One of the most common questions business owners face (especially EOOD owners) is how to withdraw money from their company in the most advantageous way. Should they pay themselves a salary or wait for dividends? The answer is not always straightforward and depends on your goals – whether you're looking for maximum net income today or social security for the future.
The Main Difference in Brief
Salary is an expense for the company (reduces taxable profit), but is subject to high social security contributions and income tax. You receive the money every month.
Dividend is not an expense for the company. It is paid from net profit (after corporate tax). The tax burden is significantly lower, but the money is typically available only once a year.
1Option 1: Salary (Employment Contract or Management Contract)
As a manager, you can receive remuneration under a Management and Control Contract (MCC) or an employment contract. This is the "standard" way most employees work, but for owners there are nuances.
Advantages
- •Social Security: You're insured for all risks – pension, sick leave, maternity/paternity leave, and unemployment.
- •Creditworthiness: Banks prefer salary income when granting mortgages or consumer loans. Dividend income is often viewed with more restrictions.
- •Tax Shield: Salary and contributions are company expenses, which reduces profit and therefore corporate tax (10%).
Disadvantages
- •High Cost: The total burden (personal + employer contributions + tax) is high. For you to receive €511 net, the company spends over €767.
- •Administration: Requires monthly submission of declarations (Form 1 and 6) and budget transfers.
2Option 2: Dividend
A dividend is a distribution of profit to the owner. This is the financial result of your risk as an entrepreneur.
How Exactly Is It Calculated?
Let's trace the journey of €5,113 revenue that you want to take as a dividend:
Gross Profit
The company has €5,113 profit.
Corporate Tax (10%)
The state takes €511. €4,602 net profit remains.
Dividend Tax (5%)
On the remaining €4,602, you owe 5% tax = €230.
Net Amount for You
You receive €4,372.
Effective Tax Burden: ~14.5%.
This is significantly lower than the tax and social security burden on salaries.
The Important Limitation: Timing
By law, dividends are distributed after the end of the financial year and adoption of the Annual Financial Statement. This means 2024 profits can be taken in 2025.
Exception: There are options for "advance dividends" or interim statements, but they require more complex accounting procedures.
3Comparison: How to Receive €1,023 Net?
Let's see how much the company needs to spend for exactly €1,023 to reach your pocket.
| Indicator | Salary | Dividend |
|---|---|---|
| Amount to Receive (Net) | €1,023 | €1,023 |
| Personal Contributions and Tax | ~€297 | - |
| Employer Contributions | ~€251 | - |
| Corporate Tax + Dividend Tax | - | ~€174 |
| Total Company Cost | ~€1,570 | ~€1,197 |
| * You save about €373 every month (or ~€4,449 per year) with the dividend option. | ||
4The Golden Mean: The Hybrid Model
Since as a company manager you are obligated to pay social security (unless you're already insured elsewhere at maximum income), you cannot rely on dividends alone.
The optimal strategy for most small business owners is:
Step 1: Self-Insurance at Minimum
Insure yourself as a Self-Employed Person at the minimum threshold (€477 for 2024 or the current year's rate). This way you pay the minimum possible contributions to have healthcare rights and accumulate service years.
Step 2: Dividend for the Rest
All remaining money the company earns that you need for personal expenses, distribute as dividends once a year. This way, on the large sum of money you only pay the low tax (14.5% effective), not the high contributions.
Want to Calculate Your Exact Situation?
Use our salary calculator to see exactly how much insurance will cost at different amounts.
Go to Salary Calculator