Salary vs. Dividend

If shareholders decide to distribute company profits, the question arises whether this should predominantly be in the form of salary or dividends. Below you will find arguments for and against increasing the dividend share.

Arguments for Increasing Dividends

In 2008, the electorate approved the dividend privilege, which mitigates the economic double burden on the distribution of dividends. Since then, from a tax perspective, it is often more attractive to pay out a dividend instead of a salary. The partial taxation of dividends is regulated differently by canton and requires a certain minimum participation quota, which is usually 10%. In addition to the reduced taxation, dividends are also not subject to AHV contributions.

For shareholders who pay themselves a very low salary and at the same time a high dividend, the AHV can qualify part of the dividend as salary, on which the corresponding social security contributions are then owed. This adjustment occurs in cases of obvious disproportion, up to the level of the customary local and industry-specific salary.

Arguments Against Reducing Salaries

Reducing salaries increases company profits and hence the asset tax value, as it is calculated from both substance value and earnings value. Certain cantons grant mitigated taxation if a company pays low or no dividends.

Another argument against reducing salaries comes from the fact that the annual salary forms the basis for insurance benefits. A lower salary consequently results in lower risk benefits and reduced retirement capital.

To find the optimal ratio between salary and dividends, each specific case must be examined individually. Alternatively, company profits can also be retained in the company and in the event of a sale, can be drawn as a tax-free capital gain.

Alternatively, profits can also be retained in the company and drawn as a tax-free capital gain in the event of a sale.

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