Thursday, 14th june 2012

Tax and social security treatment of departure allowances

 

Administrative simplification

 

 

Social treatment

 

Severance payments based on labor law (or foreseen by a collective bargaining agreement) and allowances paid on a voluntary basis are not subject to social security contributions (art. 241.6 of the Social Security Code).

 

Tax treatment - Administrative simplification

 

Article 115.9 and 10 of the Income Tax Law (I.T.L.) foresees the conditions under which the termination allowances are tax exempt.

Until recently, the employer had to systematically obtain a prior opinion from the competent “RTS office” before exempting allowances paid to the employee on a voluntary basis.

In order to simplify the administrative process, the tax administration has recently modified its practice regarding the exemption of departure allowances paid on a voluntary basis.

In many cases, the employer may henceforth exempt these departure allowances without obtaining the prior opinion from the competent “RTS Office”.

In the framework of payroll control, the employer must be able to justify the tax exemptions applied during the year concerned, based on a detailed statement as well as the social documents related to the termination of the employment contract (termination letter, settlement agreement, etc.).

The table below summarizes the tax treatment applicable to the different types of termination allowances.

 

 

¹ Corresponding to 4 times the minimum social wage for a non-qualified employee on January 1^st of each year (index 737.83 on 1 January 2012).

² It is required to provide an official document issued by the CNAP indicating the date on which the former employee is entitled to a retirement pension (anticipated or not).

³ Corresponding to 12 times the minimum social wage for a non-qualified employee on January 1^st of each year (index 737.83 on 1 January 2012).


For any further information you may require, please feel free to come back to us.

 

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Janique Bultot                             Louise Lauwerier
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IF Group is not responsible for any errors, omissions or for the results obtained from the use of this information. The information contained in this document is for general guidance on matters of interest only.