Belgian tax reform: Personal income tax – profit participation premium

Written by Nicolas de Limbourg 10 August 2017


Remark: the following announced measure will have to be formalised in draft legislation which should only be available as from September/October. Only then will full details be known.

As already mentioned in the PwC Newsflash of 4 August, the federal government reached an agreement on 26 July 2017 on important tax, economic and social reform changes. One of the announced measures that can imply a huge impact while optimising the wage packages of the employees as from 1 January 2018 is the possibility to participate in the profit of the company via a specific premium.

What? 

This measure will consist in granting the employees (not applicable for self-employed company directors) a specific bonus without having to participate in the capital of the company. It is optional for the employers, so this measure is not mandatory.

The premium is limited to 30% of the total salary mass per person and can consist in a fixed amount or in a fixed percentage of the salary of the employee.

It is possible to grant each employee the same amount or different amounts (in that case, it is most likely that approval from the labour unions is needed).

No shift will be allowed towards a profit participation premium in disadvantage of the traditional remuneration package. Finally, the profit participation premium will not be taken into account for the calculation of the wage norm (which determines the maximum margin of increase in wage costs in the private sector and in certain state-owned enterprises).

How treated? 

An employee social security contribution amounting to 13,07% will be applicable on the one hand and a profit premium tax of 7% will be due in the hands of the employee on the other hand.

The employer will – according to what is stated in the summer agreement – not have to pay employer social security contributions but corporate tax (disallowed expenses since this premium is not considered to be salary and therefore not deductible).

Why & comparison with CAO 90 bonus scheme

Another advantageous bonus system that is well known in the personal tax area is the CAO 90. Since this bonus is subjected to a special solidarity contribution of 13,07% and tax exempted up to a certain level, this is one of the most common bonus schemes used while optimising the wage package.

However, the profit participation premium is intended to be less complex to implement. For example, no agreement of the labour unions is needed when a ‘general’ profit participation premium is granted (same amount for each employee).

Also, the limit of the amount of profit participation premium that can be granted to an employee is much higher than the CAO bonus (30% of the total salary mass instead of 3.255 before deduction of solidarity contribution).

With the decrease of the corporate tax rate by 2020, approximately the same net amount can be granted compared to the application of the CAO90 bonus scheme. The profit participation premium should also be compared to other alternative pay schemes.

To be continued…