Partner in the Picture: 9 fiscally friendly ways to earn more from your startup
As a startup or a scale-up you might be wondering how to reap more from all the passion and hard work you put into your company. There are all kinds of ways to get more out of what you are earning with your business if you have the right fiscal savvy. Luckily Start it @KBC has Moore, Belgium’s largest independent accounting and consulting firm as a partner. Read for 9 things you need to know from their e-book on fiscal optimisation:
#1 Determine the ideal monthly salary
Does your company pay you a monthly salary? That’s how most entrepreneurs do it. The exact amount you are remunerated depends on your individual situation. But standard remuneration isn’t always the most attractive option fiscally speaking. There are lots of supplements and alternatives. First of all, you’ll want to weigh the pros and cons of benefitting from a reduced corporate tax versus paying less in personal income tax and social contributions. Also keep in mind that lower incomes mean less fiscally friendly ways to build up your pension. Let a tax specialist decide what amount is optimal.
#2 Take advantage of enough tax-friendly perks
A smartphone, a laptop, a car: all indispensable for an entrepreneur. These kinds of perks are a tax-friendly way to supplement your monthly salary. The tax you pay for the private use of these perks is often lower than when you take on these costs completely privately. Fiscally these benefits are seen as compensation and you do have to pay income tax and social contributions on them. But to keep things simple, the tax authorities have established flat rates for the most common benefits which come out in your favour.
#3 Supplement your wages with tax-free allowances
When you’re transferring funds from your company to your private assets, a monthly salary is the most logical choice. This becomes even more fiscally attractive if you supplement your wages with tax-free allowances. Reimbursing certain business expenses that you pay out privately, like a home office or travel costs can reduce your taxable income. A tax expert can help you figure out the most fiscally friendly ways to cover costs. Watch out though: make sure these are fully defendable to the tax authorities to avoid paying penalties!
#4 Know the advantage of renting out to your company
Working from home is the new normal. If you rent out part of your private home to your company, that rent is considered a real income. However only 60% of it is taxed so this is an interesting option to transfer more resources from your company to your private assets. The remaining 40% is subject to a flat-rate deduction for expenses. It has to be a fair rent though, based on how much your home is worth.
#5 Earn a bonus from your company’s profits
A wage, an expense allowance, rent… you use these to transfer money from your company to your private assets on a monthly basis. With a bonus however, you can get a one-time and individual large sum out of your company’s profits. This is decided by the shareholders during the annual general meeting that approves the company’s annual accounts. Unlike a dividend distributed to all shareholders, a bonus (tantième) can be individualised per director.
#6 Pay out a tax-efficient dividend
All shareholders can be paid out a dividend, which can be earned at a favourable tax rate with the right amount of patience. A dividend gives the chance to distribute part of the profit of the current financial year as well as the built-up reserves from previous years. Those who don’t want to wait for the closing of the financial year can pay out an interim dividend. There are a number of additional conditions to be able to enjoy the advantageous VVPR-bis arrangement. That’s why it’s best to get specific tax advice for your situation.
#7 Enjoy the benefits of the liquidation reserve
Small companies that put their profits into a liquidation reserve can cash out cheaper under certain conditions, with reduced or even no withholding tax. Waiting five years can already pay off quite a lot. If you wait until the liquidation of your company, then your advantage is even greater. Combining the VVPR-bis scheme with a liquidation reserve can be interesting, if you’re willing put keep a certain amount of capital in reserve until the company is liquidated. Planning well is essential, to calculate when the liquidation reserve would be distributed and how you can bridge this period.
#8 Get familiar with the double balance test
The new company laws renewed in 2019 are simplified and more flexible. This has an impact on the transfer of funds from certain companies to the private assets of the manager or shareholders. From now on, a double balance sheet test applies to all distributions from the assets of these companies. This test should better protect creditors. It is required for any form of distribution of company assets: directors' fees, dividends, repurchase of treasury shares, return of contribution, compensation for exclusion or exit of a shareholder.
#9 Know the pros of an author's income
You may not see yourself as an author, but if you produce copyrighted work and make it available to third parties through an assignment or concession, you can compensate yourself for author’s rights with the application of a particularly advantageous tax regime. These favourable regulations apply not only for creatives such as artists, architects or journalists but also for business leaders who for example develop software. The Belgian Minister of Finance confirmed in 2015 that a company can pay out author’s rights to its leader. Another interesting way to get more out of your company’s earnings!
Want more details about the pros and cons of various ways to optimise your earnings in a fiscally friendly way? Go here to download Moore’s full e-book!