Salary or dividends: the trade-off reworked with the right figures

The answer depends less on the rate of tax than on the company form, the level of income already reached and what the director expects from their social protection. Here is the full reasoning, in the order in which it should be conducted.

The question comes back at every year end, and the instinctive answer — “dividends cost less” — is wrong roughly one time in two. It ignores three variables that weigh more than the headline rate: the company form, the amount already paid as salary, and the director’s time horizon.

First variable: the company form

The majority manager of a SARL and the president of a SAS are not in the same position, and the difference lies not in tax but in social security contributions.

Dividends paid to a majority manager covered by the self-employed scheme bear social security contributions on the portion exceeding 10% of the share capital, the share premiums and the sums held on current account. Above that threshold, the supposed advantage of the dividend erodes sharply. In a SAS, the president comes under the general scheme and their dividends escape contributions: there the trade-off tilts more often in favour of distribution, but at the price of far heavier contributions on the salary itself.

Second variable: the level of income already reached

The reasoning changes according to the household’s marginal rate of tax and according to whether the annual social security ceiling has already been passed. A director who has gone beyond that ceiling sees the marginal cost of their salary fall, which brings the two options closer together. A director on a low salary, by contrast, is better off favouring salary: it builds up entitlements that a dividend never does.

This is the point most often overlooked. A dividend generates no pension entitlement, no daily sickness benefit, no invalidity and death cover. A director of forty-five who takes everything in dividends for ten years makes an immediate saving and builds up a pension far below what they imagine.

Third variable: the time horizon

If a sale is contemplated in three or five years, the trade-off must take in the fate of the accumulated reserves. Undistributed profits inflate the value of the shares and, in consequence, the taxable capital gain — failing a structure put in place beforehand. A calculation taken in isolation over the financial year then leads to a decision that costs dear at the time of the sale.

The method

We always cost both branches on the same sheet: total cost to the company, net income received by the director, social entitlements acquired, and the effect on the value of the shares at the exit horizon. In half of our files, the best answer is a mix — a salary calibrated up to the relevant threshold, the balance in dividends — and not one or the other.

This article sets out the law as it stood at the date of publication and does not constitute legal advice. Every situation calls for individual examination: let us take thirty minutes to check yours.