1) Dividend
Profit distribution from the Company subject to a 19% personal income tax (PIT), based on financial statements and a resolution on profit distribution.
Pros:
- safe method
- no market value restrictions
- not reported as income in the annual PIT settlement
Cons:
- distribution of funds already taxed once in the Company at a rate of 9% or 19%
- the company must have profit
- tax-inefficient method
2) Remuneration of a management board member
Salary of a management board member based on a resolution establishing remuneration.
Pros:
- constitutes a tax deductible expense for the Company, which, from the owner's perspective, "reduces corporate income tax (CIT)"
- no strict limit on the amount
- safe form
Cons:
- tax-efficient up to PLN 120,000 annually (PLN 240,000 in certain cases of joint tax filing) due to the 12%/32% tax scale
- subject to a 9% health insurance contribution
3) Remuneration for a commercial proxy
Established on a similar principle as the previous point, with the requirement to register the commercial proxy in the National Court Register (KRS).
Advantages:
- constitutes a tax-deductible expense for the Company (paid via CIT)
- the commercial proxy pays income tax themselves, thus having earlier access to funds
Disadvantages:
- the commercial proxy pays income tax themselves, which may cause dissatisfaction
- efficiency drawbacks analogous to the remuneration of a management board member
4) Shareholder Remuneration
Remuneration paid based on the Company's articles of association containing Article 176 of the Commercial Companies Code (KSH). This method gained popularity two years ago, but its days now seem to be numbered.
Advantages:
- no health insurance contribution
- constitutes a tax-deductible expense for the Company
Disadvantages:
- ZUS (Social Insurance Institution) disputes the lack of health insurance contribution as soon as it finds arguments that it is a periodic benefit
- effective up to PLN 120,000 annually
- an inflexible method requiring a change to the Company's articles of association.
- may form a basis for VAT purposes
- does not provide any creditworthiness
- cannot be linked to the Company's profit
5) Invoicing the Company from a Sole Proprietorship
Advantages:
- constitutes a tax-deductible expense for the Company
- choosing a lump-sum tax allows for very tax-efficient withdrawal of funds from the Company
- lump-sum taxation scales smoothly and predictably with larger amounts
Disadvantages:
- a settlement method full of various risks, which in themselves would warrant an entire article, but in short - an invoice must be strongly supported by agreements, actually performed services, and market conditions
- may be challenged as an unjustified expense for the Company or as a different type of agreement (management contract)
6) Management Contract
A method that only makes sense with large budgets. It is certainly not chosen for cost-effectiveness, but rather for legal reasons, for example, taking over the management of an entity for remuneration without joining the board.
Advantages:
- ability to manage the Company's affairs without being on the board of directors
- no need to operate a business
Disadvantages:
- Tax and social security contribution inefficient solution
- Entering into a B2B contract and opting for a lump-sum tax may be challenged as a management contract, leading to the Company having to pay additional contributions and tax.
7) Employment contract
Advantages:
- Ensures full social security contributions
- A relatively safe solution that is not questioned by authorities, with the exception of maternity benefits*
Disadvantages:
- Tax and social security inefficient for the Company; for example, for a net salary of PLN 6,000, the Company must pay a total of PLN 10,000.
- *ZUS may question sick pay benefits based on a contract concluded with a Company in which one holds shares – particularly for maternity benefits and longer sick leaves.
- Extensive documentation and low flexibility
8) Mandate contract
In certain situations, this is an excellent payment method, but it is time-limited to students up to 26 years of age. In such cases, a 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 only applying above that).
Advantages:
- Very efficient for individuals with student status up to 26 years of age
- Can also be efficient for individuals with income split across several entities or an employment contract elsewhere
- Good for variable amounts and linking to performance
Disadvantages:
- Not cost-effective without student status
- social security contributions
9) Contract for Specific Work
On paper, it's the best method, but in practice, it's full of pitfalls.
Advantages:
- very tax-efficient – a typical contract for specific work involving the transfer of copyrights initially results in only 6% taxation (more precisely, 12% tax, but with 50% deductible costs, it effectively comes out to 6%)
- effective up to PLN 240,000 per person
Disadvantages:
- cannot be used for recurring payments (very high risk of being reclassified as a different type of contract)
- it must be a contract for a specific outcome, not for diligent effort
- If you wish to apply 50% tax-deductible expenses, the contract must pertain to copyrights. In practice, it's often forgotten that this is a legal minefield, not least because the effective transfer of copyrights requires a written form under penalty of nullity, and, for example, a scan or signing with a Trusted Profile is insufficient.
- suitable only for certain incidental tasks
- obligation to report every contract for specific work to ZUS
10) Leasing Assets to the Company
Advantages:
- very tax-efficient
- limited by market rates for payments
- remuneration related to real estate will be a tax-deductible expense
Disadvantages:
- car rental payments may be subject to cost limitations
- payments must remain within market rates
This concludes our list of common methods for withdrawing funds from an LLC. Finally, it's worth mentioning a few unscrupulous practices that are sometimes encountered:
- Simply making a transfer to oneself or withdrawing cash from an ATM without any proper accounting. Most accountants record such transactions in the 'owner's current account,' and this is the first account examined during a corporate income tax (CIT) audit.
- Funds 'disappearing' from the cash till. At best, this is an undeclared loan (taxed at 20%), and at worst, it's theft. From a business perspective, it eventually leads to liquidity problems.
- Selling goods to the company at non-market prices.
The presented methods for withdrawing funds from an LLC (excluding the unscrupulous examples mentioned separately) offer diverse approaches, each with its own 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.
