Which Is More Profitable for an LLC Owner: Bonuses or Dividends

January 27, 20250
Bonuses-or-Dividends.jpg

When a limited liability company (LLC) achieves successful operations and generates profit, owners often face the question of which method of withdrawing funds from the company is more advantageous: bonuses or dividends. Each option carries specific tax obligations and impacts the financial status of both the company and the owner.

 

Basic Tax Framework for an LLC

Before funds are withdrawn from the company, it is essential to address the basic tax obligations of an LLC. The company first pays corporate income tax, which in Serbia amounts to 15%. Only after this step can the founders decide how to distribute the profit, either through dividends or bonuses.

When paying dividends, in addition to corporate income tax, owners must pay an additional 15% tax on dividend income, resulting in a total tax rate of 30% on the amount of dividends paid out.

 

When is Bonus Payment More Advantageous?

Paying bonuses becomes a more favorable option, especially for founders who are also employed in their own company, particularly when the profit exceeds one million dinars. In such cases, bonuses are treated as a company expense, reducing the taxable base for corporate income tax.

 

Tax Framework for Bonus Payments

The rules for calculating taxes and contributions on bonuses are similar to those applied to regular wages. For 2024, the maximum monthly base for contribution calculation is 573,470 dinars. If the bonus exceeds this threshold, a 10% tax is applied to the amount above the limit, without additional contributions. This significantly reduces the overall tax obligations for large bonus amounts.

 

Tax Obligations for an LLC Owner

An LLC owner may be employed in their own company, but this is not mandatory.

  • If the owner is employed in the company, they are entitled to a salary, travel expenses, per diems, and other benefits, which are subject to regular taxation rules.
  • If the owner is not employed, they are required to pay contributions for mandatory social insurance based on the minimum base. If the owner has employment elsewhere, their obligations are limited to contributions for the pension fund (PIO). Otherwise, they must also pay for health insurance and unemployment insurance.

Additionally, the owner must pay the annual personal income tax, depending on their total income.

 

 

Differences Between Dividends and Bonuses

While dividends are paid from the company’s profit and are subject to an additional 15% tax, bonuses function as a company expense. Paying bonuses reduces the taxable base for corporate income tax, making them a more favorable option for owners who are employed in the company.

Bonus payments require a resolution for payment during the current month, and they are typically planned at the end of the year when the company’s financial results are known. Bonuses are added to the monthly salary and are subject to the same taxes and contributions as wages.

 

Conclusion

The decision between paying bonuses and dividends depends on several factors, including the amount of profit, tax obligations, and the employment status of the LLC owner. Bonus payments are generally more advantageous for founders who are employed in the company, especially for amounts exceeding the contribution calculation limit. On the other hand, dividends offer a simpler mechanism for withdrawing profit but come with higher overall tax burdens.

Consulting with professional accountants and tax advisors is crucial for making the right decision to optimize obligations and maximize benefits for company owners.

Stefan


Leave a Reply

Your email address will not be published. Required fields are marked *