Labour reward and cooperation deduction
Arrangements for cooperating partners
When your partner is helping you in your enterprise, it is possible to make use of the arrangements that can be fiscally beneficial for you. Read whether your partner or you yourself is entitled to labour rewards and what those benefits could be in this article.
When your partner helps you in your enterprise, you can compensate your partner for this work. When this labour reward is higher than €5.000,- per year, you can deduct the compensation from your profit.
To make use of this arrangement, you will need to meet a number of criteria. Firstly, you will need to be an entrepreneur for the Tax Authorities and meet the time criterion.
In addition, the compensation for your partner has to be realistic: the reward should be meet to the work amount he/she does for you. The Tax Authorities considers a compensation realistic when the payment is comparable to what you would pay an external party for the same work.
Finally, it is also important that you have a tax partnership with your partner. If you are in a relationship with someone with whom you do not share a household, and that person is doing -for example- the administration of your company, then you are not a tax partner and are not entitled to the labour reward.
Pay attention: the labour reward is considered income for your partner. He or she will therefore need to pay income taxes over the compensation. The labour reward will only be a tax benefit if the partner is in a lower tax bracket than the one that is paying out the compensation.
Is your tax partner working for a minimum of 525 hours for less than €5000,- per year (or without compensation) in your enterprise? Than you may be entitled to the cooperation deduction. The deduction is dependent on the number of hours that your partner works for your enterprise:
Number of worked hours: 525 - 875 Deduction: 1,25% of the profit
Number of worked hours: 875 - 1.225 Deduction: 2% of the profit
Number of worked hours: 1.225 - 1.750 Deduction: 3%of the profit
Number of worked hours: 1.750 or more Deduction: 4% of the profit
Souce: Tax Authorities
It is important, when making use of the cooperation deduction, that the partner meets a criterion of a certain number of working hours per year. It is, of course, also necessary that the enterprise is profitable to make use of the benefits.
An important benefit of the cooperation deduction is that the amount that the partner receives for the activities is not included in the income tax assessment by the Tax Authorities. In other words: you can deduct the percentage mentioned above from the profit and your partner receives the compensation tax-free. The benefits can be significant.
However, to prevent misuse, the inspections are strict. You will need to be able to demonstrate that the hours are actually used for work in the enterprise. Activities that are not specifically for the enterprise are not part of the arrangement. Make sure you can explain the estimated hours through an hour administration that has an overview of the nature and size of the work.
Would you like to know more?
You can find more information about the fiscal consequences and benefits from the Tax Authorities here*. The Chamber of Commerce lists the compensations you can consider for your cooperating partner here*. Lexlupa explains the fiscal partnership in more detail here. Our sister company Salupa helps entrepreneurs with their administration, payroll and legal procedures concerning (new) employees.