Is your business making finally making a profit? Here are 5 ways that you can take out those profits as a business owner!
1. Shareholder Dividends
Accumulated profits can be paid out to business owners (shareholders) as dividends. Your company secretary needs to issue out a dividend declaration as a written resolution. You can only pay out retained profits after taking into account future liabilities and tax, and you will need to prove solvency of your company. Dividends will be paid based on your type of share and percentage of share.
Prior to 2025, dividends were single-tier and tax-free at the individual level. Business owners effectively only have to pay company taxes, and could take out post-tax profits as dividend, tax-free. Many did not understand this and would say that business owners were evading taxes! (Heck, even bankers could not understand when I told them I take dividends and don’t pay any taxes on it on my individual tax filing. I was constantly getting rejected for credit card applications!)
However, starting in 2025, an additional tax of 2% will be charged on individuals earning dividends above RM100k/year. This brings up the effective tax rate on such profits from 16% to 18%, or 24% to 26%, which is more in line with a salaried employees’ tax rate. Thus, dividends may no longer be the “cheapest” way to take out profits.
2. Salary/Bonus
If your business earnings are consistent, you can pay yourself a monthly salary as an employee. As a salaried employee, you will also need to register yourself for EPF contributions, SOCSO, and EIS contributions (as well as HRDF if applicable). Your salary is tax-deductible for the company, while you pay taxes as an individual on the salaried amount.
How much salary to pay out?
When deciding how much to issue as dividends vs take as salary/bonus/directors fee, I usually compare individual and corporate tax brackets and pay salaries up till the equivalent tax bracket of the business (+2% for 2025).
E.g. for a company making say RM2million in profits annually, you will be paying (24+2)% effectively to take out those profits. Hence you can pay yourself up to RM600k a year in salary/bonus to hit the same highest-tier of 26%. If you take RM1million instead, RM400k will be within the tax bracket of 28%, effectively costing RM8000 more in taxes (compared to dividends).
Tax savings through EPF contributions
One HUGE benefit of paying yourself a salary is EPF contributions. Although employee-side EPF contributions have very little tax relief, employer EPF contributions are tax-deductible for the employer up till 19% of the salary and are not subject to personal taxes. Since EPF savings above RM1million can be withdrawn any time, and dividend payouts have been higher than 5% historically, I have no qualms contributing more to EPF.1
Example: If you max out your employer EPF contributions at 19% on your salary of RM600k a year, you will contribute RM114k in employer contributions + RM66k in employee contributions = RM180k in total. This works out to tax savings of RM29k+ compared to taking the RM600k as a dividend or directors fees. Plus, the contributed RM180k compounded at 5% over 10 years would make you RM113k!
3. Director’s Fees
Directors fees are different from salaries and bonuses as directors fees are not subject to EPF or SOCSO/EIS contributions if you are a non-salaried director.2 Directors fees will be included in your individual tax filing, hence you will pay taxes based on individual tax tiers.
4. Director’s Loan
Directors may take loans from the company as a means to transfer funds temporarily. While waiting for dividends/bonuses/directors fees to be issued, you can borrow the money first by issuing a director’s loan.
However, this doesn’t come for free! The company must pay taxes on the deemed interest income at the end of each month.
E.g.: I borrow RM500,000 from my company and I have not repaid it at the end of November. I don’t have to pay interest to my company for this loan. However, the company needs to calculate deemed interest income based on Bank Negara’s interest rate e.g. 4.5% x RM500k / 12 months = RM1875/month. This will be considered a profit in tax calculations, hence a tax of RM450 (24% x RM1875) will need to be paid for borrowing RM500,000 in that month. Note: deemed interest income is only calculated on the loan balance at the end of the month.
I sometimes take a director’s loan in order to invest that money first, while waiting to issue out dividends.
5. Paying back director/shareholder loan account
Finally, in case you loaned money to your company when you started your business or any time during the course of business, don’t forget that you can pay yourself back! This doesn’t apply to paid-up capital.
Hope this guide was helpful to give you more ideas on how to pay yourself from your business profits! Do review and seek advice from your company secretary and tax agent to optimize your tax planning.
Which method are you using and are you going to change it in 2025? Please share in the comments!
- Do always bear in mind that EPF can change their policy at any time. Be ready that your EPF funds could get locked up for longer than you expected, or dividends could be lower than 5% one day! I set a maximum allocation in EPF/fixed income fund as part of my investment plan. ↩︎
- Do check with your company secretary and tax agent as your situation may differ! ↩︎
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