Salary vs. Dividend: The Last-Minute Optimization Strategy

As a business owner, you have two primary ways to receive income: a monthly salary or a profit-based dividend. The tax implications for each are very different.

 

The Salary Approach

Salary is a deductible expense for the company.

• Pros: It reduces the company’s net profit, thus lowering the 20% Corporate Income Tax (CIT).
• Cons: It is subject to progressive Personal Income Tax (PIT) on your side, which can go as high as 35%.

 

The Dividend Approach

Dividends are paid from after-tax profits.

• Pros: Dividends have a flat withholding tax of 10% in Thailand. For high-income earners whose PIT bracket is 25% or 30%, a flat 10% is very attractive.
• Cons: The company has already paid 20% CIT on that money. Effectively, you are paying 20% (CIT) + 10% (Dividend Tax) = 28% total tax.

 

Finding the Sweet Spot

The most efficient strategy for most investors is to take enough salary to use up the lower PIT brackets (up to 15% or 20%), and then take any additional profit as dividends to take advantage of the 10% flat rate. March is the perfect time to review this balance for the upcoming year.

 

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Related Service: Accounting & Tax Compliance — Strategic income planning to minimize your total tax burden.