According to the Tax and Customs Administration (AT), the IRS tax exemption for “bonuses” of up to €4,100 awarded as profit sharing is limited to companies that have increased their number of employees by at least 5% in 2024.
The AT understanding disclosed now is contained in the information for services and is aimed at clarifying the scope of the tax relief included in the 2024 Budget Act (OE2024) and applicable only for this year.
What is at issue is an IRS tax exemption of up to five times the national minimum wage (€4,100) on amounts attributed to employees as a share of the company’s profits, “paid by entities whose nominal valuation of fixed remuneration of the employee universe in 2024 is equal to or greater than 5%”, according to the budget rule.
In the now published letter, AT stresses that, considering this measure as part of the goal of companies to provide workers with a wage increase of at least 5%, and also taking into account the law that speaks of the “universe of workers”, it concludes that the increase in the value of work reward of 5% is “mandatory for all employees of the company”.
In other words, AT says, it is not enough to test the average wage increase to distribute profits among workers (within the agreed amount and limits) to be exempt from the IRS.
“Otherwise, we could end up with situations where the highest percentage of workers sees an average growth of 5%, while lower-paid workers see their growth remain below 5%,” the same information says.
To check the salary increase in 2024, the remuneration paid in December of the current year is taken into account in comparison with the remuneration for the same month of the previous year.
However, this general nature of the salary increase at a level of at least 5% in 2024 does not apply to the distribution of profits. In other words, as noted by the Tax Authority, “there is no legal obligation to distribute balance bonuses to all employees”, and the decision on the distribution and appointment of the “bonus” is made by the company.
As noted earlier, AT reminds us that income allocated within the scope and limits, although exempt from the IRS, is nonetheless “mandatorily included in determining the IRS rate applicable to other income.”
AT also states that bonuses awarded to employees must be consistent with the distributable profits in 2023, “including therefore both profits relating to that period and any accumulated profits relating to previous years and recognised in retained earnings or in free reserves”, provided that the distribution occurs during 2024.