NSSO follows the Tax Ruling Commission’s position: warrants may not exceed 20% of the employee’s regular gross salary package
Employers often use warrants as a salary optimisation tool. If such warrants qualify as options within the meaning of Article 41, 3° of the Option Act of 26 March 1999, then they may be subject to a favourable tax regime. Furthermore, subject to certain conditions, such warrants are also exempted from social security contributions. In 2018 the Tax Ruling Commission ruled that the grant of warrants may not exceed 20% of an employee’s gross annual salary in order to qualify as options (as set out above). The National Social Security Office (NSSO) has confirmed that it is applying the same criterion when determining whether such warrants qualify as salary, which trigger the payment of social security contributions.
In the past, the Tax Ruling Commission issued several rulings confirming that the grant of warrants may not be disproportionate compared to an employee’s normal salary package. If this criterion is not met, then the grant of warrants qualifies as an “abuse of rights”. As a result, the warrants do not qualify as options in the sense of Article 41, 3° of the Option Act of 26 March 1999. In 2018, the Tax Ruling Commission further clarified the meaning of “disproportionate”: the grant of warrants (based on their real value) may not exceed 20% of an employee’s gross annual salary. Gross annual salary includes the gross monthly salary x 13.92 as well as the variable salary. Other advantages and benefits in kind (e.g. the private use of a company car or a laptop) are not taken into account for determining the applicable 20%-threshold.
The NSSO confirmed that it will use the same criterion when deciding whether or not the warrants are exempted from social security contributions. According to Article 19, § 2, 18 of the Social Security Royal Decree of 28 November 1969, save some limited exceptions, warrants are exempted from social security contributions provided that they are accepted within 60 days following their offer date.
As the salary concept in the social security legislation explicitly refers to the tax legislation (i.e. the Option Act of 26 March 1999), the NSSO in the past always took the position that the social security exemption only applied to warrants for which the tax administration accepted that they were taxed as options within the meaning of the Option Act of 26 March 1999. The NSSO has confirmed its position for the 20%-threshold. Hence, if the grant of warrants is considered as being disproportionate due to not meeting the 20%-threshold, then the warrants will qualify as salary and trigger the payment of the regular employer’s and employee’s social security contributions.
In conclusion, when considering granting warrants to employees, employers must monitor compliance with the 20%-threshold. If the corresponding value is higher, then it may be worth investigating alternatives, which can be combined with the warrants (e.g. granting a profit premium).
As a final note, as this 20%-threshold does not have a legal basis and arises from a Tax Ruling Commission interpretation, it remains to be seen whether the courts will agree with it or whether they will overrule the position of the Tax Ruling Commission (and NSSO).
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