Dividend distribution or salary payment?

Owners of an AG or GmbH who work in their own company and are also employed there as an employee (e.g. managing directors) can pay themselves a salary and/or receive a distribution of profit.

In order to mitigate the economic double taxation of profits taxed once as company revenue and then again as income for the owner, the following principle applies: Investment income, also known as dividends, is always only partially taxed. This is subject to the condition that the recipient has a shareholding of at least 10% in the nominal capital or share capital of an AG or GmbH.

For this reason, many entrepreneurs only give themselves a low salary, but pay themselves a higher dividend at the end of the year. This approach is not always ideal when you look at the overall picture.

Dividends are generally regarded as capital gains and are therefore not subject to OASI contributions. To deter abuse of the system, the compensation offices check the ratio between the activity carried out and the salary received. The aim is to prevent company owners from paying themselves high dividends in order to save on OASI contributions. In extreme cases, dividends can be subsequently reclassified as salaries, and OASI contributions may be applied to the amounts at a later date.

If you pay yourself a low salary, you will also pay lower contributions into your pension fund, which will reduce your pension later in life. If you receive a substantial salary, the pension contributions will be considerably higher – and this will benefit your retirement planning.

It is also possible to make purchases into your pension fund. These payments can close existing pension gaps and are fiscally attractive because they can be deducted from taxable income. However, it should be noted that these contributions can only be withdrawn again as a lump sum after a vesting period (usually three years). If managing directors receive mainly dividends instead of a salary, there is no salary basis available for calculating a potential pension gap. As a result, the gap may go unnoticed and remain insufficiently funded.

The total tax burden represents the profit tax paid at the company’s registered office and the income tax paid at the place of residence. A corporation’s profits are first taxed at company level and then again at shareholder level when dividends are distributed – this is when the partial taxation procedure applies.

The ratio between salary and dividends should be carefully thought out in order to avoid an adverse tax impact or a disadvantage in terms of retirement planning. It should also correspond to the situation in the relevant canton.

A salary and dividend strategy requires careful planning to take into account the various opportunities and risks involved, as well as any regional differences in the taxation of profits and income. The effects on social security and retirement planning should not be neglected. To avoid double taxation, it is also advisable to seek tax advice.