One of the most common and dangerous habits among entrepreneurs is spending money directly from the company’s bank account or cash register for personal needs. It is crucial to remember that even if you are the founder, the company’s money belongs to the legal entity, not to you. Every manat withdrawn from the cash register without proper justification can lead to severe sanctions during a tax audit.
So, how can you withdraw profits from your business legally and in the most optimized way? There are two main methods:
1. As a Salary:
You can appoint yourself as the director of the company and receive a fixed monthly salary. In this case, the company recognizes this amount as an expense, which reduces its corporate profit tax. However, when the salary is high, the employer’s share of DSMF (Social Protection Fund), unemployment insurance, and mandatory health insurance contributions becomes an extra financial burden on the business.
2. As Dividends:
This is the distribution of the company’s net profit among its founders. After the company pays all its expenses and corporate profit tax, dividends are declared from the remaining amount. In Azerbaijan, dividend payments are taxed at a rate of only 5% and carry no social insurance (DSMF) liabilities. This is the most effective and legal way to withdraw larger sums of money.
Which is more beneficial?
There is no one-size-fits-all answer. A precise mathematical calculation must be performed based on your company’s turnover, tax structure, and the specific amount you wish to withdraw.
FGAC Recommendation: To avoid falling into a tax trap when withdrawing profits and to establish the ideal tax planning structure, consult the experts at Finance Group Accounting and Consulting. We handle the calculations, so you can enjoy your legal earnings with peace of mind.
