The Supreme Court has confirmed that remuneration of €1,500 paid to an entrepreneur’s assisting partner is not deductible from profits.
Collaborative partner
If an entrepreneur’s partner works in the business, there are two options. The entrepreneur:
- claims the employee tax relief;
- charges a participation fee to profit (and this participation fee is taxed in the partner’s hands as income from other activities).
Employee tax relief
The partner’s tax allowance forms part of the entrepreneur’s tax allowance. The amount of the partner’s tax allowance depends on the number of hours the partner has worked in the business:
| Number of hours | Deduction |
| between 525 and 875 | 1,25% of the profit |
| between 875 and 1,225 | 2% of the profit |
| between 1,225 and 1,750 | 3% of the profit |
| more than 1,750 | 4% of the profit |
Participation bonus
At the Supreme Court The issue concerned the performance-related pay. This pay must be based on the actual number of hours worked, remunerated at a realistic hourly rate. Remuneration for overtime is not tax-deductible if the amount paid in a year is less than €5,000. The Supreme Court does not consider this to be discriminatory, as the actual value of remuneration between partners can give rise to disputes. Furthermore, it must be assessed whether the partner’s work goes beyond the usual mutual help and assistance between partners (remuneration for the usual help and assistance alone is not tax-deductible).
The Supreme Court also endorses the Court of Appeal’s ruling that it is irrelevant whether the participation allowance can be classified as a volunteer’s allowance. The voluntary work scheme under payroll tax legislation cannot, of course, be applied, as it is only available to non-commercial (i.e. those not liable for income tax or corporation tax) institutions and for commercial and non-commercial sports organisations.
Partner of the Director and Major Shareholder
The above does not, of course, apply to the director-major shareholder’s partner who works for the private limited company. Just like the director and major shareholder, the partner must, in principle, receive a salary from the private limited company that is at least equal to 75% of the salary in the most comparable employment relationship, with a minimum of €48,000.