Ways of withdrawing funds from your company’s account
Ways of withdrawing funds from your company’s account
Many businessmen choose to become owners of their own private company since it is legally appealing when compared to working as a sole trader. Being the shareholder and director of your own company enables you to maximise your after-tax earnings through a well-planned structure.
A limited liability company is a separate legal entity from its owner/shareholder whereby all of its assets belong to the entity rather than to the owner. This means that you cannot take money from your business like you would from your personal account. There are specific procedures which need to be followed and any money going in and out of your business must be properly recorded and accounted for.
Listed below are the three main ways by which you can withdraw money from your company’s account:
- Salary
- Dividend
- Loan (from the Company)
Salary
Once the initial set up has been done, taking a monthly salary from your business is a straightforward process. Preparing a cash-flow forecast to determine your estimated revenue and expenses for the year and thereof the profit will help determine the amount of salary that you wish to take on a monthly basis to optimise your tax payment.
It is also important not to forget the monthly regulatory requirements in terms of tax and social security filings that comes with a salary. The main advantage of paying a salary comes from an Income Exemption Threshold of at least MUR 325,000 which you can claim as deduction from your salary.
Dividend payments
Once your company in solvent (defined in the Companies Act 2001, Section 6), any excess amount thereof can be paid as dividend to the shareholder(s) of the Company. Dividend from a resident corporation is free from any tax in Mauritius but comes with a few administrative procedures, namely:
- Preparation of Management Accounts up to the date of the proposed distribution
- Preparation of Solvency Test and Certificates
- A Board Meeting or a Written Resolution of Directors (in lieu of a Board Meeting) to approve the Dividend Distribution
It is worth noting that dividend can be declared at any time of the year and can even be declared several times during the year and for any amount, as long as the company meets the solvency test before and after distribution of dividend.
Loan to Shareholder
A loan allows you to borrow money from the Company to meet any immediate personal cash-flow requirement. However, the loan is a liability you owe to the Company and needs to be repaid, preferably before the financial year end. The tax liabilities and any interest payable concerning loans depend on the balance and the length of time for which the account is overdrawn. All transactions must be properly recorded and it is important that the loan is drawn at arm’s length, i.e., an interest as per the market rate is charged on the balance due. The interest then paid to the Company will be accounted for as an income, therefore, taxed at the level of the Company.
Accounting & Tax services
With different options available, it’s not always easy to know what the best way to withdraw money out of your company is. Many business owners find that paying themselves a combination of salary and dividends is the most tax-efficient way of operating. This will depend on your business and your personal needs. Having a dedicated accountant can take the stress of tax planning away, as we can advise on a tailored salary and dividend combination to withdraw from your company.
JurisTax provides tailor-made accounting and tax solutions to its clients to help them manage their business in a more efficient and effective manner.
We offer our support and capabilities to our clients to achieve their business objectives.
For more information, we invite you to contact the Business Development Team by email at bd@juristax.com or call them on + 230 465 55 26.