An entrepreneur’s partner often helps out in the business. Insofar as this work goes beyond “marital duties”, it is certainly reasonable for the partner to receive remuneration for it.
At least €5,000
However, the Income Tax Act 2001 stipulates in paragraph 4 of Article 3.16 This remuneration is only taken into account if it amounts to €5,000 or more per year. Only then may the remuneration be deducted from the taxable profit. Naturally, the partner is not required to declare the remuneration as income if the costs cannot be deducted.
However, the Advocate General (AG) at the Supreme Court is of the opinion that opinion that this rule is discriminatory. After all, where persons other than the entrepreneur’s partner receive remuneration of less than €5,000, that remuneration is deductible from the business profits.
If the Supreme Court follows the Advocate General’s opinion, payments of less than €5,000 to a partner will also be deductible. Of course, the general rules regarding the substantiation of expense items still apply. This means that the partner must actually carry out work, and that the hourly rate must be commercially reasonable.
Employee tax relief
The tax alternative to the partner’s remuneration is the partner’s tax deduction. In this case, the entrepreneur’s partner does not receive any remuneration. The business owner may deduct an amount from their taxable profit. This deduction amounts to 4% of the profit if the partner has worked 1,750 hours or more in the business during the calendar year. Lower deduction rates apply to partners who work fewer hours.
Partner of the Director and Major Shareholder
The rules on the spouse’s tax deduction and spouse’s remuneration apply only to the partners of business owners for the purposes of income tax (sole traders, partnerships, general partnerships). Partners of a director-major shareholder may be employed by the private limited company (BV). They will then receive a salary, which is deductible from the company’s profits. Naturally, this must be a commercial remuneration for work actually carried out.
The private limited company must deduct payroll tax from the partner’s salary. The partner will, of course, declare the wages as income in his or her income tax return. Generally speaking, the partner of the director and major shareholder will not be covered by statutory employee insurance schemes. This is only the case if the partner carries out the work under conditions and circumstances comparable to those of “ordinary” employees.
Volunteer remuneration
Incidentally, in the case in which the Advocate General reached this conclusion, the party concerned also attempted to argue that the €1,500 paid to the partner constituted a volunteer’s allowance. This was unsuccessful. After all, the deduction restriction relates to allowances paid to partners. It is irrelevant whether the partner intended to gain a financial benefit. Nor is it relevant whether the allowance is so low that it is out of proportion to the work performed.
The voluntary scheme under the payroll tax rules, under which the partner could receive the remuneration tax-free, cannot, of course, be applied. That scheme applies only where the remuneration is paid by non-taxable organisations or by sports organisations.