Legal definition of “salary” as set out in the 1965 Salary Protection Act
This situation arose from the legal definition of “salary” as set out in the 1965 Salary Protection Act, and as further specified by several royal decrees, which has been used as the basis to determine the salary and benefits upon which employer and employee social security contributions are due. On the basis of this legal definition, salary has been defined as the “cash” salary as well as any “benefits in kind” to which the employee is entitled as a result of the employment relationship and which are borne by the employer.
This definition has further been fine-tuned by the Belgian social security administration in its official instructions.
Until recently, a benefit was only considered as being “borne by the employer” if it was “financially” (i.e. the cost of such a benefit has been recovered by the employer) or “legally” (i.e. if the employee has not received the benefit, then he or she should address him or herself to the employer) borne by the employer. As a result, if the Belgian employer has not acted as a direct contact person or as an intermediary for benefits granted by third-parties (e.g. parent companies abroad), even if there is a clear link between the benefit and the employment relationship, such benefits have not been qualified as salary and have not triggered the payment of (Belgian) social security contributions. This “escape route” has justified equity incentives, granted by parent companies abroad that do not have any local involvement, could be exempted from (Belgian) social security contributions.
In its 2018/3 instructions, the Belgian social security administration has made an important change. An advantage is “being borne by the employer” if it is “financially” being borne by the employer (this remains the same) or if “granting the advantage is the result of the performances of the employee in the framework of the employment contract that was executed with the employer or relates to the function the employee exercises with the employer”.
Whether or not the local employer is (actively) involved in the granting process or in the administration process is no longer relevant. It is sufficient that the advantage is granted in the framework of the employment contract, which will in practice always be the case, to qualify as salary triggering the payment of (Belgian) social security contributions.
Based on these updated instructions, equity incentives now fall within the scope of the “salary” concept as set out by the Belgian social security administration.
That being said, the Belgian social security administration’s instructions have no binding or legal value and it remains uncertain whether the labour courts will follow this broadened non-legal definition or stick to the strict legal definition of salary if disputes arise regarding applying the Belgian social security contributions on equity incentives granted by parent companies based abroad. To be continued!
For more information on the most recent developments, including tax aspects, please find more details here.