The remuneration of a member of the management board on the basis of a resolution of the shareholders’ meeting is one of the ways in which money is paid out of a limited liability company. Due to the absence of the burden of social security contributions, the remuneration of a board member in a company is a frequently used solution.
Double taxation in a limited liability company
When operating a limited liability company, the issue of double taxation is encountered, which results from the fact that such a company has a separate legal personality. This is because the income earned by the company is subject to taxation, and in addition the partners paying out money from the company are also obliged to pay tax.
The income earned in a limited liability company is therefore the property of the company, which means that the partners do not have the right to withdraw money from the company without any basis and at any time. Any act of withdrawing money to a partner must be properly documented and accounted for in terms of income tax.
Formalities to be complied with
A payment of money from a limited liability company to a director may be made by virtue of an appointment as a director for remuneration. In order for such an action to be possible, an appropriate resolution of the shareholders’ meeting must be drawn up.
In the indicated resolution or in a separate resolution fixing the board member’s remuneration, the shareholders shall determine the specific amount of remuneration or the conditions for its calculation or may grant other additional benefits relevant to the function. It is no longer necessary to conclude any additional agreement between the board member and the limited liability company.
A resolution of the shareholders’ meeting may define that the remuneration to a given member of the management board for the paid performance of his or her function as a member of the management board in the limited liability company will be paid in a lump sum or will be paid on a monthly, quarterly or other strictly defined periodic basis. In addition, a separate resolution of the shareholders’ meeting may be drawn up at any time pursuant to which a board member will receive additional remuneration (e.g. a bonus) for acting as a board member.
It is worth knowing that this form of remuneration payment is not dependent on the profit generated by the company, which means that the money can be paid even if the company shows a loss.
Remuneration of a member of the management board
Determining the amount of remuneration of members of the management board of limited liability companies is up to the shareholders who have a great deal of freedom in this respect. However, it should be borne in mind that too high a remuneration may be charged as contrary to the articles of association or detrimental to the interests of the company, so the remuneration should be appropriate to the scope of duties performed and the financial condition of the company.
Accounting for the remuneration of a board member on the basis of an appointment letter
Income by virtue of performing functions in company bodies on the basis of an appointment letter is classified as income from activities pursued personally. The remuneration of a member of the management board on the basis of an appointment letter should be subject to income tax on the general principles, i.e. according to the tax scale.
An advance income tax charge of 12% should be made. In the case of an appointment, the member of the management board is entitled to deduct standard costs of obtaining the income, analogous to the employment relationship. However, when determining the amount of advance income tax, it should not be reduced by the tax-free amount.
If the remuneration of a member of the management board does not exceed PLN 200, the payer collects a flat tax at the rate of 12%, without deducting tax-deductible costs.
Paid performance of the function of a member of the management board vs. the Social Insurance Institution (ZUS)
Payment of remuneration on the basis of a resolution appointing a member of the management board or the president to perform the function of a member of the management board for remuneration involves paying contributions to the Social Insurance Institution (ZUS), at the rate of 9%. Such payment is the basis for health insurance coverage.