Optimal remuneration and profit distribution for directors in Irish Ltds and US LLCs for foreign founders

Introduction

For foreign founders setting up an Irish Limited (Ltd) or a US LLC, the question of optimal remuneration and profit distribution is essential. Whether a director receives a salary or a profit distribution can have significant tax implications. This article highlights the differences and shows how to optimize the tax burden in both countries.

Salary or profit distribution: what's the difference?

Salary

Directors of a Irish Ltd can have a regular salary paid out to them, which is treated as normal earned income. This salary is subject to income tax and national insurance contributions (PRSI). One advantage is that the salary can be deducted from corporation tax as a business expense.

Profit distribution

Alternatively, directors can receive profits as a profit distribution or dividend. These are only subject to income tax and not to social insurance. However, dividends are not deductible business expenses.

Remuneration and taxation in an Irish Limited (Ltd)

Salary in an Irish Ltd

• TaxationSalaries are taxed as regular employment income, which includes income tax and PRSI.
• Operating expenseSalaries are deductible business expenses and reduce the corporation tax of the Ltd.
• Tax rateThe top tax rate in Ireland can be up to 52%.

Distribution of profits in an Irish Ltd

• TaxationDividends are only subject to income tax.
• No social insuranceThere are no PRSI contributions on dividends.
• Not deductibleDividends are not operating expenses.

Remuneration and taxation in a US LLC

Salary in a US LLC

• TaxationSalary is taxed as personal income.
• Operating expenseSalaries are deductible business expenses that reduce the LLC's tax burden.
• Social security contributions: Salaries are paid in the USA Social security contributions to.

Profit distribution from a US LLC

• TaxationProfit distributions are taxed as personal income.
• No social security contributionsDividends are not subject to social security contributions.
• Tax burdenThe tax burden must be considered at company and individual level.

Optimal remuneration and profit distribution for foreign founders

Combination of salary and profit distribution

In Ireland, a combination of a moderate salary and dividends can optimize the tax burden. A salary provides social security protection, while dividends allow for a lower overall tax burden.

US-LLC strategies

In the USA founders should consider the tax burden at personal and company level together. The decision between salary and profit distribution can depend on the individual tax strategy and company profits.

Consider individual circumstances

The optimal distribution depends heavily on personal circumstances, company profits and the tax framework in the respective countries. It is advisable to make a to form a partnership so that taxation is limited to the partner's income tax.

FAQs

If a director of a Ltd in Ireland Salary or profit distribution?

A director can receive both a salary and a dividend. A salary is taxed as normal employment income and reduces corporation tax, while dividends are only subject to income tax.

Is it more tax-efficient to receive a salary or a profit distribution?

This depends on the individual circumstances. Salaries are business expenses and reduce corporation tax, but are subject to income tax and PRSI. Dividends are only subject to income tax.

How is the salary of a director in a US LLC taxed?

A salary in a US LLC is taxed as personal income and is a deductible business expense that reduces the LLC's tax burden.

Are social security contributions payable on profit distributions from a US LLC? on?

No, there are no social security contributions on profit distributions from a US LLC, but they are taxed as personal income.

How does social security affect the choice between salary and dividend?

In Ireland, a salary is subject to social security contributions, while dividends are exempt. In the USA, social security contributions do not apply to dividends.

What are the advantages of a moderate salary for directors?

A moderate salary provides social security cover and can reduce the Ltd's corporation tax burden, while the rest of the profits can be distributed as dividends to optimize the tax burden.

Conclusion

The choice between salary and profit distribution for directors of an Irish Ltd or a US LLC depends on various factors. Both types of remuneration have different tax implications and can be combined to optimize the tax burden. It is important to consider individual circumstances and seek professional advice to develop the best strategy.