Exemption for social liabilities to be spread over 5 years

As everyone is aware, the Single Status fundamentally changed the rules governing dismissal. This caused many employers to incur an additional cost when dismissing an employee.

In order to compensate for this, Section 67quater of the WIB92 (Income Tax Code 92) introduced an exemption for the social liabilities of each employee with a specific period of service (5 years).

And, indeed, Single Status gives blue-collar workers a higher amount of severance pay after 5 years’ service.

1. Which amounts may be exempted?

Commencing from tax year 2020 (financial year 2019), each employer shall have the right to apply an exemption for a sum corresponding to:

• 3 weeks pay, from the 6th to the 20th (inclusive) year of service begun by the employee after 1 January 2014;
• a week pay commencing from the 21st year of employment after 1 January 2014.

This amount may not exceed 2,600 euros (index-linked). The maximum amount of the remunerations qualifying for the exemption will be calculated on the follwoing basis:

• 100% of the tranche from 0.01 euros to 1,500 euros;
• 30% of the tranche from 1,500.01 to 2,600 euros;
• 0% above 2,600 euros.

The maximum amount of the remunerations qualifying for the exemption, must be calculated for each employee. It must be equal to the average gross monthly pay, prior to deduction of the personal social security contribution, calculated over the total number of months of the taxable period for which the exemption is requested.

The law also provides a formula for calculating weekly pay, namely, multiplying the maximum amount of the gross monthly pay by 3, and then dividing by 13.

This exemption may also be applied when the Single Status does not result in extra costs.

2. This exemption must be spread in time

Indeed, it must be "spread over the taxable period and the following 4 taxable periods amounting to 20 % per taxable period", i.e. over 5 years.

This is intended to give the authorities more leeway during the initial years of application of this exemption.

If the employee in question leaves the company, the spread exemption of the remaining liabilities ceases to apply and the total exempt amount must be included in the profits and income of the taxable period in which the employment ends.

This change came into effect on 1 January 2019.