Bonuses: a last-resort method of cutting your company’s tax bill

At the end of the financial year, it sometimes turns out that a company has paid too little tax in advance and is going to get hit with a hefty tax bill. In principle, there’s no getting out of it, if all possibilities for optimisation have already been exhausted. But you should never think it’s too late to escape that enormous tax bill. The awarding of a bonus can be invoked as a last resort to mitigate the tax burden on your company.

What is a bonus?

A bonus, also known as a tantième, is a share of the profits of a company that is awarded at the annual general meeting to the directors or business manager(s). It doesn’t matter whether or not they are shareholders of the company.

In this respect a bonus is similar to a dividend, since that too is about distributing the profits in a manner decided upon by the annual general meeting. But that’s where the similarity ends.

When a dividend is allocated, all shareholders of the company get an equal piece of the pie in proportion to their shareholdings.

The awarding of a bonus is different. For example, the annual general meeting can award a bonus to one director and not the others. The amounts can also differ if several members of the Board of Directors are separately awarded bonuses.

The basic philosophy of a bonus is that it’s granted as a reward for services performed.

A bonus paid to a business manager or director is considered to be an additional salary, which is a deductible expense for the company. A dividend on the other hand is considered to be a return on capital, so it’s not a deductible expense for the company. For the recipient, a dividend must in principle be reported in the personal income tax return as income from movable property, even after withholding tax has been deducted[1].

The time for deduction as an expense and the taxability for the director or business manager

It’s useful to know that the bonus is regarded as a deductible expense for the paying company in the year to which it relates (and thus not the year in which it is awarded).

A bonus is only taxable for the director or business manager in the year in which it is awarded or made payable.

Example 1

Jane is the business manager of the company HARD@WORK BVBA. On 31 December 2011, the closing date of the financial year, the company made a profit of €50,000 before tax. On 1 May 2012 the annual general meeting was held and it was decided to award Jane a bonus of €15,000.

This means that for the 2011 financial year, the company will only pay tax on a profit of €35,000[2].

Jane will pay personal income tax on the bonus awarded to her in the 2013 assessment year (2012 income year).

Optimisation

If you already draw a salary from your company, the downside of such a bonus is that it will be added to your other remuneration as a director of the company. This often means that the bonus is taxed at the highest personal income tax rate. Three years later, you may also have to pay more social security contributions.

To counteract this, you could consider proportionately reducing your "normal" salary as a company director.

There is another option, whereby the bonus is made payable over several calendar years. A bonus is only taxable for you personally in the year in which it is awarded to you or is made payable[3].

It is very important that you expressly stipulate this in the minutes of the annual general meeting.

Example 2

The same details as in Example 1, but in the minutes of the annual general meeting it is specified that the bonus will be made payable as follows:

  • €5,000 on 1 June 2012
  • €5,000 on 2 January 2013
  • €5,000 on 10 February 2014

Jane will be taxed for the bonus awarded on 1 May 2012, for a total of €15,000, spread over the following years:

  • €5,000 in the 2012 income year
  • €5,000 in the 2013 income year
  • €5,000 in the 2014 income year

Despite the taxability being spread out over time, the full amount of the bonus will be deductible for HARD@WORK BVBA as an expense for the 2011 financial year.

There’s not much point in systematically replacing your salary with a bonus

A feature of the awarding of a bonus is that it allows you to defer the taxability of a portion of the profit of your company. So you could decide to stop paying yourself your "normal" monthly salary and instead award yourself a bonus at every annual general meeting. You’ll gain a year on the payment of taxes on part of your profits. This is perfectly possible in theory, but can sometimes have unexpected consequences.

For example, a monthly salary is still required if your company has taken out the following types of insurance in your favour:

  • Hospital insurance
  • IPC insurance
  • Income protection insurance

The level of your monthly remuneration is critical to the maximum insured amount if your company pays your IPC and/or income protection insurance.

Awarding a bonus can, in certain cases, be particularly useful in reducing the amount of company income tax to be paid. Especially if the results of your company fluctuate sharply from year to year, it can be a useful mechanism for creaming off the profits in the good years and reducing your remuneration in the lean years. But don’t lose sight of the fact that the bonus is considered to be additional remuneration for tax purposes, on which you have to pay personal income tax and social security contributions.

[1] Unless the 4% additional levy is deducted on top of the 21% withholding tax
[2] Disregarding disallowed expenses and certain tax deductions
[3] See Article 204.3 Income Tax Code 1992

The new rules for VAT processing of vouchers
The wonderful world of VAT and vouchers
Vouchers are a very popular marketing tool. There are various types of vouchers: discount vouchers issued by a manufacturer, redeemable at any sales outlet in Belgium, discount coupons issued free of charge by retailers, vouchers where you can get a newly launched article free of charge, gift vouchers that can be redeemed for a whole range of products or services, electronic vouchers, etc. Are yo
A showpiece, or rather a sticking plaster for a broken arm?
The Belgian fiscal consolidation regime
The general intention with the introduction of a fiscal consolidation regime was clear, namely to put the Belgian tax system back in a positive light. After all, many of our neighbouring countries have had a system of fiscal consolidation in place for many years, and Belgium consequently scored badly on this point when international groups were looking to choose an investment location. The ques
The long-term lease revival
Superficies as stealth usufruct?
A noteworthy judgement was recently handed down by the Court of Appeal of Brussels regarding the taxation of overly cheap accession in the case of superficies (23 January 2019). In the past, a number of rulings had already been made on this subject (see, inter alia, Court in Ghent of 31 October 2017). The tax authorities are clearly keen to see the end of the right of superficies, and the two judg
'Paulian claim' to the rescue
Thwarting the taxman by rejecting an inheritance: is it possible?
In inheritance law, multiple heirs can have a statutory inheritance claim. As such, they are entitled to a minimum share of the inheritance. Since the new inheritance law, it is possible to freely dispose of half of one's assets. This is called the available part. If the available part is exceeded by donations, the statutory heirs may request the reduction. Through the reduction, the statutory hei
Appointing a Belgian fiscal representative is necessary
BREXIT: Important VAT news for UK companies with a Belgian VAT number
The Belgian VAT authorities confirmed that UK companies with a direct Belgian VAT registration need to appoint a Belgian fiscal representative for VAT purposes before 30/03/2019. This is in case of a no-deal Brexit on that date. The VAT administration will allow these UK companies to maintain their current Belgian VAT number, also after appointing a fiscal representative for VAT purposes. 
Legally most correct solution
Successive usufruct: The Flemish Tax Office (Vlabel) confirms the method of levying the registration duties
On 10 December 2018, a remarkable position was published on the Vlabel website (Position no 18083 of 26 November 2018). The real estate tax system is becoming more and more sophisticated with more (tax) advantages. The question must therefore be asked whether the well-known "simple" usufruct will not be partially replaced by transactions with a double or successive usufruct. In the area of registr
From 1 January 2019
New Flemish Lease Decree
On 24 October 2018, the Flemish Parliament approved the new Flemish Lease Decree. In our newsletter of 26 October 2017, we already hinted at the changes that this new decree will bring about. One of the most important changes remains the decree's broad scope. On the one hand, extensive regulations are provided for the rental of a house intended as a main residence. What is new here is that the ter
Confirmed in writing to our office
Confirmed: both usufructuary and bare owner are to be included in the UBO register
The Belgian Ultimate Beneficial Owner (UBO) register went live on 31 October 2018. On the basis of the legal texts and the explanatory notes, as ultimate beneficiary/ies of companies, the natural person(s) who directly or indirectly hold(s) a sufficient percentage of the voting rights or of the ownership interest in this company must first be notified. A holding of at least 25% is an indication of
The advantage is a taxable benefit
Fiches and withholding tax on benefits granted by foreign companies
Should payments received from a foreign company be subject to withholding tax and should this be declared on a fiche? At the moment, the answer to this question is negative in most situations, but this is set to change. A new draft law dated 18 December 2018 provides for the introduction of a tax fiction that requires the (Belgian) employer of the beneficiary employee not only to withhold withh
The requirement to register gets a broader scope
More entrepreneurs must register with the Crossroads Bank for Enterprises (CBE)
Under the aim of creating a more attractive business climate, changes were made to the existing company law. In that context, the legislator has done away with the ‘trader’ concept, replacing it with the umbrella term ‘enterprise. Besides forming the basis for the rules of the Code of Economic Law, the Judicial Code and the Civil Code, the new enterprise concept also has consequences for reg

Subscribe to our newsletter