Corporate tax optimisation

Optimisation or fraud: where is the line?

The distinction is clear and worth stating at the outset. Tax optimisation means using the mechanisms set out in the tax code to reduce the burden legally: choice of legal form, the balance of remuneration, preferential regimes, savings schemes. Fraud means concealing taxable income, and is punished as a criminal offence.

Between the two lies what the authorities call abuse of law: an arrangement that is legally valid but devoid of any economic justification, whose sole purpose is fiscal. That is the line never to cross. At Constellation Patrimoine every structure must answer a genuine economic and wealth-planning logic, with the tax benefit as a consequence rather than the objective.

Salary or dividends: how should a director be paid?

This is the most frequent question, and the one that shapes everything else. There is no universal answer, because the two routes carry neither the same cost nor the same trade-offs.

Salary is deductible from the company's profit, which lowers corporation tax, and it builds pension and protection entitlements. In exchange it carries significant social charges. Dividends are not deductible, they are paid out of profit already taxed, but bear generally lower levies. Their major drawback: they create no social entitlements at all, no pension, no protection, no sickness benefit.

The optimal answer is almost always a mix: enough salary to build social entitlements and protect the director, topped up with dividends. The right proportion is calculated from your status, your income needs and your retirement horizon, see our page on retirement and protection.

When does a holding company make sense?

A holding company holds the shares of one or more trading companies. It offers three main advantages.

First, dividends can flow up almost entirely free of tax under the parent-subsidiary regime, allowing cash to circulate between group entities without significant friction. Second, subject to conditions, the profits and losses of different companies can be offset within a tax-consolidated group. Third, and often the decisive reason, it allows a sale to be anticipated: the contribution-and-sale mechanism defers tax on the capital gain, provided part of the proceeds is reinvested in a trading activity.

A holding company is not a universal answer. It brings set-up and running costs, governance that must be formalised, and a need for real economic substance. It generally becomes worthwhile when significant dividends flow up regularly, when several companies exist, or when a sale is envisaged within a few years. Creating one after a sale has been signed is too late.

Other levers

Carrying losses forward

A loss in one financial year can be set against future profits, or in certain circumstances against the previous year. Careful timing of costs and investments allows the most to be made of it.

Employee savings schemes

Profit-sharing, incentive schemes, company savings plans and employer matching distribute purchasing power to the director and to employees with far more favourable tax and social treatment than an ordinary bonus. It is often the most profitable and the most underused lever. See our page on employee savings schemes.

Holding business premises

Holding your premises through a property company rather than on the trading company's balance sheet builds private wealth funded by the rent, keeps the asset outside the scope of a future sale, and prepares the ground for succession. The tax regime chosen for that company is decisive and should follow a simulation.

Investing surplus cash

Putting surplus cash to work generates investment income where inaction generates a loss of value. See our page on investing corporate cash.

Mistakes to avoid

• Creating a structure with no economic substance: a holding company with no activity or real governance invites reclassification.
• Sacrificing your own protection: taking dividends only reduces the immediate charge but removes pension rights and cover if you cannot work.
• Over-engineering at the expense of a future sale: some arrangements make a disposal far harder and deter buyers.
• Deciding without a costed simulation: the salary-dividend balance is calculated, not chosen on principle or out of habit.
• Acting too late: the most powerful levers, holding company, contribution-and-sale, succession, must be in place several years before the transaction.

How we work with you

We carry out a full tax and wealth audit of the company and its director, then present costed scenarios: total cost to the company, net income received, social entitlements built up and the effect on your private wealth over several years. All of it is set out in a written recommendations report. We implement in coordination with your accountant and your lawyer, then monitor progress with a quarterly review.

Written by Mevlana Yildirim, founder of Constellation Patrimoine, a French Financial Investment Adviser (Conseiller en Investissements Financiers), registered with ORIAS under no. 26006339. Offices at 11 Avenue de Friedland, 75008 Paris, and through Mevlana Investments LLC in Dubai, first discovery meeting free of charge. General information for guidance only; this does not constitute personalised advice.