Investing Through Your Company or Privately: Which Is the Smarter Choice?

If you've managed to set aside funds within your company or have created some personal financial leeway for investment, a pertinent question arises: is it more advantageous to invest through your company or privately? The answer isn't straightforward, but we outline the pros and cons below to help you make an informed decision.

Investing Through Your Company

If your company has surplus cash that you'd like to put to work rather than letting it sit in a (virtually interest-free) savings account, investing through the company could be appealing.

Advantages:

• No Distribution Tax: You don't need to pay out salary or dividends to invest; you can use the funds already within the company.

• Deductible Expenses: Entry fees, private banking subscriptions, and membership costs are deductible. Ongoing or management fees are not deductible if they're included in the investment prices. However, if these costs are separately invoiced by the bank to the company's account, they are deductible.

• Reduced Administration: There's no need to transfer funds to your personal account and restructure them for investment.

Considerations:

• Tax on Profits: Profits from investments are subject to corporate tax.

• Non-Deductible Losses: Investment losses are generally not tax-deductible, with some exceptions like individual bonds.

• SME Rate Implications: If your company invests too heavily relative to its equity, you might lose the reduced SME tax rate.

• LEI Code Requirement: A Legal Entity Identifier (LEI) code must be obtained in the company's name before investing.

Private Investing

If you distribute salary or dividends and invest that money personally, the scenario changes.

Advantages:

• Greater Flexibility: You're not bound by corporate investment regulations. You can invest as you see fit.

• Capital Gains Currently Tax-Free: Profits from selling investments are generally tax-free, provided you invest as a 'prudent investor' without speculative or professional intent.

Considerations:

• Higher Entry Costs: You must first extract funds from your company. Dividends are subject to withholding tax, and salaries are subject to personal income tax.

• Non-Deductible Expenses: Investment costs are not deductible in personal investing; all expenses come from your net income.

Which Should You Choose?

There's no one-size-fits-all answer. It depends on:

• The amount of available cash

• Your risk tolerance

• Your investment goals (e.g., saving for retirement, a major purchase)

General Guideline:

• If you prefer simplicity and the potential for tax-free profits, private investing might be suitable—for now.

• If you have idle cash in your company that you'd like to grow, investing through the company can be smart—provided you adhere to the tax regulations.

Need Advice?

Need Advice?At PIA Group, we collaborate with you on wealth management and tax planning. Together, we'll determine the approach that yields the highest return in your specific situation. Don't hesitate to contact a PIA office or schedule a consultation with one of our advisors.