As a business leader, how do you determine your ideal remuneration?
April 2023 – As a company director, you are legally allowed to set your own salary. However, from a tax point of view, there are some important points to bear in mind so that you do not colour outside the lines. How do you put together an ideal salary package, including alternative forms of remuneration?
How you put together an attractive pay mix depends on several factors. One of them, of course, is the budget you need privately to cover all fixed and variable costs each month. A lot of costs come into play in this calculation exercise:
Rent or mortgage
Electricity, gas, water, waste
Food
Insurance and taxes
Costs for childcare, education,...
Various subscriptions (internet, telephone, TV,...)
Clothing
Leisure time
...
Another factor is the impact of your remuneration on the tax you have to pay. For example, it is very important that your company pays you a minimum salary of EUR 45,000 because, as an entrepreneur, you will enjoy a reduced corporate tax rate of 20% (instead of the basic rate of 25%).
In this context, group insurance or IPT (Individual Pension Commitment) is also an interesting avenue. After all, if you build up a supplementary pension via a group insurance policy or IPT - so-called deferred income - the paid-in premiums do not count as a benefit in kind in personal income tax and are deductible in corporate income tax. Two conditions apply here: you must receive regular, monthly remuneration as a company manager and you must comply with the 80% limit. This means that your statutory pension and the non-statutory (extra-legal) pension together cannot exceed 80% of your gross pay in the last year.
As a company manager, you can further optimise your pay by supplementing your gross pay with benefits in kind, such as a company car, laptop, telephone, etc. The costs for these are then charged to your company, which reduces profits and ensures that you do not have to cough up these costs privately.
Another optimisation slope is the possibility of allowing yourself to distribute part of the profits as dividends, which in certain cases are taxed less than wages.
Renting out real estate can also be an interesting arena. Think of renting office space in your own home to your company. But specific conditions apply here too.
In short, when determining your remuneration, many guiding elements and conditions are taken into account. The financial health of your company, including investment plans, should not be overlooked either.
