COPYRIGHT PAYMENTS FOR EMPLOYEES: A FAVOURABLE TAX REGIME
Copyright payments for employees: This article explains how to apply the favourable Belgian tax regime of copyright payments to employees.
Copyright payments: the favourable tax regime for employees
Since the Belgian Act of 16 July 2008 on the fiscal treatment of copyrights and neighbouring rights, Articles 17, §1, 5° and 37, paragraph 2 of the Belgian Income Tax Code (WIB) stipulate that remunerations for the transfer or concession (licence) of copyrights and neighbouring rights are movable income.
In other words, income from the transfer or licence of copyrights is considered movable income. Currently, only 15% withholding tax must be paid on this income, instead of the normal progressive income tax rate.
Employees are eligible for the favourable Belgian tax system of copyright payments. The Belgian Ruling Commission has recognised this in several of its decisions (“rulings”). It is important to emphasise is that the tax benefit is intended for the employee, not for the employer. However, it is the employer who must deduct the withholding taxes “at the source”.
The calculation of copyright payments for employees
Copyright payments as a percentage of the employee’s gross salary
The Belgian Ruling Commission indicates in its rulings that, when an employer wishes to pay copyright royalties to its employees, these must be calculated as a percentage of the “financial envelope” of the employees, with a maximum of 25%. The “financial envelope” consists of the gross remuneration (before social security contributions) of the employees and of the copyright payments. Non-taxed elements such as social benefits, costs of the employer, etc. are excluded from the calculation basis for the copyright fees.
This figure of 25% of the financial envelope is the maximum copyright payment that the Ruling Commission accepts. To know the exact copyright remuneration that can be paid to an employee, one should first identify the concrete “creative time” of the employee (i.e., the time generally spent on creating the copyright protected works). The “creative time” of an employee depends primarily on the concrete work the employee performs for the employer. If, for example, an employee spends 90% of his working time on creating copyrighted works, the copyright fee will be 22,5% of his gross salary (or better: financial envelop) (because 90% of 25% = 22,5%). If the employee’s creative time is 75% of his working time, the remuneration will be 18,75% (because 75% of 25% = 18,75%) and so on. The creative time will be checked by the Ruling Commission using, among other things, timesheets and other documents such as descriptions in employment contracts, job descriptions, assignment documents, examples of concrete projects, etc. Nowadays, the Ruling Commission never accepts that an employee spends his entire working time on creative work. After all, every employee will spend some time on tasks such as meetings, emails, phones, admin, sales, team management, project management, support, etc. Thus, in practice, the 25% maximum percentage is never applied.
Copyright remuneration: “reclassification” of salary?
Most rulings stipulate that the total salary of the employee will not change by the granting of copyright fees. The copyright allowances are then deemed to be included in the existing gross salary package. In other words, by applying the copyright tax regime, the employee’s existing salary is split into salary (performance fee) on the one hand and copyright fees on the other hand. Thus, the salary decreases in proportion to the payment of copyright fees.
However, it is also possible to pay out copyright fees to employees on top of their current salary package (i.e., as a surplus). The copyright remuneration is then granted via an accrual on top of the existing gross salary.
It is important that one of the two scenarios above is properly worked out in a written contract with the employee and that the “salary” part (performance fee) remains above the sectoral pay scales.
Copyright payments: the importance of a written agreement
There is some discussion in case law whether a written agreement is a necessary condition to benefit from the favourable tax regime for copyrights.
Nevertheless, we recommend to always draw up a written contract between employer and employee in which the transfer or license of the copyrights and the payment of copyright fees is explicitly agreed upon between the employee/author and the employer. This can be done by adding an addendum to the existing employment contract, or by signing a separate agreement specifically for the payment of copyright fees.
Copyright payments and social security
For social security purposes, copyright payments to employees are considered as salary. Social security contributions must therefore be paid on such copyright payments. Thus, copyright payments to employees are also subject to the normal rules for calculating holiday pay and end-of-year bonuses.
Copyright payments and employees: ruling needed?
To pay copyright fees to your employees, a ruling is not strictly necessary. However, we strongly recommend applying for a ruling. A ruling brings certainty for employees that the copyright payments are considered as “movable income” and that these payments will not be contested by the tax authorities.
If you have questions about copyright payments as an employer or an employee, please do not hesitate to contact us. We will be happy to help you with an initial analysis, to apply for a ruling or to update the contracts with your employees.
See our previous blogpost for more general information on copyright and taxes.
Author: Bart Van Besien