Comment by logifail
2 years ago
> I set up a limited liability company that is just my own name. I then charge for services rendered and income goes into a company in my sole ownership. I then pay salary to the only employee (me). This is common and completely legal
This approach exploded fairly spectacularly in the UK for many of those deemed by the tax office (HMRC) to be using it purely as a device to attempt to avoid being "on payroll"
https://www.gov.uk/guidance/understanding-off-payroll-workin...
Even BBC presenters were setting up "personal service companies" to try and avoid taxes (allegedly at the urging of the BBC) and ended up owing the tax office a bunch of back taxes.
The issue here is not calculating a fair salary - and its an insanely popular way to avoid taxes all over the world. Tax authorities turn a blind eye, I suspect because the practice is just too common among politicians and their friends.
This might not be an issue if the corporate income tax + financial gains tax comes out the same as payroll tax. The bigger issue here is that you can use the remaining funds to invest and losses form a tax deduction base. More commonly however people just cram as much personal consumption inside the companies before paying out the salary, even things like travel and dining out. In the EU, VAT is commonly quite high and you get refunds on that if the expenses are on the company.