Supplementary pensions for company directors:
flexible application of the 80% limit
October 2021 – The flexible application of the 80% limit, as decided by the tax administration for 2020 bonuses, is extended for 2021 bonuses. The administration announced this in a circular dated 10 June 2021. And what exactly does this relaxation consist of?
What rules normally apply?
For employees, the annual calculation of the 80% limit (concerning the deductibility of supplementary pension premiums) is based on the normal gross annual remuneration. This amount is equal to the total gross amount of all the sums that the employer allocates to the employee during a given year, minus social security contributions.
It does not take into account exceptional or occasional awards.
Allocations to be fixed during a given year, including profit-sharing, may not exceed an annual pension, the amount of which, plus the statutory pension, may not exceed 80% of the normal gross annual remuneration of the worker during that given year, multiplied by a fraction whose numerator is the number of years of normal working life actually completed and remaining in the company and whose denominator is the number of years of normal working life.
A similar regime applies to company directors, on the understanding that :
the social security charges paid by company directors are considered as deductible professional expenses;
insurance or social security payments (such as group insurance or EIP premiums) are only deductible insofar as they relate to remuneration paid or allocated on a regular basis and at least once a month before the end of the taxable period during which the remunerated activity which gave rise to them was carried out and insofar as they are charged by the company against the results of that period.
In 2020
The coronavirus crisis has forced many company directors to reduce their remuneration to cope with the crisis. At one point, the tax authorities were asked not to base the calculation for 2020 on the executive remuneration of 2020, but on that of 2019. The tax authorities indicated that they would not agree to this request.
However, the tax administration was willing to make some concessions:
in assessing whether the remuneration in question is paid or allocated regularly and at least once a month, no account is taken of the months during which the company director ceased to allocate or pay himself remuneration and for which he was able to benefit from a temporary bridging right within the framework of the Covid-19 crisis;
the part of the bonus which, as a result of the reduction in the annual remuneration of the company director, exceeds the 80% limit is considered as an advance on the bonus to be paid in the following year. In this case, the part of the bonus that exceeds the 80% limit must be carried forward to the next financial year via the asset adjustment account 49 "Deferred charges" and this part must be taken into account in the calculation of the 80% limit in the next financial year.
In 2021
In a circular dated 10 June 2021, the tax authorities confirm that the 2020 rules also apply to 2021 premiums. But the circular also provides for other relaxations.
The first relaxation concerns the regularity of remuneration. As described above, a company's contributions to a group insurance or EIP are only deductible as professional expenses for company directors if the remuneration is paid or allocated regularly and at least once a month. Previously, the tax authorities had stated that for the purpose of assessing the condition of regular payment or allocation at least once a month, the months during which the company director ceased to allocate or pay himself remuneration and for which he was able to benefit from a bridging right as a temporary measure within the framework of the Covid-19 crisis should not be taken into account.
The administration is now extending this relaxation. The relaxation also applies if the company director has not ceased to receive or pay himself his remuneration, but if :
he receives a lower remuneration, e.g. because the company has changed its mode of operation, so that its net profit decreases;
he receives lower remuneration and also retains a benefit in kind (NTB);
He only retains an NTB.
It is also not required that the company director actually benefits from a bridging right. It is sufficient that they are eligible.
The second relaxation concerns the closure of the company. The temporary bridging right could only be granted if the company was forced to close. In practice, the relaxation was therefore only possible for such companies. With the new circular, the tax administration opens the door to companies that have not been forced to close. For these companies too, the tax authorities will disregard the months for which the company director received no remuneration or a lower remuneration or (only) an NTD, provided that the company director had to temporarily interrupt the activity entirely or partially as a result of the Covid-19 crisis and that he or she was able to benefit from a passing right.
In this case, the company must be able to prove with objective elements that the interruption of the activity of the manager is a direct consequence of the Covid-19 crisis.
Finally, the circular confirms the possibility of deferring part of the premium as an advance on the following year's premium.
In both 2020 and 2021, the 80% limit is calculated according to the normal rules. But if your premium is too high, the deduction is not lost. Instead, the contribution can be considered as an advance on the following year's premium. You must then logically take this advance into account when calculating the following year's premium: this premium will have to be reduced.
This rule was already included in the first circular of 2020 and can continue to be applied in 2021. If your bonus for 2021 is too high in relation to your annual remuneration, you can carry over the excess to 2022, but will then have to reduce your bonus for 2022 by the same amount.
The carry-over is linked to an entry in an accrual account. Otherwise, the part of the bonus that exceeds the 80% limit is an disallowed expense for the year in which the bonus was paid.
