Do you know what the biggest possible "ignorance tax" in mortgages is? It's when an LLC owner pays themselves, say, a million crowns as a salary over the last few months or as a dividend just to qualify for a mortgage. At that moment, they hand over roughly 150,000 to 400,000 crowns to the state, depending on how they pay themselves the money. And in most cases, it's completely unnecessary.
If you're in a situation where you're planning to do something like that, stop right there. First, find out if there isn't a smarter way. And believe me, there usually is.
Hypothetical Income: The Magic Trick Banks Won't Tell You
You need to know that banks are divided into two camps when it comes to dealing with business owners. Some are a bit old-fashioned and only really care about what lands in your bank account. But then there are the more progressive banks that can read company financial statements and know how to interpret them. And it's these banks that use a method I call hypothetical income for a mortgage.
How does it work in practice?
The banker looks at your company's tax return and, instead of your actual salary, uses a special formula. They take your profit after tax, multiply it by a coefficient of 0.85 (the bank's way of simulating the 15% tax you'd pay if you actually paid the money out), then multiply that by your ownership share in the company, and divide it by twelve.
Let's look at an example. Say you own 50% of an LLC, and the company has a profit of one million crowns. The calculation would look like this:
(1,000,000 Kč * 0.85 * 0.50) / 12 = 35,416 Kč
(Transcriber's note: The calculation in the video was incorrect; this is the corrected version for accuracy.)
The result is your net monthly income for the mortgage. And the elegant part is that you don't have to pay yourself that money at all. It stays in the company, you save a fortune on taxes and contributions, but you get the mortgage as if you had a very decent salary.
Four Critical Hurdles You Must Clear
Watch out, it's not automatic. For a bank to recognize this income, you have to pass through four critical filters. The last one is the most interesting and least intuitive, as even the best companies can fail it.
1. Your Clout in the Company
The bank needs to know if you're the one making decisions about the money in the company, or if you're just along for the ride. And this is where banks' approaches differ dramatically.
- Raiffeisenbank has a 20% rule in its methodology. If your ownership share is less than 20%, they see you as just an investor. Forget about a calculation based on profit; you have to actually pay yourself a dividend or draw a salary. But if you have 20% or more, they'll recognize the profit sitting in the company.
- Česká spořitelna is much stricter. To use income from the company without paying it out, they require a share of 50% or more. So, with a one-third share, you'll get nowhere with Spořitelna, whereas with "Raiffe," you're good to go.
2. Your Company's History
Did you start your company a year ago? Then, unfortunately, you're out of luck. The bank wants to see a longer history. The universal rule is that you need to submit two tax returns, so the company must have been in existence for at least two years.
3. Negative Equity: The Silent Application Killer
This is where a lot of people make mistakes because they don't have a good grasp of accounting. It's a so-called knockout criterion. Many people confuse equity with share capital. Share capital is what you initially invested in the company (maybe one crown or 200,000 Kč), and the bank doesn't care about that at this stage.
Equity is the book value of your company after deducting debts. If your company has been making losses in previous years, accumulating debt and "eating up" your initial investment, your equity will be negative. And banks have it written clearly in their policies: if equity is negative, the loan cannot be approved. Even if you made 10 million this year, that hole in your balance sheet from the past will sink your application.
4. The Rapid Growth Trap: Why Are Banks Afraid of Success?
And now for the fourth, least intuitive criterion. You might think, "Last year was so-so, but this year we really hit the gas and have record profits, the bank has to give us a loan!" Unfortunately, not quite. Banks hate sudden jumps and are primarily interested in stability. That's why they have emergency brakes built into their methodologies.
- Raiffeisenbank has a rule that if your profit is more than 30% higher than the previous year, it will be capped at 130%, and they simply won't recognize anything above that.
- ČSOB is even stricter and doesn't allow for an increase of more than 20%. If you exceed that, it goes to an individual assessment, which in my experience, unfortunately, often ends with a rejection. And that doesn't just mean a cap like at Raiffeisenbank, but a complete stop—ČSOB won't recognize any income from your company at all.
What to Do If You Don't Pass? Two Lifelines
What if you don't make it through these filters? Maybe because your company isn't profitable on paper (you're at zero due to tax optimization), but you're paying yourself a salary. Most banks would reject you because they'd see a zero on the company's tax return. But there are two lifelines.
First Lifeline: The 49% Rule at Česká spořitelna
If your share in the company is less than 50%, the bank's methodology dictates that it doesn't look at the company's financials. It treats you as a regular employee. All it needs are bank statements showing your salary deposits and a confirmation of income. So, if you have a partner and the shares are split, say, 49/51, you can get a mortgage based on your salary, even if your company is running at a loss or has negative equity.
Second Lifeline: The Six-Month Rule at Raiffeisenbank
If you've been sending a salary from your own company to an account held at Raiffeisenbank for at least six months, the bank often won't look at your company's financials at all. They might not even ask for a confirmation of income—the history in their own account is enough. This can be a great option if you know your company's results won't be stellar, but you are paying yourself a salary.
Bonus Tip: What About Money from Previous Years?
And one final tip. What if your company invested heavily this year and is at zero profit, but you have millions in retained earnings from previous years? Most banks won't lend to you, but there's a loophole in ČSOB's methodology. They can recognize old profits, but there's a condition: a general meeting must be held to approve the payout, and you must physically transfer an advance of at least 25% of this profit to your personal account. It's not entirely free—you'll have to pay tax on part of it—but it's a way forward when you're having a weaker year.
In Conclusion: Ignorance Doesn't Pay
The conclusion is simple. Don't unnecessarily increase your salary or blindly pay yourself a dividend. Your company often has the financial standing on its own. You just need to know which bank knows how to read your financial statements correctly.
If you don't want to spend hours studying methodologies and would rather rely on someone who knows the ropes, I'd be happy to help. Together, we can look at your balance sheet and income statement, and I'll tell you which bank will lend you the most money without you having to pay unnecessary taxes.
