The Belgian Social Security Administration adapted its interpretation of the basis on which social security contributions are calculated. The Social Security Administration extended interpretation of the notion “remuneration” by an update of its Administrative Instructions in September 2018. Foreign companies offering benefits to employees of their Belgian subsidiary will be confronted by this widened interpretation of the social security contributions basis, resulting in an increased social security liability. At this point in time, no legislative change is in preparation. Nevertheless, one could challenge the legal scrutiny of the new position issued by the Social Security Administration. This interpretation relates to all type of benefits, including equity-based compensation.
SOCIAL SECURITY CONTRIBUTIONS BASIS: “REMUNERATION”, A COMPLEX DEFINITION
Belgian social security contributions are calculated on the basis of the employee’s remuneration. Remuneration is considered:
- the wage or other financially measurable compensation;
- to which the employee is entitled pursuant to the employment relationship;
- at charge of the employer.
The employer is not liable to withhold and pay social security contributions if one of the above elements are not met.
THE SUCCESSIVE POSITIONS OF THE SOCIAL SECURITY ADMINISTRATION
A benefit is at charge of the employer when the legal employer bears the financial costs of the benefit. This can be the case when the employer pays the cash bonus himself, but also when another company charges the financial cost of the benefit to the actual employer.
Regarding the element “at charge of the employer”, the Social Security Administration stated previously that the social security contributions are due if the (Belgian) legal employer either bears the financial cost, also when indirectly further to an intercompany recharge mechanism, or acts as the point of contact to which the employee should turn in order to claim the benefit if it is not granted (by the parent company incorporated abroad).
The Social Security Administration widens its interpretation by stating that every benefit is subject to social security when the employee’s entitlement is
- either the result of the professional activities provided within the framework of the employment contract concluded with the employer,
- or relates to the employee’s position or function with the employer.
Companies should review their global equity-based compensation schemes in order to determine its qualification under Belgian law.
- The benefit of stock options granted as from 1 January 1999 and accepted within a 60-day period are exempt from social security contributions, except if the options are offered with a discount or the risk of the option is covered by the employer.
Companies should carefully reconsider their position further the widened interpretation of the social security contributions basis in view of the following elements:
- Belgian social security contributions will be due if the cost is borne by the Belgian subsidiary / legal employer.
- Even in the absence of any such recharge mechanism, the Belgian Social Security Administration will claim contributions if:
- Either the grant is linked to the professional activities of the concerned employees (e.g. the benefit is linked to the employee’s individual performance);
- Or the benefits relate to the employee’s position or function with the employer (e.g. grant condition excluding certain employee categories).
Companies should not only take into account the employer's contributions (25% base contribution). As a rule, holiday pay will be due as well. The single and double holiday pay on performance-based remuneration amounts to approximately 15.67%. In very specific situations no holiday pay is due.
WITHHOLDING TAX CHANGES ARE IN THE PIPELINE. START: PROBABLY 1 MARCH 2019
The Belgian Government plans a widening of the withholding tax obligation towards benefits offered by a company abroad to employees of its Belgian subsidiary. A draft bill has been submitted to Parliament, but it is not yet been approved.
Initially this measure would enter into force on 1 January 2019. However, the government parties introduced recently an amendment to postpone the entry into force until 1 March 2019.
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We recommend to seek further guidance in order to assess the impact of the adjusted position of the Belgian Social Security Administration and the changing playing field. We remain at your disposal for any further clarifications. Send us your questions on firstname.lastname@example.org.