A. Presentation of the subject: Dividend or salary for an Israeli company shareholder
The choice between receiving a dividend or a salary is a crucial issue for company shareholders in Israel. Indeed, the tax implications and social benefits vary according to the option chosen. At the end of the article, we'll look at the balance point.
B. The importance of choosing between a dividend in Israel and a salary for shareholders
Shareholders need to weigh up their options carefully to optimize their remuneration and minimize tax impacts. The decision must be based on the shareholder's personal financial situation and the company's objectives.
C. Factors to consider when making an informed decision
Several factors need to be taken into account, such as tax rates, social security contributions, social security coverage and the shareholder's financial situation. It is advisable to consult a tax expert to determine the most advantageous option.
I. Taxation of dividends in Israel
As a shareholder of a company in Israel, understanding the taxation of dividends is essential to making an informed decision about your remuneration. In this section, we'll look at the definition of dividends, tax rates, withholding tax and the tax impact of dividends on shareholders.
A. Definition of dividends
Dividends are payments made to shareholders based on the company's profits. They represent a way for shareholders to receive a share of the profits generated by the company without having to sell their shares.
B. Dividend tax rates in Israel
In Israel, dividends are subject to a tax rate separate from the income tax rate. Dividends are subject to a tax rate of 30 % in Israel. This rate can be reduced to 25 % for shareholders holding less than 10 % of the company's shares.
♦ Caution: Past tense a certain threshold3% will be added to annual revenues.
C. Withholding tax on dividends
Withholding tax is a tax practice whereby tax is deducted directly from dividends before they are paid to shareholders. In Israel, the withholding tax on dividends is 30 %, which means that shareholders will receive 70 % of the amount of dividends paid, with the remaining 30% deducted as dividend tax.
D. Tax impact of dividends on shareholders
The tax impact of dividends on shareholders depends on their personal financial situation and overall tax strategy. Dividends may be more advantageous for shareholders who do not require immediate income, and who can benefit from the lower tax rate on dividends compared with salary. However, it is important to consult a tax expert or accountant to determine the most advantageous option for your specific situation.
In summary, the taxation of dividends in Israel is a key consideration when choosing between dividends and salary for shareholders of Israeli companies. A good understanding of tax rates, withholding tax and the fiscal impact of dividends is essential to making an informed decision and optimizing your tax strategy.
II. Shareholder remuneration in Israel
In this section, we'll look at shareholder compensation in Israel, focusing on the definition of salary, applicable tax rates, social security contributions and salary-related benefits, as well as the tax impact of salary on shareholders.
A. Definition of wages
Salary is the remuneration paid to shareholders for their work within the company. Unlike dividends, which are linked to the company's profits, salaries are generally set in advance and are not directly linked to the company's financial performance. Shareholders who also hold an executive or salaried position within the company may receive a salary for their services.
B. Payroll tax rates
In Israel, salaries are subject to progressive income tax rates. These rates vary according to the amount of the salary, and can be as high as 50% for the highest incomes. It is important to note that salaries are also subject to social security and pension contributions.
C. Social security contributions and salary-related benefits
Employed shareholders benefit from social security coverage and the protection offered by social security and pension contributions. This coverage can include benefits such as health insurance, disability insurance and retirement pensions. In addition, employee shareholders may also benefit from tax advantages such as training costs in certain cases, or expenses related to the exercise of their professional activity.
D. Tax impact of salary on shareholders
By choosing to receive a salary rather than a dividend in Israel, shareholders can benefit from additional social security coverage and protections. However, as the tax rate on salaries is generally higher than that on dividends, the overall tax impact of this option needs to be assessed. It is essential to consult a tax expert or an accountant to determine the best strategy based on the shareholder's personal situation and the company's tax objectives.
In conclusion, the choice between dividend and salary depends on many factors, such as the shareholder's personal financial situation, liquidity requirements, and the company's overall tax strategy. It is advisable to consult a professional for advice tailored to each situation.
III. Tax advantages of salary over dividends in Israel
There are several tax advantages associated with choosing salary over dividends for shareholders of Israeli companies, which are discussed below in detail:
A. Social security coverage and protection for employee shareholders
Shareholders who opt for a salary benefit from social security coverage and protection as employees of the company. As employees, they contribute to the various social security systems in Israel, entitling them to benefits such as health insurance, family allowances and retirement pensions. This social security coverage is particularly important for shareholders who also work for the company, as it offers them financial protection in the event of unforeseen events such as illness or disability.
B. Deductibility of company expenses
The salary option also allows shareholders to deduct certain company expenses, which can reduce the amount of corporate tax due. Deductible expenses can include personnel costs, training costs, research and development expenses, among others. So, choosing salary can be advantageous for shareholders wishing to reduce their company's overall tax burden.
C. Potential for wage-related tax relief
In Israel, certain legislative provisions allow shareholders to benefit from salary-related tax breaks. For example, according to the article mentioned in the supplementary text, there are tax benefits for new immigrants and returning residents. These benefits can include tax reductions or exemptions for a set period. So, by choosing to receive a salary, shareholders can take advantage of these tax benefits to reduce their personal tax burden.
In conclusion, the choice between dividend and salary depends on each shareholder's personal tax and financial situation, as well as the company's objectives and overall tax strategy. It is important for shareholders to consult a tax expert or accountant to determine the most advantageous option for them and their company.
IV. Choosing between dividend and salary for a shareholder of an Israeli company
A. Factors to consider when choosing between dividend and salary
There are several factors to consider when choosing between dividend and salary for a shareholder in an Israeli company.
The first factor to consider is the shareholder's personal financial situation. Depending on his or her financial needs, it may be preferable to opt for a regular salary or a one-off dividend. Secondly, the shareholder's liquidity needs must also be taken into account. If the shareholder needs immediate income to meet current expenses, it may be wiser to opt for a salary. On the other hand, if the shareholder has no immediate cash needs, he or she may prefer to receive dividends to benefit from a more advantageous tax rate.
Finally, the company's overall tax strategy is also an important consideration. Depending on the company's structure and the tax advantages available, it may be more advantageous for the company to pay salaries or dividends to its shareholders.
B. Advantages and disadvantages of dividend versus salary options
The choice between dividend and salary has both advantages and disadvantages for shareholders. Dividends generally offer a lower tax rate than salaries, which can be attractive to shareholders wishing to reduce their tax burden. However, dividends do not come with the same social protections and benefits as salaries, such as National Insurance cover and pension benefits.
On the other hand, salaries provide social security cover and protection for shareholders who are also employed by the company. What's more, salary-related expenses can be deducted from the company's taxable income, which can benefit the company as a whole.
C. The importance of consulting a tax expert or accountant to make an informed decision
Given the complexity of tax laws and the many variables to be taken into account, it is essential to consult a tax expert or accountant to make an informed decision on the choice between dividend and salary for a shareholder of an Israeli company. A professional can help you assess your personal and financial situation, as well as that of your company, to determine the most advantageous option for you.
V. Tax strategy for an Israeli company
Tax strategy is a crucial element for Israeli companies, particularly when it comes to shareholder remuneration. Effective tax planning helps optimize shareholder remuneration while complying with current tax regulations.
A. Tax planning to optimize shareholder remuneration
To find the best balance between salary and dividends for shareholders, it is essential to put in place the right tax strategy. This includes understanding Israeli tax laws, analyzing shareholders' financial needs and planning according to the company's long-term objectives. It is advisable to consult a tax expert to help you in this process.
B. Balance point
Having clarified that drawing a salary higher than the company's profit is a mistake from a financial point of view, we come to the million-dollar question - how much is advisable to withdraw? Unlike salaried employees, a majority owner of a company has two options for collecting his or her salary - a fixed monthly salary and dividend withdrawals. While salary tax varies according to the amount of salary, dividend tax in Israel is fixed at 30%.
As a result, we can also look at how profitable it is to withdraw a monthly salary, and how much more profitable it is to withdraw the rest of the salary in dividends. This is calculated on the basis of the marginal tax rate on salary versus the weighted tax rate paid on the company - corporation tax and dividend tax.
An economic analysis will show that the break-even point is generally at a gross monthly salary of around 20,000 shekels. In other words, any amount above this that is declared as a monthly salary will result in the payment of a higher tax than the tax payable on the withdrawal of the salary in dividends. However, there are other considerations regarding this amount beyond the monthly net amount.
C. Break-even point for full social security contributions
The amendment 190 to the Income Tax Act, significantly increases the amount of spending allowed by the company for pension contributions by majority owners, so that if a business owner makes maximum pension contributions, the optimal break-even point for him or her to draw a salary is around 25,000 shekels per month. In return for a maximum pension deposit, the majority owner benefits from a maximum credit and deduction when calculating the applicable tax on his or her salary.
VI. Act wisely
In short, the choice between dividend and salary for a shareholder in an Israeli company depends on several key factors. It is important to consider the shareholder's personal financial situation, liquidity requirements, and the company's overall tax strategy.
Tax planning is of crucial importance for shareholders of Israeli companies. It enables them to optimize compensation and minimize the tax impact. It is therefore essential for shareholders to be well-informed and to consult tax experts in order to make informed decisions about compensation.
For tax advice tailored to your situation and that of your Israeli company, don't hesitate to consult our firm. Our tax expertise and services will help you make the right choice between dividend and salary, taking into account all relevant factors.