How Surplus Stripping Helped a Company Save 200,000 in Taxes: A Success Story

Based on the central idea of reducing expenditure at source, many companies have come to us recently, hoping to optimize taxation to the greatest extent. All available deductions have been used. How to reasonably and legally keep the company's money in their own hands while paying as little tax as possible to pay for the increasing daily expenses has become the primary issue facing business owners.

I will analyze an advanced tax planning method called "surplus stripping" through a client case.

Mr. Xue is a cross-border e-commerce company that sells small electrical products online. Due to the high quality and low price of the products, in just five years, Mr. Xue's company has grown into an enterprise with an annual turnover of tens of millions. The company currently retains cash of 8.5 million yuan.

Due to the current decline in the housing market, Mr. Xue first assumed that the money was distributed from company dividends to individuals. We helped him calculate. If all 8.5 million yuan was distributed as dividends, he would personally need to pay 3.34 million yuan in taxes, and he would get about 5 million yuan. Mr. Xue was shocked and wanted to find a solution that could not afford an audit.

The best way to use this is earnings stripping, which simply means converting the company's dividends to shareholders into Capital Gain. The tax paid for dividends and capotal gain are different, and the difference is the tax we save. Companies with revenue more than 500,000 can save 12.6% and Companies with revenue less than 500,000(CCPC) can save 21%. After this operation, Mr. Xue directly saved 1.07 million in taxes, which was almost enough to buy a house in full.

Most companies do not have as much retained capital as Mr. Let me use a form to withdraw 300,000 to give you some ideas [Figure 1].

	Before Tax Planning		After Tax Planning
Company's Revenue	Company Revenue <= 500,000	Company Revenue > 500,000	Company Revenue <= 500,000	Company Revenue > 500,000
Retain Earning	300,000	300,000	300,000	300,000
Tax Rate for Shareholder	47.7%	39.3%	26.7%	26.7%
Money pass to shareholder after Tax	160,000	180,000	220,000	220,000
Tax saved			60,000	40,000