Withdrawal of money from the company and taxation of profit share

Do you own a successful company and want to withdraw your profits? There are clear rules and tax implications that must be followed. We’ll guide you through the process of withdrawing funds from your company, from the financial statements to paying taxes.

How much money can you pay yourself as a company owner?

Every entrepreneur engages in economic activity for the purpose of making a profit, as required by law. If you own a limited liability company (or a corporation or cooperative), you would certainly like to use the funds the company has earned.

After the end of the tax period, your company must close its books, prepare financial statements, file a corporate income tax return (DPPO), and pay the calculated tax. The profit recorded in equity can then be distributed to the shareholders. This distribution of profits must still be approved by the general meeting or by the sole shareholder in the case of a single-member limited liability company.

Taxation of Profit Shares: Individuals vs. Legal Entities

Tax on profit shares varies depending on whether the funds are paid to a natural person or a legal entity (company). We will also look at how profit shares are taxed for foreign entities.

How does a natural person pay taxes on profit shares from a company?

The withholding tax is calculated and paid by the paying company, which must be registered for this tax. The company then reports the tax in its Withholding Tax Return, which it files by April 1 each year.

The 15% rate applies to Czech tax residents. If the recipient is a resident of a country other than the Czech Republic, it is necessary to verify the tax rate (or the possibility of a reduction) in the relevant double taxation treaty.

If the payment is made to a foreign person from a country with which the Czech Republic has not concluded a double taxation treaty or an information exchange agreement, a withholding tax of 35% may apply. In any case, such a payment must be reported in the notification of income paid abroad. We have written a separate article on the taxation of dividends paid to Slovakia.

How is a profit share from a company taxed when paid to a legal entity?

This exemption thus offers the possibility of creating a holding structure and paying out profit shares to the holding company. These funds (e.g., in the form of a loan or capital contribution) can be used for further business development within the group of companies.

Alternatively , you can borrow money from the company as an individual, but keep in mind that any loan should bear interest, and the interest rate should be set at market levels.

Are you planning to transfer your share of the company to someone else, or conversely, to buy a new company? Then you should also be aware of the tax implications of the share transfer.

Want the money sooner? Take advantage of an advance on your share of profits

You can also draw money from the company during the year in the form of advances. This way, you don’t have to wait until the end of the year and for the approval of the financial statements. However, there are two conditions:

From a tax perspective, the advance is treated exactly the same as a standard profit share. You withhold a 15% withholding tax immediately upon payment. You then remit the withheld amount to the tax office by the end of the following month at the latest. So, if you pay out the advance in November, for example, you must remit the withholding tax to the state by the end of December. There is no need to wait for the taxation of the profit share arising from the regular financial statements for 2025, which are not prepared until 2026.

However, even when paying advance distributions of profit shares, you can take advantage of the withholding tax exemption under the same conditions described above: if the parent company holds at least a 10% stake in the subsidiary for a minimum of 12 months, the rules of the European Directive (the so-called parent-subsidiary regime) apply. In practice, this means that even if you pay out the money during the year rather than after its close, you do not have to pay the 15% tax provided the legal conditions are met. The entire process is thus treated for tax purposes in the same way as a classic dividend, which gives you considerable flexibility in managing cash flow within the holding company.

Need help with accounting and taxes?

Contact us to schedule an accounting consultation or to have us handle your company’s complete bookkeeping and tax management. Simply fill out the contact form below, and we’ll go over your request together.