Supplementary company schemes on working incapacity benefits

To make sure that the employer contributions remain tax-deductible as professional expenses, the supplementary company schemes on working incapacity benefits should no later than on 30 September 2012 explicitly mention that such schemes are aimed at compensating a loss of income.

In principle, the employer contributions paid to the supplementary company schemes on working incapacity benefits, that aim to compensate a loss of income, are tax-deductible for the employer. The Tax Administration has detailed the conditions that have to be fulfilled in this regard in Circular letter Ci. RH.332/583.327 (AOIF no. 42/2010) of 20 May 2010.

On 10 October 2011, the Tax Administration has further explained this matter in an Addendum to this Circular letter. When the supplementary company scheme provides the right to the benefits based on a percentage of the physical and/or economic invalidity (which is usually the case), the scheme should explicitly mention that it intends to compensate a loss of income.

With regard to the supplementary company schemes that have been set up no later than on 30 September 2012, the Tax Administration will accept the tax deductibility of the employer contributions, on the condition that an enclosure to the company scheme mentions that it intends to compensate a loss of income. If such an enclosure is not added at the very latest on 30 September 2012, the employer contributions are not tax-deductible. For supplementary company schemes that are set up as from 1 October 2012, this should be mentioned in the text of the scheme itself.

According to the Tax Administration, these rules also apply to individual schemes on working incapacity benefits, set up as from 1 January 2004, as well as to all other supplementary collective schemes, as mentioned in article 52,3°,b of the Income Tax Code 1992, that aim to compensate a loss of income, such as supplementary pension and death benefit schemes.

It would be wise to review the text of your supplementary company scheme or to contact your pension institution, to make sure that it is explicitly mentioned that the scheme intends to compensate a loss of income.