Corporate tax: minimum remuneration for directors
Small companies can benefit from a lower corporate tax rate. There are a number of conditions to comply with, amongst which a minimum remuneration for the directors. In the 2017 corporate tax reform an extra sanction is foreseen in case of non-compliance. The sanction is abolished in the meantime, but the condition still exists.
Lower rate, more remuneration
The 2017 corporate tax reform was built around the reduction of the corporate tax. The standard rate stands at 29% for tax year 2019 and it decreases as from tax year 2021 to 25%. The reduced tax rate for small companies amounts to only 20% on the first 100.000 EUR. Above the standard rate applies.
For the tax years 2019 and 2020 these rates are to be increased with 2% crisis tax. As from 2021 this crisis tax disappears.
The reduced corporate tax rate is subject to a number of conditions. One of these conditions is that the company should pay a minimum remuneration to at least one director. This condition exists for more than 20 years, but the amount of the minimum remuneration was in 2017 increased from 36.000 EUR up to 45.000 EUR (or at least an amount which equals the taxable result in case this is lower than 45.000 EUR). In case the company paid insufficient remuneration, the reduced tax rate is lost and the company will pay 29% on its total profit, in other words a difference of 9% on maximum 100.000 EUR.
Note that the minimum remuneration condition for the reduced corporate tax rate does not apply during the first four taxable periods as from the incorporation of the company.
Cheaper through a company?
In case the corporate tax rate 'only' amounts to 29% (and for small companies even only 20%) it could be very tempting to route activities through a company instead of directly to an individual. Your professional income is most often taxed at 50% in personal income tax (as from approx. 40.000 EUR income). Put a company in between and you can share the income between your company and yourself.
The government wasn't too keen on such tax evasion. In the 2017 corporate tax reform a new tax was foreseen. Companies (small or not) would have to pay a 5% tax on the difference between 45.000 EUR and the highest director's remuneration. A small company would therefore have to pay twice if it would not pay minimum 45.000 EUR to at least one director: a separate taxation at 5% and the loss of the reduced rate.
Reparation: it never existed
But there will be no separate taxation. The government has fully reversed this measure. The reparation law withdraws this measure and it is as if the tax never existed. Small companies still have benefits in complying with the minimum remuneration condition of 45.000 EUR. Other companies are freed of it.