No matter what way a company director gets paid they will have a tax liability on the income. In this part of our Directors’ Series we look at how an Irish resident company director is taxed on the money they take from their company.
A regular salary or dividends:
Generally speaking, two of the main ways that directors look to take money out of their company are:
- A regular salary
The key thing to say here is that the director will end up paying the same amount of income tax whether they take a salary or dividends or a mixture of both.
What is different is the timing of when the income tax will be paid …
When paid a regular salary:
When paying a salary to a director the company must withhold PAYE taxes at source and just pay the net amount due to the director, the same as any other employee of the business. If this is the only income that the director has then, usually, they will not have to pay any more tax to Revenue when they file their annual income tax return.
When paid a dividend:
When paying a dividend to a director the company must deduct some income tax in the form of Dividend Withholding Tax but this, in most circumstances, is not enough to cover the final income tax bill and so the director will have to make a balancing payment when they file their annual tax return.
The overall amount of tax to be paid will be the same, just the timing of the payment will be different.
In contrast in the UK, directors can take a certain amount of dividends from their UK company tax free each year.
Tax treatment for the company
Whilst the income tax treatment is the same, company directors should be aware that the tax treatment for the company is very different.
A salary paid to a director is fully tax deductible and will reduce the tax liability of the company for the year in question.
Dividends paid to a company director are not deductible for tax by the company so they will end up with a higher corporate tax bill as a result.
Getting value from your company
There are other ways to extract value from your company which may make more sense from a tax perspective, like setting up an Executive Pension Plan. Read more about getting value from your company here
Date published 06 Jul 2021 | Last updated 15 Jul 2021This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.