and preferences behind their needs to receive salary and dividend. The case calculations were used to practically demonstrate the impact of different net asset levels in the accumulation of the overall tax burden. The usage of different cases made the analysis of the overall ratio of how much salary and dividend should be distributed in different situations simpler and more approachable. The calculations also help entrepreneurs to see the main effects of taxation, and more importantly recognize the levels at which they should pay dividends instead of salary.
It was acknowledged through the entrepreneurs’ interviews that tax optimization acts as the main driver for salary and dividend planning. Based on this view, the calculations were set to find the most tax efficient solution for an entrepreneur to receive salary and dividend within different values of net assets and profit before taxes. It was discovered that with low level of income and net assets the option of salary is the most efficient solution. However, the higher the net asset value grows the quicker the option to include dividends alongside salary will accumulate the lowest tax-burden possible.
While the results provided a clear analysis of the tax efficiency of salary and dividend, the inclusion of entrepreneurs and the company’s individual circumstances will always make a difference in the final outcome of the salary and dividend planning. Nevertheless, the thesis helps the commissioning company and the entrepreneurs in Finland to better plan and understand the determinants behind taxation and the distribution of assets in private limited companies.
The form of the thesis is qualitative. However, the characteristics of a case study are also present in the empirical calculations used to demonstrate the total tax burden accumulation of different salary and dividend solutions. The theoretical framework reviews the Finnish taxation laws regarding income taxation and the taxation of dividends distributed from private limited companies. Furthermore, the legalities regarding the distribution of assets, the capital structure, net assets, and the mathematical value of the shares in a limited company were clarified as they affect the planning and execution of salary and dividend solutions.
The study utilized various professional publications and the Tax Administrations guidelines in addition to the current effective Finnish legislation. To gain dimension on this topic entrepreneurs in private limited companies were interviewed to enlighten the motives and preferences behind their needs to receive salary and dividend. The case calculations were used to practically demonstrate the impact of different net asset levels in the accumulation of the overall tax burden. The usage of different cases made the analysis of the overall ratio of how much salary and dividend should be distributed in different situations simpler and more approachable. The calculations also help entrepreneurs to see the main effects of taxation, and more importantly recognize the levels at which they should pay dividends instead of salary.
It was acknowledged through the entrepreneurs’ interviews that tax optimization acts as the main driver for salary and dividend planning. Based on this view, the calculations were set to find the most tax efficient solution for an entrepreneur to receive salary and dividend within different values of net assets and profit before taxes. It was discovered that with low level of income and net assets the option of salary is the most efficient solution. However, the higher the net asset value grows the quicker the option to include dividends alongside salary will accumulate the lowest tax-burden possible.
While the results provided a clear analysis of the tax efficiency of salary and dividend, the inclusion of entrepreneurs and the company’s individual circumstances will always make a difference in the final outcome of the salary and dividend planning. Nevertheless, the thesis helps the commissioning company and the entrepreneurs in Finland to better plan and understand the determinants behind taxation and the distribution of assets in private limited companies.