An attractive new tax scheme for bonuses

An attractive new tax scheme for bonuses, a paying tax incentive 

New rules on “non-recurring performance-linked benefits” came into effect on January 1st, 2008.

This scheme has particularly interesting direct and indirect taxation benefits: on certain conditions, it enables employers to pay some or all of their workers a bonus linked to company performance - whether or not measured by financial results - which will be tax-free for the workers who receive it. Employers will pay only a special social security contribution of 33% on it, and can set both the bonus and social security contribution off against business costs.

• Which companies and which “workers”? 

The scheme is for private sector companies and some state enterprises. Qualifying “workers” are those with employment contracts, but also people providing work services under the authority of another person other than under an employment contract, in particular indentured apprentices, and those on work experience or other forms of training contract.

The plan need not necessarily include all the company’s employees. It can be limited to a single defined group of workers (a department, category of workers, etc).

• “Non-recurring performance-linked benefits” 

To qualify for the new scheme, the bonus must be linked to the collective performance of a company, a group of companies, or a clearly-defined group of workers.

Eligible objectives may be financial or non-financial (improved customer satisfaction, etc.). They must be objectively measurable objectives.

As a general rule, these benefits cannot replace existing components of pay. 

• Maximum amount 

The bonus is capped at €2 200 a year per worker. Above this maximum, the bonus will be subject to normal tax and social security.

• Direct and indirect tax treatment 

No income tax will be payable on the bonus below the cap, and only a special social security contribution of 33% will be levied on it. The employer can expense both the bonus and social security contribution as business costs.

The entire Deprince, Cherpion & Associates team is at your service for a preliminary feasibility study of your particular case.