To analyze how undistributed profits can avoid taxes, we must first clarify what the definition of undistributed profits is.

As the name suggests, undistributed profits are the profits that have not been distributed by the company. This part of the profits is part of the owner's equity before being distributed, and can continue to be distributed according to the situation; from a quantitative point of view, it is a deduction The net profit after deducting miscellaneous taxes and surplus reserves, if the company has losses, must offset the corresponding losses before calculating profits.

As an example, assuming that the company's total revenue this year is 10 million, the cost is 9 million, the net income is 1 million, and after deducting 25% of the income tax, the net profit is 750,000.

10% of this 750,000 will be deducted to expand production, earn more profits, and pay more taxes to contribute to the country. This 75,000 is what we call the surplus reserve.

Therefore, the undistributed profit at the end of the year needs to be deducted from the surplus reserve from the net profit, that is, 75-7.5 = 675,000 undistributed profits.

What we are discussing is how to avoid taxes on this part of undistributed profits.

After paying the income tax, the total profit made by the enterprise in the year can be distributed in the following order:

1. Make up for the losses of previous years;

2. Withdraw statutory surplus reserve;

3. Withdraw discretionary surplus reserve;

4. Distribute preferred stock dividends;

5. Distribute common stock dividends .

What is left at the end is the year-end undistributed profits.

It should be noted here that the statutory surplus reserve fund has and can only be used to make up for corporate losses or transfer capital.

The "undistributed profits" in the company's report will appear in two different states, namely positive and negative. The positive number indicates that the company's business status this year is profitable, and the negative number naturally reveals that there is no loss. To make up for the dilemma, we are naturally talking about tax avoidance in a profitable state.

We often see huge amounts of undistributed profits on company statements, but rarely distribute them in cash.

The reason is also very simple. You have to give people real money before others will buy it. Undistributed profits are only the amount on the book, which does not mean that the company is really rich.

In a sense, profit is only a predicted value, and even accountants cannot accurately tell you the specific amount.

Accrued, held and fictitious profits can be distributed but cannot be cashed out. Only cash profits are a special case, so the above situation of huge profits but not cashed out occurs. The company's profit composition is the decisive factor .

If an enterprise’s undistributed profits are composed of non-cash items such as accounts receivable, investment real estate, notes receivable, etc., then it cannot be distributed at all, and it cannot be distributed. There is the issue of how to avoid tax on undistributed profits.

So, how to avoid taxes in the form of cash? At present, many companies use other forms of transfer of funds, such as borrowing, but we must understand that if you borrow, you must repay. If the debt is left hanging for a long time, the tax bureau will suspect you of tax evasion.

Some companies have implemented shareholding reforms and treated the original undistributed profits and surplus reserves as dividends for investment. This method of converting into equity capital requires higher individual taxes, so some experts will It is recommended that enterprises first establish a shareholding platform company and transfer it at a fair price. If the equity income is 0, there will naturally be no need to pay personal income tax. Of course, there is a big prerequisite for this good thing, which is to obtain the consent of the local tax authorities, otherwise you will still be unable to escape the fate of backpayment.

Cash flow is to a company what blood is to the human body. Companies that are aware of the importance of cash are trying their best to seek financing, but this kind of tonic cannot solve the fundamental problem. If the concept of corporate financial planning does not change, financing will be difficult. It will eventually be swallowed up by the "cash black hole". "If you want to ensure smooth blood flow for the company," it is particularly important to strengthen cash liquidity.

It is understandable that companies try to avoid taxes and increase their disposable funds, but it is inappropriate to consider how to avoid taxes on undistributed profits after the profits are generated. At this time, any operation may be judged as tax evasion. , On the contrary, it increases the financial and tax risks of enterprises.

In summary, we do not recommend that companies consider how to avoid taxes after profits are generated. Instead, we recommend that everyone make tax planning in advance, change the company's registration type, and choose an individual that can best enjoy tax benefits. The corporate form fundamentally solves the problem of tax avoidance. Not only does it not have to worry about how to avoid taxes on undistributed profits, it can also legally reduce the corporate income tax by 25%.