Salary vs dividends: what trade-off for an SME business owner

For a company director, the trade-off between salary and dividends directly affects the net amount received, social security protection, and personal borrowing capacity. It's not a decision to set in stone.

The impact on social security coverage

A salary builds up social security rights (pension, health and disability insurance) proportional to contributions paid. A structure that only pays out dividends limits its social security protection — a point often underestimated when making the decision.

Compare the overall tax burden, not just the headline rate

The tax rate on dividends often looks lower than on salaries, but the comparison must factor in the corporate tax already paid upfront on the distributed profits, to arrive at the true overall rate.

The effect on personal borrowing capacity

Banks value a regular salary income differently from dividends, which can vary from year to year. A director with a personal property project would do well to anticipate this before adjusting their compensation structure.

The optimal trade-off depends as much on the director's personal situation as on the company's structure — it's built through an annual review rather than a general rule applied as-is.