Extracting cash from your company in a tax-efficient manner is crucial for maximizing your personal wealth while minimizing your tax liabilities.

Here are several strategies to consider:

  1. Salary and Bonuses

Taking a salary or bonus is the most straightforward way to extract cash from your company. However, this method is subject to income tax, PRSI, and USC, which can be quite high. Here are some key points:

  • Income Tax: Up to 40%
  • PRSI: 4%
  • USC: Up to 8%

While this method involves significant tax costs, it is suitable for regular cash extractions and allows the company to make a tax deduction for the gross emolument in the calculation of its taxable profits for corporation tax purposes.

  1. Dividends

Dividends are another common method of cash extraction. They are subject to income tax but not PRSI or USC. However, dividends are paid out of after-tax profits, meaning the company must first pay corporation tax on its profits.

  • Income Tax on Dividends: Up to 40%
  • No PRSI or USC
  1. Pension Contributions

Your company can make pension contributions on your behalf, which are not subject to income tax, PRSI, or USC. This method allows you to save for retirement in a tax-efficient manner.

  • Tax-Free Contributions: Up to certain limits
  • No Immediate Tax Liability
  1. Loans to Directors/Shareholders

You can lend money to the company instead of investing in shares. The company can then repay the loan without tax implications. However, there are specific rules and potential pitfalls:

  • No Tax on Repayment: If structured correctly
  • Interest on Loan: Can be charged at a commercial rate
  • Withholding Tax: If the loan period is longer than one year, the company must withhold standard rate income tax from the interest payment.
  1. Renting Property to the Company

If you own a property, you can rent it to your company at a commercial rate. The company gets a tax deduction for the rent, and you are taxed on the rental income. You can offset this income with allowable expenses, such as mortgage interest.

  • Tax Deduction for Company: On rental payments
  • Tax on Rental Income: Can be offset with expenses
  1. Sale of Assets to the Company

Selling personal assets to your company can be a tax-efficient way to extract cash, especially if little or no Capital Gains Tax (CGT) arises on the sale.

  • No Income Tax or CGT: If structured correctly
  • Stamp Duty: May apply on the sale
  1. Share Buybacks

Your company can buy back its shares from you, which can be treated as a capital transaction rather than income. This method can be tax-efficient if combined with reliefs such as retirement relief or entrepreneur relief.

  • Capital Gains Tax: 33%
  • Retirement Relief: Up to €750,000 tax-free if conditions are met
  • Entrepreneur Relief: Reduced CGT rate of 10% on gains up to €1 million
  1. Winding Up the Company

If you decide to wind up the company, the distribution of assets can be treated as a capital transaction, subject to CGT rather than income tax.

  • Capital Gains Tax: 33%
  • Retirement Relief and Entrepreneur Relief: Can apply to reduce the tax liability

Conclusion

Extracting cash from your company in a tax-efficient manner requires careful planning and consideration of various methods.

Each method has its own tax implications and benefits, so it’s essential to choose the one that best suits your financial goals and circumstances.

 

Consulting with a tax advisor or Accountant can help you navigate these options and develop a strategy tailored to your needs.