Belgian Government intends to improve the employee profit participation plan’s potential

Global Employer Services

October 2017

The profit participation plan is a reward mechanism in which it is possible to grant a specific bonus to employees without their participation in the company’s capital. In order to increase the plan’s attractiveness, the Government plans to improve the tax and social security treatment on the one hand, and simplify the implementation process on the other.

Based on the outcome of a poll question put to participants during the  webinar of 29 August 2017 on “Employment Taxation Legislation in the Pipeline” (listen again here), it is understood that many companies are already interested in this upcoming new regime for the profit participation plan.

Profit participation plan

The bonus is limited to a maximum 30% of the gross payroll cost and is either granted as a fixed amount or as a fixed percentage of the salary. Although the profit participation plan has a collective character, it is possible to distinguish categories amongst employees in order to differentiate the bonus. Self-employed company directors however, are excluded from this profit participation plan.

Improvement of the tax and social security treatment

A noteworthy improvement on the old regime is the decrease of the flat tax rate of income tax in the hands of beneficiaries, from 25% for profit participation (15% in case of capital participation) to 7%.

In the hands of the employer, the profit participation is regarded as non-deductible. No social security contributions are due, since the profit participation will not be considered as salary.

Simplification of the implementation process

The power of initiative lies with the employer, meaning that he has no obligation in implementing a profit participation plan. A collective bargaining agreement will no longer be required to implement the plan, if no distinction is made in relation to employee level. The shareholders can simply decide to implement the profit participation plan during a shareholders meeting. If however there would be a distinction in relation to employee level, a collective bargaining agreement or an act of accession will still be required.

Additionally, the profit participation plan will not require employee participation in the company’s equity.

Entry into force

The new measures will become applicable from 1 January 2018; however, the profit participation can only be paid for the first time after the first closing of the book year as of 30 September 2017.

Areas to assess to benefit from the new measure

The following aspects, among others, must be taken into account when evaluating the implementation of an employee profit participation plan:

  • The participation plan’s setup and implementation
  • Drafting the collective bargaining agreement (if necessary)
  • Rethinking and reworking the remuneration policy
  • Calculation of cost estimation

Questions & answers

The following questions (with preliminary answers) were already encountered in our daily practice.

  • Is it possible to categorise the profit participation?
    • Yes this is possible, but it requires a collective bargaining agreement
  • Is it acceptable to express the profit participation as a percentage of the base salary without further differentiation amongst categories of participants?
    • As a result, the granted amount of profit participation will vary depending on the employee’s base salary. Implementation does not require a collective bargaining agreement and can be achieved based on a decision in the shareholders meeting.
  • Is it possible to grant the new profit sharing participation bonus early 2018 for performances performed by the employee in 2017?
    • Based on the current information at our disposal, it seems indeed possible to apply the new plan for the pay-out of profit participation that would occur in calendar year related to book year 2017, provided that the closing of the book year took place as of 30 September 2017.
  • Is the profit participation deductible for corporate income tax purposes?
    • As the profit participation is a profit-related bonus, the bonus will undergo the normal corporate tax rate and will not be deductible.

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