Receive money from my business and the tax implication on this

There are some ways that an owner can pay money back from the business account.

The most common way is owner taking drawings from the business bank account for their personal use. By distributing money this way, one lump sum tax payment will be paid under the owner’s marginal tax rate at the end of the financial year.  Therefore, if you decide to distribute money this way, please make sure that you put away money for future tax payments. There are many owners having problem with their cash flow and do not have any funds to pay for the big lump-sum tax.

The alternative way is to pay wages to the owner as they are employees of the business. As the employee of the business, wages will be pay in a more regular and PAYE will be deducted straight from each pay. You have to file EMS and EDF to IRD each month disclosing the employee’s wages and salary and the tax to pay for PAYE and other employment-related tax.  However, this option is not available for a sole trader as you cannot employ yourself for business purpose. The company can claim deductions on employee’s wages and salaries. Additional tax will need to be paid on the extra profits from the company.

Another way business owner can use to receive money from the business is to declare dividend. The tax treatment of this option is similar to drawing as owner will have to pay tax under their name. This option is not available for sole trader. Please note, the company needs to maintain an IR 4J to determine the taxable amount to be paid. 

Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.

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