BALANCE SHEET BONUSES
(IRS) of up to €4,100 (5 times the guaranteed minimum monthly wage) applicable to income paid to employees as a share of company profits in 2024, by way of balance sheet bonuses, when paid by companies that have increased their employees’ fixed remuneration by at least 5% compared to 2023.
Until now, although these bonuses were not subject to Social Security, they were subject to IRS, just like other bonuses intended to reward individual employee performance.
Although the measure was presented as an important incentive to award bonuses to workers, it was received with many doubts and critics.
In that sense, the Tax Authorities’ “Circular 20271” clarified the conditions for applying the regime. Firstly, the exemption applies to balance sheet bonuses paid in 2024, with reference to profits from 2023 or previous periods, which have not yet been distributed, provided that the distribution takes place in 2024 and has been approved by the General Meeting of Shareholders with accounts’ approval.
On the other hand, only employees with dependent labour contracts are covered, which excludes members of statutory bodies. In addition, all employees covered by the distribution must be covered by the salary increase, being an average 5% salary increase not enough – which means that the fixed remuneration of each employee covered in December 2024 must be compared with its remuneration in December 2023.
As for ‘fixed remuneration’, this includes all remuneration earned by the employee that does not depend on individual, team or company performance, as well as other fixed ancillary components.
As for the processing of salaries, given that this is a progressive exemption, the amounts paid in this respect will be considered when determining the progressive rates applicable to the taxpayers’ other income, and the applicable withholding tax rate.
Although most of the doubts raised have been dispelled by the Circular, some criticisms remain. Firstly, in the first half of 2024, many companies have already paid their balance sheet bonuses. In this sense, the procedure to be adopted to rectify withholding taxes already made should now be clarified. Furthermore, the income covered by this exemption must be included with taxable income, so in practice the award of this bonus could result in an increase in the effective rate of IRS applicable, which seems to us to distort the measure.
Joana Pacheco
