Every good manager knows that successful company management involves significantly more than just making strategic decisions. In addition to business acumen, thorough knowledge of the Commercial Code and accounting is beneficial to correctly and cost-effectively calculate all types of fees and related taxes. In the tax accounting of micro, small, and often even medium-sized enterprises, a common question arises when the company’s founder and owner also serves as a board member and performs work for their own company. How then to differentiate between the remuneration of a board member, salary, and dividends, and what are the tax and legal specificities of each option? Choosing the correct contract and remuneration form does not simply mean legal compliance – it is also a matter of fair competition and the company’s financial stability.
Management Board Member’s Remuneration – Compensation for Company Management
The task of a management board member is to manage and represent the company, organize accounting, and ensure the company’s legal compliance. Their employment contract is regulated by the provisions of the Law of Obligations Act regarding mandate agreements, along with the relevant paragraphs of the Commercial Code (§ 180–187).
Important points regarding the remuneration of a management board member:
- The law does not require that a management board member be paid a fee – it is up to the shareholders or the supervisory board to decide.
- The fee and payment procedure are determined by a decision of the shareholders or the supervisory board. A management board member may not determine their own remuneration.
- The remuneration must be reasonably proportionate to the job duties and the company’s economic situation.
- There is no minimum fee requirement, but to qualify for health insurance, a fee of at least the minimum wage of the previous calendar year must be paid, and the minimum social tax rate must be paid on it. If the minimum wage is not actually paid, health insurance is lost. For comparison – during unpaid leave for an employee with an employment contract, paying the minimum social tax (270.60 € per month in 2025) is sufficient to maintain health insurance.
- Unemployment insurance contributions and mandatory funded pension contributions are not calculated from the management board member’s remuneration – this means a slightly lower tax burden, but also fewer social guarantees.
- A management board member cannot register as unemployed or receive unemployment insurance benefits.
Example: If a management board member is paid 300 € per month, social tax is calculated only on the amount actually paid (99 €). If this is their only income, they will not receive health insurance.
Salary and Employment Contract – Greater Guarantees, Clearer Framework
If a person performs work duties under the management and control of an employer, an employment contract must be concluded. This ensures broader rights and social guarantees for the employee, but also entails greater obligations and labor costs for the employer.
Advantages of an employment contract from the employee’s perspective:
- The contract minimum guarantees a minimum wage (886 € gross per month in 2025).
- The employer is responsible for the working environment and organizes occupational safety.
- Right to paid leave (28 calendar days per year).
- Right to health insurance, unemployment insurance, and redundancy pay.
- Ability to register as unemployed and receive benefits.
Salary taxation:
- Income tax 22% (possible to use tax-free income of 654 euros per month).
- Social tax 33% (ensures health insurance and pension).
- Unemployment insurance contribution (1.6% from employee and 0.8% from employer).
- Mandatory funded pension contribution (2% from employee, if applicable).
Important limitation for a management board member:
If a management board member only performs the duties of a management board member, an employment contract cannot be concluded with them. An employment contract is only possible if they perform separate work duties that do not overlap with the functions of the management board. For example, a management board member of a dental clinic may work as a dentist in the same company – in this case, two contracts are concluded: a management board member’s contract and an employment contract.
Dividends – Owner’s Income from Profit
Dividends are passive income paid to owners from the company’s profit after the approval of the annual report. They are not salary or management board member’s remuneration and are not subject to social tax.
Dividends can only be paid if:
- The share capital has been fully paid in.
- The annual report has been approved.
- The company has undistributed profit.
- The payment of dividends does not reduce equity below the statutory limit (at least half of the share capital, but not less than 2500 €).
- Income tax on dividends is 22/78 (28.2% of the net amount).
- Example: If you want to pay out 1000 € in dividends, 282.05 € must be calculated as income tax, so the total cost to the company is 1282.05 €.
Dividends Cannot Replace Management Board Member’s Remuneration
In practice, some companies try to reduce the tax burden by paying only dividends to a management board member who is also an owner.
This is risky because:
- Dividends are the owner’s profit income, not remuneration for active work.
- If a management board member is not paid a fee or it is disproportionately small, the Tax and Customs Board may consider dividends to be hidden salary and tax them accordingly. This can lead to additional taxes, interest, or even sanctions.
Summary – When to Use What?
- Management board member’s remuneration is reasonable if the person performs only management and representation duties and does not require unemployment insurance or other social benefits.
- Salary based on an employment contract is necessary if the work is daily, differs from the duties of a management board member, and is subject to the employer’s instructions – this ensures greater rights and security for the employee.
- Dividends are the owner’s income from profit, which are paid only when the statutory requirements are met – they do not replace the remuneration of a management board member or an employee.
Therefore, choosing the correct contract and remuneration form is not just a legal requirement – it directly affects the company’s reputation, tax burden, and employee satisfaction. If you, as a company owner or manager, have doubts, it is advisable to consult an accountant or lawyer to ensure both legal compliance and optimal taxation.
Be sure to also read information about taxes associated with various contracts on the EMTA website.
If you’d like to invest your time in developing your company instead of managing taxes, please let us know and we’ll gladly take care of your company’s accounting.
Recent Comments