It is general knowledge that the tax and social security burden on salaries in Belgium is amongst the highest in the world. This becomes poignantly clear each year with the payment of variable bonuses. After all, variable performance-linked bonuses are often restricted to senior management and directors with higher fixed salaries. This means that the net bonus is scarcely equal to 30% of the cost price for the employer, after deduction of the employer’s and employee’s social security contributions on the one hand, and the marginal tax rate of 50% on the other hand.
Studies show that the level of bonuses has been under pressure because of the economic and financial crisis. On the other hand, the principle of paying on the basis of performance, and accordingly limiting labour costs in more difficult years, has just been more broadly entrenched by this crisis. Variable remuneration is therefore gradually extending to white-collar employees. In this regard, the group bonus linked to results under collective bargaining agreement CAO 90 is certainly advantageous from a tax perspective. The start-up procedure is very cumbersome, however, and the benefits for each employee are limited to €2,299 in 2010.
Further tax optimisation of bonuses through the implementation of supplementary pension plans should certainly be considered in the described context. The following comments should be taken into account for this analysis:
- if we compare a gross salary bonus to the same pension contribution, the net benefit for the senior manager or director increases from around 30% to 75% and the gross cost for the employer decreases by 16%;
- the benefit of the pension contribution is deferred until retirement, while the benefit of the salary bonus is paid out immediately;
- the deferred nature of the pension contribution can be partially compensated by advances on the pension policy for the purpose of purchasing, improving, building, repairing or renovating immovable property in the European Economic Area;
- the pension contribution must be expressed in proportion to the paid salary bonus to prevent pension contributions from also having to be paid in future if there is no scope for variable bonuses;
- employment contracts and contractual obligations must be adjusted to the new situation so that there is no mandatory double payment of a variable bonus and pension contribution;
- a pension plan based on variable bonuses must comply with all provisions of the Belgian Supplementary Pensions Act [Wet op de Aanvullende Pensioenen – WAP] and anti-discrimination legislation. In case of bonus plans, this specifically means that a standard plan must be drawn up for each personnel category and that age-related differences must be limited to 4% growth per year;
- individual deviations from group plans are possible for wage-earning employees, but limited to an annual contribution of €2,110 via an Individual Pension Commitment [Individuele Pensioentoezegging – IPT]. However, these IPTs are subject to many additional conditions, as described in our newsletter of April 2004;
- far fewer statutory provisions apply to independent directors and a personalised pension plan can be drawn up for each individual director.
“Classical” supplementary pension plans are already among the most beneficial, alternative forms of remuneration. Bonus pension plans are even more advantageous to the extent that these plans usually fall within the marginal income tax bracket of 50% and the immediate “cash payment” of the lower salary bonus is often less essential for the employee’s everyday needs.
Based on an analysis of the needs and possibilities of the members of a specific personnel category (e.g. management committee), a group bonus pension plan can be drawn up that fulfils members’ wishes in most cases, both in terms of a partial, immediate cash bonus and a partial, very tax-advantageous form of pension savings.