Balance sheet bonus – benefits for employees and managers!

Managers and employees, in the course of their activities, may enjoy balance-sheet bonuses, derived from company profits. But what are these bonuses? Find out all about them!

What are balance sheet bonuses?

Balance sheet bonuses are income received as profit shares. They may be attributed to either management or employees, but are distinct from the ordinary distribution of dividends by a company.

These amounts are taxed as IRS income, under Category A – Dependent Work.

These amounts are taxed as IRS income, under Category A – Dependent Work.

In relation to the management and their family members, who also receive bonuses, these are limited to twice the monthly remuneration earned during the taxable period, provided that they meet certain conditions, such as:

• Being members of corporate bodies;
• Directly or indirectly, they have a participation in the share capital of at least 1%, being considered an indirect participation that held by the spouse, ascendants or descendants up to the 2nd degree, also applying the rules on equal ownership, present in the Commercial Companies Code.

In order for all requirements to be met, there must be a formal profit sharing plan. Profit sharing may occur in a defined periodicity by means of an occurrence pattern, which may be monthly or even annual. However, for this purpose, the company must present a profit to be distributed.

The recognition of the expense in the accounts is provided for in NCRF 28, which imposes the possibility of making a reliable estimate of the payment obligation based on past events, or in the case where there is a formal profit-sharing plan.

Until when can balance sheet bonuses be paid?

The payment of the profit share shall occur until the end of the following taxation period, and may occur in only one or several months.

As regards social security, these bonuses are not subject to deductions for this entity. Gratuities on account of profits must be deliberated by the shareholders, in minutes to that effect.

The recognition of the expense in the period in which the work is rendered is based on a reliable estimate.

In terms of IRS, balance sheet bonuses are subject to withholding tax at the time the amounts are paid or made available to employees, in accordance with the general taxation rule for category A income. The amount awarded may also be provided on a fractioned basis.

If this topic is still something that confuses you, or you feel you need expert guidance on how to award your company bonuses, the SIMILAE team is available to clarify!