10 methods of withdrawing funds from the limited liability company

Company owners often wonder how to effectively and legally use the generated profits. There are many methods that allow you to withdraw funds from a limited liability company. In this article we present 10 of them, divided into their advantages and disadvantages, to help entrepreneurs choose the most beneficial option tailored to the needs and financial situation of the company.

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1) Dividend

A payout of profits from the company, subject to a 19% PIT tax, based on the financial statement and a resolution on profit distribution.

Advantages:

• a safe method
• no limits in terms of market value
• not reported as income in the annual PIT settlement

Disadvantages:

• funds are paid out after being taxed in the company at a rate of 9% or 19%
• the company must make a profit
• not very tax-efficient

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2) Remuneration of the board member

The salary of a board member based on a resolution establishing the remuneration.

Advantages:

• represents a tax expense in the company, which "lowers the CIT" from the owner's perspective
• no hard limit on the amount
• safe method

Disadvantages:

• tax-efficient only up to PLN 120,000 annually (PLN 240,000 in some cases of joint taxation), due to taxation on a scale of 12%/32%
• subject to a 9% health insurance contribution

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3) Remuneration of the proxy

Established on a similar principle as the previous point, with the requirement to enter a proxy in the KRS.

Advantages:

• is a tax expense in the company (payment by CIT)
• the proxy pays their own income tax, so they have access to funds before

Disadvantages:

• the proxy pays their own income tax, which may cause dissatisfaction
• tax inefficiency similar to the remuneration of board members

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4) Remuneration of the shareholder

Remuneration paid based on the company's agreement containing Article 176 KSH. A method that gained popularity two years ago and rather its days seem to be numbered.

Advantages:

• no health insurance contribution
• is the cost of obtaining income in the company

Disadvantages:

• ZUS may challenge the absence of health insurance contributions if it finds evidence of periodic benefits
• effective only up to PLN 120 000 per year
• not very flexible way requiring changes to the company's agreement
• can be a basis in VAT taxation
• does not offer any creditworthiness
• cannot be linked to the company's profit

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5) Invoicing the company with sole proprietorship

Advantages:

• is the cost of obtaining income in the company
• choosing a flat-rate taxation allows for very tax-efficient fund withdrawals from the company
• flat-rate taxation scales smoothly and predictably with larger amounts

Disadvantages:

• a form of settlement full of risks that could be discussed in detail in another article, but briefly - the invoice must be strongly supported by contracts, actual services performed, and market conditions
• may be challenged as an unreasonable expense in the company or as another contract (management contract)

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6) Management contract

A method that makes sense only with large budgets. It is certainly not chosen for cost-effectiveness but rather for legal reasons, for example, taking over management of the entity for remuneration without joining the board.

Advantages:

• ability to manage the company's affairs without being on the board
• no need to own a business

Disadvantages:

• inefficient solution in terms of tax and contributions
• a B2B contract and the desire to choose a lump sum may be challenged as a management contract, which could result in the company needing to pay additional contributions and taxes

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7) Employment contract

Advantages:

• provides full contributions
• a relatively safe solution that is not contested by the authorities except for maternity benefits*

Disadvantages:

• low tax and contribution efficiency for the company, for example, for a PLN 6,000 net salary, the company must pay PLN 10,000
• *ZUS may challenge sickness benefits based on an agreement with the company in which the shareholder has shares, especially for maternity allowances and extended sick leaves
• extensive documentation and little flexibility

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8) Mandate contract

In certain situations, this is an excellent method of withdrawals,but it is limited to students under the age of 26. In this case, the mandate contract has no contributions or taxes up to PLN 85,000 (and above this amount, there is a PLN 30,000 tax-free allowance, with 12% taxation above that).

Advantages:

• very effective for individuals with student status under 26 years old
• may be effective for individuals with income divided among several entities or a work contract elsewhere
• good for variable amounts and relation to the result

Disadvantages:

• unprofitable without student status
• contribution charges

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9) Contract for specific work

On paper, the best method but in practice full of traps.

Advantages:

• very tax-efficient – a typical contract for specific work with copyright transfer is effectively taxed at only 6% (precisely the tax is 12%, but 50% of the cost of income is deductible, so it effectively amounts to 6%)
• effective up to PLN 240 000 per person

Disadvantages:

• cannot be used for recurring payments (very high risk of being challenged as a different type of contract)
• it must be a contract of concrete result, not careful action
• If you want to apply 50% of the costs of obtaining income, then the contract must relate to copyright. Very often in practice it is forgotten that this is a legal minefield, if only because for the effective passage of copyright, a written form is necessary under the penalty of invalidity and, for example, a scan or signing with a Trusted Profile is insufficient.
• only suitable for some incidental activities
• every contract for specific work must be reported to ZUS

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10) Renting assets to the company

Advantages:

• very tax-efficient
• limited by the market value of payouts
• remuneration related to real estate will be the cost of obtaining income

Disadvantages:

• car rental payouts may be limited in cost
• withdrawals must stay within market limits

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This concludes the list of methods for withdrawing funds from a limited liability company. Finally, it is worth mentioning a few dishonorable methods that exist in practice:

• Simply making a transfer or withdrawing money from an ATM and not settling it in any way. Most accountants will record such things under the account "accounts with the owner," and this is the first account checked during CIT audits.
• "Disappearing" funds from the cash register. In the best case, this is an unreported loan (taxed at 20%), and in the worst case, it is theft. From a business perspective, it will sooner or later lead to liquidity problems.
• Selling items to the company at non-market prices.

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The methods for withdrawing funds from a limited liability company (other than the dishonorable examples presented outside the list) offer various approaches, each with its advantages and disadvantages. Each option should be carefully considered, and we recommend consulting a tax advisor for the final choice that best suits the company's needs.