- Do I need one ?
- Savings on tax and social security contributions
- A high degree of flexibility
- A means of investment
- Protection against professional risks
- A valuable aid for your retirement years
This is a question that every company director has asked or will ask sooner or later.
In many cases, it’s a question that’s impossible to avoid, given our legal and tax environment. Just think of pension plans, LBO/MBO operations, real-estate investments…
We give a brief outline below of the key advantages of a management company.
But bear in mind that forming this type of company isn’t the best solution for everyone; a case-by-case analysis is essential.
A management company must also be run in an optimised way, or it will be useless, take up time and generate unnecessary costs.
With extensive experience in this field, we’re at your disposal to investigate how a management company could benefit you and to quantify the advantages using numerical simulations.
The main savings lie in the difference between the personal income tax rate (50%) and the corporate tax rate (from 25.75% to 33.99%).
Additional municipal taxes are added to personal income tax (but not to corporate tax) at rates of up to 8.5%.
Companies, meanwhile, benefit from a reduction in the taxable base as a result of the notional interest deduction.
Finally, all profits not paid to the director in the form of remuneration avoid INASTI social security contributions (constituting an average saving of 20%).
If profits are distributed in the form of dividends, they are subject to a tax of 15% or 30%, which, when added to the corporate tax of 33.99%, brings the total tax on distributed profits to 43.9% or 50.5%.
Note that the corporate tax rate applicable to SMEs will be reduced to 20% from 2018.
For companies belonging to more than one director, it’s not uncommon for directors to invoice for their respective shares and then allocate the resources based on their priorities.
Experience tells us that directors’ priorities vary greatly and can be incompatible at times. Some favour security (disability insurance, guaranteed income, etc.) and pensions (maximum group insurance), while others prepare their pension through investments. Some focus on the present by developing business through representational activities, treating themselves to big cars and the latest tech accessories. The best way to pay a director depends on a variety of personal factors such as age and family set-up. By forming a management company, you can avoid questions and unproductive discussions about entertainment expenses, the tax cost of a car, the price of a mobile phone, the cost of phone bills, pension premiums, insurance, and so on.
Directors may then change their goals, for example by making up for the years in which they didn’t pay contributions to a non-statutory pension when they reach the end of their careers. It’s also possible to vary pay with the aim of boosting a non-statutory pension. The choice between granting remuneration, profit-sharing bonuses, dividends, options and benefits of any kind (car, house, domestic servants, heating, electricity, etc.) reflects the potential flexibility of a management company.
Given the reduced charges on the company’s profits, the management company has more resources for investment and self-financing.
It’s an advantageous investment tool: for example, a real-estate investment will allow various expenses to be deducted, including purchasing costs, depreciation of the property (capital) and interest on loans. But bear in mind that the type of property, its condition (renovation, conversion, etc.), its intended use (residential, commercial, industrial, etc.) and the type of acquisition (freehold, usufruct, long lease, etc.) must always be assessed or the transaction could give rise to very unfavourable tax results in the medium term.
Particular care should be taken when buying an apartment by the sea or a family home, which are in principle less favourable set-ups.
Countless entrepreneurs have used a management company to buy back the company where they were executives, while deducting interest on loans and avoiding new taxes on sums allocated for repaying the loan. Without this combination, the buy-back was simply impossible!
A management company is a means of safeguarding the fruits of your work and investments in the event of your business going bankrupt.
Sale, retirement, inheritance and gifts
It’s no secret today that transferring company interests is easy and cheap, regardless of how the wealth is made up.
By choosing one corporate legal status or another, you can pass on your business while remaining fully in control.
In some cases, a management company is a valuable aid for transferring an enterprise; for example, it can follow up on business after your retirement or clear items that the transferee doesn’t want or is unable to take over.
It’s also a well-known fact that a management company can charge a higher amount for services than the ceiling allowed for retirees, who can reap the rewards of their work in a different way, particularly through the distribution of dividends or by liquidating the company. This means that former managers can retire without penalising their professional entourage with an abrupt departure. Retirees can also take up new activities or spend time on their hobbies without compromising their pensions.
In short, forming a management company allows you to make personalised arrangements throughout your career and modify your choices without being penalised. It’s an ideal solution for company directors whose careers are exposed to numerous, constantly fluctuating risks.