I’m considering opening an OÜ and am trying to understand the tax implications for this type of company. I’m a product designer with a non-EU passport. The documentation is quite complex, and I’m struggling with some basics, like understanding the difference between paying myself a salary and paying myself dividends. Can someone help clarify this in simpler terms?
Based on your experience, what percentage of your monthly income typically goes to taxes?
If I want to withdraw 3000 euros for personal expenses from my OÜ business account:
As a salary:
As dividends:
The difference between taking salary and dividends is that salary provides social benefits like health insurance.Right?
Welcome to the community!
Regarding your inquiry, there is no specific percentage as it depends on the business activity (service type, customer type, and location, and whether they withdraw funds from the company).
Additionally, I recommend checking out these FAQ pages for more information:
Should you need help with anything else, please let me know!
Partly depends on where you live. I should specify that I’m trained as a lawyer, but not practicing as one - and tax isn’t remotely my area of expertise. I’m not giving advice here, just breaking down the standard tax treatment of salary vs. dividends so you can see where the theoretical advantages lie. Your OÜ will typically pay Estonian taxes on any dividends you distribute, while you will pay income tax on either your salary or your dividends based on wherever you are tax-resident, and according to the tax rules of that country. I’m most familiar with the UK, so I’m going to go with that for this thought experiment.
The chief difference between salary and dividends is that dividends are taxed at a different (sometimes flat, usually less-progressive) rate, while salary will accrue contributions (like an unemployment insurance/healthcare insurance/national pension contribution) and then it will usually be taxed at a progressive/increasing rate depending on how much you make.
I’ll break down the UK’s treatment first.
If you earn £20,000 annually as a UK resident taxpayer, the tax treatment would differ based on whether you take the income as a salary or as dividends:
Total payable if taking £20,000 as salary = £1,486 (income tax) + £1,252 (NICs) = £2,738
Total payable if taking £20,000 as dividends = £1,231 + £1,833 = £3,064In summary, taking £20,000 as a salary would result in a total tax liability of £2,738, while taking the same amount as dividends would lead to a higher tax bill of £3,064. However, no NICs are payable on dividends.
However, the numbers get more intense if the values are higher, because of the progressive tax-banding system. Again, this is a UK example, but most countries have a somewhat similar approach.
Total payable if taking £90,000 as salary = £7,540 + £15,892 + £6,501 = £29,933
Total payable if taking £90,000 as dividends = £3,100 + £18,249 = £21,349
The value gap between taking £90,000 as a salary versus dividends is £29,933 - £21,349 = £8,584. Taking the income as dividends results in £8,584 less tax payable compared to taking it as a salary.
The one issue is that tax authorities typically expect you to take SOME income as a salary. If you pay yourself 100% (or even 99%) dividends, they will sometimes take aggressive enforcement action or periodically audit you - and every country’s approach to this stuff is slightly different. These numbers are here as an experiment and a breakdown to show you where the theoretical advantages are - I’d suggest that you talk to a tax advisor, accountant, tax attorney, or another professional with specific knowledge of your situation before you start making plans based on this info.
Hope this helps, and I’m happy to provide additional reference info if it would be useful.
Note: I used Perplexity to quickly pull this together. I’ve edited for clarity and coherence.