A management company is a generic term (not a legal status) used to describe a company whose corporate purpose is to provide services through its director.
In short, all consultants who have a company they use to invoice their clients and pay themselves a director’s salary each month have a management company.
A management company is an excellent tool for optimizing your taxes and managing your income effectively. However, withdrawing money from such a company can be tricky if you lack the right information. Here’s a comprehensive guide to the four main methods, with their advantages, drawbacks, and tax implications.
Paying yourself a salary: simple but tax-heavy
The most common method to receive money from your management company is to pay yourself a salary as a company director. This approach ensures a regular income while contributing to your social security.
Advantages :
- Provides a stable income.
- Ensures social coverage (pension, health, unemployment).
- Compatible with the Pension Libre Complémentaire pour Indépendant (PLCI).
Drawbacks :
- Subject to progressive income tax rates (25% to 50%, plus municipal tax).
- Requires payment of 20.5% social security contributions on gross salary.
Tip :
To limit your tax burden, avoid paying yourself a salary that is too high if you don’t need the cash or have other sources of income. It’s better to keep that money in your company and pay yourself dividends later.
Distributing dividends: shared profits with conditions
Dividends are a popular way to withdraw money based on your company’s profits (after corporate tax). They are subject to a withholding tax known as précompte mobilier.
Standard regime: A 30% withholding tax applies.
VVPR-bis regime: For single-member management companies, it is possible to reduce this withholding tax to 15% under the VVPR-bis regime. To benefit from this advantageous scheme, a few conditions apply (well summarized here by Billy):
- Your company must qualify as a small company under the law.
- Reduced dividends only apply from the 4th financial year onwards.
- Company shares must be registered and issued on or after July 1, 2013.
- The capital must have been contributed in cash and fully paid up.
Advantages :
- Generally lower tax rates than salaries, especially under the VVPR-bis regime.
- No social contributions on dividends.
Drawbacks :
- Does not provide social coverage.
- Profits are first taxed at the corporate tax rate (20% or 25%).
Tip :
Plan dividend payments to take full advantage of the VVPR-bis regime. Consult your accountant to ensure compliance.
Building a liquidation reserve: patience pays off
The liquidation reserve is an interesting solution for small businesses looking to maximize their liquidity over the long term. This method allows companies to retain profits within the business while making them available later at a reduced tax rate.
This scheme is only available to small companies as defined by law.
How does it work?
- A company allocates all or part of its profits to a liquidation reserve, subject to an additional corporate tax of 10%.
- During the first 5 years, an additional withholding tax of 20% applies (resulting in a total tax burden of 27.27%).
- After a 5-year period, these funds can be distributed to shareholders with only a 5% withholding tax (bringing the total tax burden down to 13.64%).
- In case of business cessation, no additional tax is due (only the 10% tax paid at the time of allocation to the reserve).
Advantages :
- Reduced overall tax rate.
- Encourages long-term retention of funds within the company.
- Tax-free distribution upon business cessation.
Drawbacks :
- Funds are not immediately available.
- Requires diligent profit management.
Tip :
This method is ideal if you don’t need immediate cash. Build this reserve gradually to maximize its benefits over time.
Establishing a complementary pension: smart future planning
Directors of companies can invest in complementary pension plans that combine tax benefits with retirement savings. The main tools are:
Pension Libre Complémentaire pour Indépendant (PLCI) :
- Open to all self-employed professionals.
- Contributions are tax-deductible within legal limits.
- Helps supplement the often insufficient statutory pension for self-employed professionals.
Engagement Individuel de Pension (EIP) :
- Specifically for business owners.
- Allows for the accumulation of additional pension savings while benefiting from corporate tax deductions.
- Contributions are deductible as long as they comply with the 80% rule, which takes into account your first- and second-pillar life insurance: your statutory pension and the PLCI.
Advantages :
- Immediate corporate tax savings via deductible contributions.
- Ensures a supplementary income during retirement.
Drawbacks :
- Funds are locked until retirement.
- Requires long-term financial planning.
Conclusion : tailor your strategy to your needs
Choosing the best method to withdraw money from your management company depends on your personal and professional goals. Here’s a quick recap:
- Salary : Practical for regular income but tax-heavy.
- Dividends : Great for distributing profits, especially under the VVPR-bis regime.
- Liquidation reserve : Ideal for long-term savings and lower taxes.
- Pension plans : Smart for retirement planning with tax advantages.
Combining these strategies often yields the best results. Consult an accountant or tax specialist to fine-tune your approach and maximize both your financial security and tax efficiency.
Need more advice on managing your management company or starting your independent business?
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written by Thimothée Remy
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