Why you should pay yourself less than 45k (to earn more)

With Ken Ansoms

In this talk, Ken Ansoms, a seasoned digital-native advisor in accounting and tax, explores the surprising strategy of paying yourself less to ultimately earn more.

Discover the “sweet spot” for tax-optimal salaries as a business owner and learn how your income choices impact social contributions, company taxes, pensions, and overall financial outcomes.

Using real-world case studies, Ken examines the impact of remuneration on the total tax burden.

Don’t miss these actionable insights that can help you strike the perfect balance of your finances as a business owner.

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Increasing Your Wealth by Lowering Your Salary: A Strategic Approach for Business Owners

As a business owner, you might have found yourself trying to figure out what is the best way to optimize your salary strategy. Despite common belief, paying yourself a lower salary might actually increase your net income. This strategic approach hinges on balancing salary and dividends to optimize tax efficiency and increase overall wealth. Let’s explore how this works and why this can be the right strategy for you.

Setting the Right Compensation

Understanding how salaries, dividends, and taxation interact is key to optimizing your compensation. Let’s break down the essential components and explore some case studies to illustrate this strategy in action.

In each case study, we will analyze these four factors together to determine the total tax burden. What remains after accounting for these taxes will be your net income.

Total Tax Burden Formula

TOTAL TAX BURDEN =
Personal Income Tax + Social Contributions + Corporate Tax + Withholding Tax

Personal Income Tax

These are the Personal Income Tax brackets:

Bracket 1: €0 – €15,820 → 25%
Bracket 2: €15,820.01 – €27,920 → 40%
Bracket 3: €27,920.01 – €48,320 → 45%
Bracket 4: Over €48,320.01 → 50%

These tax brackets follow a progressive system, meaning you don’t pay the higher percentage on your entire income, only on the portion that falls within each bracket.

Social contributions

Your social contribution is a statutory percentage of 20.5% on your annual net taxable income, plus management costs of the Social Insurance Fund (for example,, 3.05% on the social contributions at Xerius).

This is the Net Taxable Income Formula:

Net Taxable Income =
Gross Salary
+ Benefits
− Fixed Professional Costs (3%)
− Social Contributions

Corporate Tax

The standard rate is 25% on gross profit

The reduced rate for SMEs is 20% on the first €100,000 of profit, if certain conditions are met.

These are the main conditions:

Exclusively intended for small companies (<50 employees, < 9 million turnover, < 4.5 million balance total)
Minimum remuneration for the manager (45K or more than the taxable profit), with an exception for start-up companies (the first four financial years)
Not a financial company (shares/investments for more than 50% of the capital increased by the taxed reserves)
More than 50% of the shares must be owned by a natural person.

While corporate tax might seem simpler than personal income tax, there are still numerous exceptions and extras. For simplicity, during the presentation, we focused on these main points.

Withholding Tax

Withholding tax is withheld at source when paying out a dividend, after corporate tax has been applied.

The basic rate is 30%.

There are exceptions for a reduced rate:

VVPR bis:
20% (second financial year after that of the contribution)
or 15% (third and subsequent financial years after that of the contribution).
However, subject to a number of conditions (Small companies established after 01/07/2013, …)
Liquidation Reserves:
10% at the start and 5% after 5 years or 0% on liquidation.

Case Studies Overview

The following case studies are inspired by real events but have been adapted and dramatized for this webinar. Names, figures, and details have been altered for privacy reasons. Any resemblance to actual events, locations, or individuals is coincidental.

Disclaimer: Everyone is always responsible for their own decisions. Be sure to conduct your own research on a particular topic before making a decision.