How Do LLC Owners Receive Income?

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As an LLC owner, how do you legally obtain income from the company? This is a core question. Limited liability companies play a crucial role in China’s economy, with enormous investment scales.

Note: The investment amount shown in the table above is approximately $2.9 trillion. However, although the term “LLC” originates from abroad, you cannot simply apply the foreign “owner’s draw” model in China. Chinese companies are independent legal entities, and their tax rules are fundamentally different from “pass-through entities” in places like the United States.

Key Points

• China’s limited liability companies are different from U.S. LLCs; they are independent legal persons and cannot have direct “owner draws”.
• As an owner of a Chinese limited liability company, you can obtain income through two legal methods: receiving salary or obtaining dividends.
• Receiving salary requires paying individual income tax and “five insurances and one fund”; dividends require first paying corporate income tax, then 20% individual income tax.
• The “low salary + year-end dividends” combination strategy can help you balance social security and reduce overall tax burden.
• You must strictly distinguish between company funds and personal assets to avoid illegal acts such as “misuse of public funds” and issuing fake invoices.

Concept Clarification: Chinese “Limited Liability Company” vs. U.S. “LLC”

Before learning how to get money from the company, you must first clarify a key concept. Although we often say “limited liability company” in Chinese, which sounds similar to the U.S. “LLC” (Limited Liability Company), the two are vastly different in taxation. Confusing them can lead to serious legal and tax risks.

Fundamental Differences in Tax Entities

China and the U.S. have completely different recognitions of company status, which directly determines your income method.

• U.S. LLC: Pass-through Entity In the U.S., LLCs are usually treated as “pass-through entities”. This means the company itself does not pay income tax. The company’s profits directly “pass through” to the owners’ personal names, and the owners declare and pay individual income tax at the personal level.
• Chinese Limited Liability Company: Independent Legal Person Entity In China, a limited liability company is a completely independent “legal person”. It owns its own property and bears legal responsibilities independently. Therefore, profits generated by the company must first pay corporate income tax. China’s standard corporate income tax rate is 25%, although the state offers lower preferential rates for specific industries or small and micro-profit enterprises. Only after paying corporate income tax can the remaining after-tax profits be distributed to shareholders.

Why “Owner’s Draw” Is Not Allowed in China

Based on the above differences, an important conclusion emerges: the common U.S. LLC “owner’s draw” model does not work in China.

Important Reminder: The company’s money is not your money. In China, the company’s assets and the shareholders’ personal assets are strictly separated. As an owner, you cannot arbitrarily transfer money from the company bank account to your personal account. This behavior is not called “withdrawal” but is regarded as “misuse of public funds” or “shareholder loan”, which can bring serious legal consequences.

Scope of This Article

Since you cannot directly “draw” from the company, what is the correct approach?

The following content of this article will be entirely based on China’s legal and tax framework, detailing two legal and compliant income methods for you: receiving salary and obtaining dividends. We will explore the specific operational processes, tax differences, and how to make the choice that best suits you.

Two Legal Ways for LLC Owners to Obtain Income

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Since you cannot directly “draw” from the company like in the U.S., how do you legally put company profits into your own pocket in China? As an LLC owner, you have two clear, compliant paths to choose from.

Method One: Receiving Salary

If the LLC owner also holds a specific position in the company and participates in daily management (such as serving as general manager or technical director), you can receive a salary from the company like other employees.

The operational process is very straightforward:

1. You sign a formal 《Labor Contract》 with the company.
2. The company pays you a fixed salary monthly.
3. The company withholds and pays individual income tax on your behalf.

This salary is a management expense for the company and can be deducted before calculating corporate income tax, thereby reducing the company’s tax burden. However, you personally need to pay individual income tax on this salary income.

Important Reminder: As a formal employee of the company, both you and the company must pay social insurance and housing provident fund (“five insurances and one fund”) in accordance with the law. This is a mandatory obligation. The contribution ratios vary by city.

The following are references for social security and provident fund contribution ratios in China’s two major cities Shanghai and Beijing:

*Depends on the company’s industry type.

Method Two: Obtaining Shareholder Dividends

Dividends are another core way for LLC owners to obtain income. This method does not require you to hold a position in the company; you can obtain it solely based on shareholder status.

Dividends come from the company’s after-tax net profit. The entire process follows strict legal steps:

• The company first needs to pay 25% (or the preferential rate if eligible) corporate income tax based on its total profit.
• After making up for past losses and extracting statutory surplus reserve, the remaining profit can be used for distribution.
• The company must hold a shareholders’ meeting to form a written dividend resolution.
• Finally, the company distributes the after-tax profit to you according to the shareholding ratio based on the resolution.

You need to note that this dividend income is not tax-free. According to Chinese tax law, individual shareholders’ dividend income from the company needs to pay 20% individual income tax.

Salary vs. Dividends: How to Choose?

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You have now understood the two legal methods of receiving salary and obtaining dividends. Now, you face a more practical question: which method is more suitable for you? There is no absolute right or wrong in this choice; it depends on your company’s profit, personal needs, and your preferences for tax burden and operational processes.

Tax Cost Comparison

Tax burden is the key factor determining your final take-home amount. The tax calculation methods for salary and dividends are completely different, leading to huge differences.

• Salary: Your salary income needs to pay individual income tax. China’s individual comprehensive income tax uses seven-level progressive rates, ranging from 3% to 45%. This means the higher your income, the higher the applicable tax rate.
• Shareholder Dividends: The tax rate for dividend income is fixed. You need to pay 20% individual income tax on every dividend you receive.

To help you understand more intuitively, let’s look at a specific case.

Case Analysis: 1 Million Profit, Final Returns from Two Paths

Assume your company generated 1 million RMB in pre-tax profit this year and qualifies for small and micro-enterprise tax incentives. Let’s calculate how much you can finally take home if the 1 million is all paid as salary or all as dividends.

Premises:

• Company pre-tax profit: 1 million RMB
• Company eligible for small and micro-enterprise tax incentives: For taxable income not exceeding 1 million RMB, the actual corporate income tax rate is 5%.
• For simplified calculation, we temporarily ignore social security, provident fund, and individual income tax special additional deductions.

From this simplified case, you can see that when profits are high, the tax cost of simply paying high salary may be higher. Although the dividend path requires paying corporate income tax first, the overall tax burden may be lower.

Operational Process Comparison

In addition to tax burden, operational convenience is also a factor you need to consider.

• Receiving Salary:
  • Advantages: Fixed process, simple operation. Once the labor contract is signed and salary is set, the company pays on time monthly and withholds taxes. Income is stable and predictable.
  • Disadvantages: Must pay social security and provident fund in accordance with the law, which increases cash flow pressure for both the company and you personally.
• Obtaining Dividends:
  • Advantages: High flexibility. You can decide when and how much to distribute based on the company’s profit and fund status.
  • Disadvantages: Relatively complex process. Each dividend requires fulfilling legal procedures, including calculating after-tax profit, holding shareholders’ meeting, forming written resolution, etc., and cannot be done arbitrarily.

Combination Strategy Recommendation

Since both methods have pros and cons, can you combine them? The answer is yes. In practice, many company owners use a combination strategy to optimize overall returns.

Recommended Strategy: Low Salary + Year-End Dividends

This is a very common optimization model. The specific operation is as follows:

1. Set a reasonable “low salary”: Set a relatively low but reasonable monthly salary for yourself. This salary should be sufficient to cover your daily expenses and meet the local minimum social security contribution base requirements. This way, you can enjoy basic social security benefits while avoiding high progressive tax rates from high salary.
2. Conduct year-end or regular dividends: After the accounting year ends, the company calculates the full-year profit. After paying corporate income tax and extracting statutory surplus reserve, distribute most of the profit to you through shareholder dividends.

The advantages of this combination strategy are:

• Balance Security and Tax Burden: By receiving salary, you obtain social security and provident fund benefits.
• Reduce Overall Tax Rate: Obtain most income through dividends with a 20% fixed tax rate, avoiding the up to 45% top progressive rate for salary, thereby effectively reducing the overall tax burden.

When you implement the “low salary + year-end dividends” approach, a practical question remains: after salaries or dividends are received, how can you reallocate funds between onshore and offshore accounts in a compliant, secure, and cost-efficient way?

To reduce friction, it helps to keep FX checks → conversion → cross-border remittance on a single rail. For example, use the Exchange Rate Converter on the BiyaPay website to assess real-time prices and expected costs, then complete the payout via Remittance to your designated account (e.g., for overseas living expenses or investment).

BiyaPay is positioned as a multi-asset trading wallet that covers cross-border payments, investing, and treasury-like workflows, supporting flexible conversion between multiple fiat currencies and digital assets. Around bonus or dividend seasons, this unified toolchain can lower operational errors that often arise from switching systems, while providing predictable execution. BiyaPay also operates under multi-jurisdiction compliance (including US MSB and New Zealand FSP registrations), which is useful for shareholders who need consistent, compliant cross-border arrangements.

If you are new to this setup, consider creating an account first (Register) and walking through the flow; then, together with your tax advisor, align on documentation retention (dividend resolutions, tax payment proofs, beneficiary KYC) to avoid re-submission during bank due diligence.

Choosing the plan that best suits you requires comprehensive consideration of your company’s profitability, personal cash flow needs, and dependence on social security.

Legal and Tax Red Lines You Must Be Alert To

You have now understood the legal ways to obtain income, but it is equally important to be clear about what behaviors are absolutely prohibited. China’s legal and tax systems are increasingly strict in supervising company finances. Any attempt to bypass rules can put you and your company at huge risk.

Risk One: Misuse of Public Funds

You must remember a basic principle: the company’s money is not your personal property. You cannot arbitrarily transfer funds from the company bank account to your personal account. This behavior is legally regarded as “misuse of public funds” and is very serious.

According to Chinese law, such behavior may constitute embezzlement or fraud.

• Embezzlement Definition: Refers to using company funds entrusted to you for personal purposes.
• Fraud Definition: Refers to deceiving the company for personal benefit.
• Potential Consequences: Once verified, you may face imprisonment, high fines, or even confiscation of company assets or revocation of business license.

Risk Two: Shareholder Loans

“I’m just borrowing some money from the company for turnover and will pay it back later.” This idea is very dangerous. Although short-term, reasonable, and properly documented shareholder loans are allowed, long-term unpaid “loans” are a key focus of tax authorities.

Tax Warning: If a shareholder loan remains unpaid by the end of a tax year and is not subsequently used for company operations, tax authorities have the right to treat it as dividends you personally received. This means you need to pay 20% individual income tax and corresponding late fees.

Risk Three: Fake Invoice Reimbursement

Using fake invoices or invoices unrelated to operations for reimbursement to extract company funds is an absolute red line. This is not only tax violation but may also violate criminal law.

In China, the consequences of using fake invoices to defraud tax are extremely serious.

• If the fake amount exceeds approximately $13,857, criminal liability may be pursued.
• Criminal penalties include fines on the company, and you as the directly responsible person may face imprisonment.

Do not take chances. China’s “Golden Tax Phase IV” system is a powerful tax supervision tool. It achieves comprehensive networking of tax, banking, and other information through big data and artificial intelligence. This system can easily identify abnormal transactions and unreasonable expense reimbursements, leaving fake invoice behaviors nowhere to hide.

You must remember that all conclusions in this article are based on China’s legal environment. Chinese limited liability companies and foreign LLCs have fundamental differences in legal liability and shareholder protection; do not confuse the concepts.

In China, the legal ways for LLC owners to obtain income are only two: receiving salary and obtaining dividends. You must ensure compliant operations, such as signing labor contracts, holding shareholders’ meetings to form valid dividend resolutions, and paying taxes in accordance with the law.

It is recommended that you choose the optimal plan based on your company’s actual operating conditions and personal needs. When necessary, seek help from professional financial and tax advisors to ensure every step is legal and compliant.

FAQ

Can I not distribute dividends and keep the profits in the company?

You can choose to keep profits in the company for reinvestment. This can temporarily avoid paying 20% individual income tax. However, please note that when this money is distributed to you in the future, you still need to pay tax in accordance with the law.

If the company has only me as the shareholder, do I still need to hold a shareholders’ meeting?

Yes, procedurally it is still required. Even if you are a one-person limited liability company, you need to form a written shareholder decision and sign and seal it. This is an important document to ensure the legality and compliance of dividend decisions and must be properly kept.

When should I choose dividends and when should I choose salary?

When company profits are low, receiving salary may be simpler. When company profits are high, the “low salary + year-end dividends” combination strategy can usually better balance social security needs and overall tax burden, making it a better choice.

Can I use company money to pay personal bills?

Absolutely not. This is typical “misuse of public funds” and is a serious illegal act. You must strictly distinguish between company funds and personal property. All personal expenses should be paid using after-tax income you legally obtain from the company.