Sometimes owners of the company can not decide if they want to be an employee in their company or receive a share of the profits.
I explain it to a specific example.
If the shareholder is employee in his company (a partner has more than 50% participation in their company) and will pay the salary for 12 months, so for example when the salary is € 900 per month than the tax and social security burden (the TSSB) is 43.17%. Taking into account the tax savings from the corporate income tax of 22% from the total labor cost is the TSSB 35.38%, which is 2.46% higher than for the payment of the profit share.
A higher wage means the higher TSSB (maximum reached just at a maximum assessment base). For example, at monthly salary € 560 (€ 6,720 per year) is the TSSB the same as at the payment of the profit share. Below this monthly salary is the TSSB even negative. We have to take into account that payments from salary to the Social Insurance Agency go to the pension insurance, a person’s sickness insurance and unemployment insurance. In 2015 low-income persons can apply a new deductible item for health insurance. On the other hand, at a higher salary the employee is not entitled to a personal allowance in the amount of €316.94 a month, in salary over € 2 918.53 is the tax burden 25%.
The company in 2014 generated a profit before tax € 10,800, which consists of € 900 per month (€ 10,800/12). The corporate income tax is 22%. From the profit after tax at it is necessary to pay the advance payment of 14% to the health insurance company (the HIC). Overall, the company pays out from € 10,800 the amount of € 3,555.36 (2,376 the corporate tax + 1,179.36 payments to the HIC), which is 32.92% and represents the TSSB from the share of the profits.
It is valid only to the amount of the maximum assessment base to the HIC, which was in the year 2014 in the amount of € 48,300 and in 2015 it will be € 49,440. When the amount of the pre-tax profit is € 60,000 (€ 5,000 per month) the overall TSSB will be of 30.99%, in the amount of € 90,000 (€ 7,500 per month) will be 27.86% and for example in the amount of € 180,000 will be 25%.
|Employer payments 35,20%||197,12||316,80||528,00||704,00||880,00||1416,80||1424,59||1444,59|
|Employee payments 13,40%||75,04||120,60||201,00||268,00||335,00||539,35||539,35||539,35|
|Personal tax 19%/25%*||31,92||87,87||186,59||268,86||351,13||696,30||940,05||1565,05|
|Tax and social security burden in % A**||40,16||43,17||45,15||45,89||46,34||48,74||42,50||39,68|
|Total Labour Amount TLA ***||757,12||1216,80||2028,00||2704,00||3380,00||5441,79||6424,59||8944,59|
|Corporate tax savings 22%||166,57||267,70||446,16||594,88||743,60||1197,20||1413,41||1967,81|
|Tax and social security burden in % B****||32,92||35,38||37,01||37,61||37,98||39,95||37,05||32,52|
|Corporate tax 22%||123,20||198,00||330,00||440,00||550,00||885,50||1100,00||1650,00|
|After tax profit||436,80||702,00||1170,00||1560,0||1950,00||3139,50||3900,00||5850,00|
|Payments to the HIC 14%||61,15||98,28||163,80||218,40||273,00||439,53||439,53||439,53|
|Corporate tax + payments to the HIC||184,35||296,28||493,80||658,40||823,00||1325,03||1539,53||2089,53|
|Tax and social security burden in % C||32,92||32,92||32,92||32,92||32,92||32,92||30,79||27,86|
|Difference in burden in % B – C||0,00||2,46||4,09||4,69||5,06||7,03||6,26||4,66|
*At the assessment base more than €2,918.53 the personal income tax is 25% and the person it is not entitled to a personal allowance
**The tax and social security burden in % A is (employer payments 35,20% + employee payments 13,40% + personal tax)/total labour amount
***Total labour amount (TLA) is salary + employer payments 35,20%
**** The tax and social security burden in % B is (employer payments 35,20%+employee payments 13,40%+corporate tax 22%)/ (TLA + corporate tax savings)