The Program Act of December 25, 2017 introduces the 'profit premium for employees' that allows companies to allocate part of their profits to their employees in a simple and flexible way.
The new regulations entered into force on January 1, 2018 and are therefore already applicable to the profits of the financial year 2017 for accounting years closed per September 30, 2017 at the earliest.
The system is open to all companies that are subject to Belgian corporate tax (resident and non-resident). However, as it is a profit based system, it can only apply to foreign companies with a branch or taxable permanent establishment in Belgium to which profits are allocated that are taxed in Belgium. Foreign companies without any establishment in Belgium can therefore not apply the system.
A profit premium is a monetary bonus that a company (or group of companies) pays out of its profits to all its employees.
There are two types of premiums:
- the identical profit premium: the amount is the same for all employees or corresponds to an equal percentage of their salaries;
- the categorized profit premium: the amount can vary depending on the category to which the employees belong; the allocation key that can be applied must be based on the following objective criteria: seniority, level, function, salary scale, remuneration and education level. The differentiation between the categories may only have a ratio between 1 and 10.
Granting of the premium
The identical profit premium can be granted by an ordinary or extraordinary general meeting with a simple majority of votes. The minutes of this general meeting must contain a number of mandatory entries. The employer must inform the employees in writing about the decision. This can be done by mail, publication on the intranet or any other written medium.
The categorized profit premium on the other hand can only be introduced by a specific company CLB (collective labor agreement) or via an ‘act of accession’ (for companies without a trade union delegation).
Tax and social security treatment
For social security purposes, the profit premium is not treated as salary. This means: no ordinary employer or employee contributions. Only a solidarity contribution of 13,07% is due by the employee.
For tax purposes, the premium is only subject to a special levy of 7%. No other income tax is due. For the company, the premium is not deductible as a professional expense.
Consequently, for a gross profit premium of EUR 100, the net amount equals EUR 80,84(100 – 13,07% - 7%), or approximately 80%.
Other points of attention
The introduction of the premium is solely on the initiative of the employer and does not create acquired rights for the future.
The premium applies only to employees. Company directors are therefore not eligible.
The maximum amount of annual profit that can be granted is 30% of the total gross salary mass.
The premium may not replace wages or other benefits already granted.
Companies that qualify as SME for company law purposes, can organize the granting of the profit premium in the form of an investment savings plan. The premium will then not be paid out effectively but will remain as a subordinated loan in the company on which the latter pays interest. Payment must then be made after a minimum period of 2 years and a maximum of 5 years.
The granting of a profit premium is advantageous, not only for the employee but also for the employer and can easily be implemented.