In your capacity as company executive, you are entitled to a remuneration in consideration for the duties you perform and your various responsibilities. This remuneration can be established in the company’s Articles of Association, by the Supervisory Board or the Board of Directors, in a collective decision of the shareholders or by the shareholders meeting. The PICOVSCHI attorneys firm considers that it is advisable to recall the procedures governing the taxation of remuneration which are closely related to the company’s tax scheme and legal form.
If your company is subject to corporate tax
Your remuneration, regardless of its form (basic salary, premium, bonus, benefit in kinds, profit sharing, etc.) is subject to income tax in the same category as salaries and wages.
This principle applies interchangeably to a joint stock company for the Chairman of the Board of Directors or the Supervisory Board, the Chief Executive Officer and Chief Operating Officer, the members of the Executive Board, of the Board of Directors or of the Supervisory Board who perform other technical wage-earning duties within the company; to a simplified joint stock company or a single member-simplified joint stock company for the Chief Executive Officer or the other executive bodies stipulated in the Articles of Association which determine the power to establish the remuneration and the manner in which it is paid; to a limited liability company for a minority or equal partner and a non-shareholder manager who performs effective duties; to a cooperative collective interest company for its executives, on the condition that they not own over 50% of the share capital; to a civil law company, automatically subject to corporate tax due to its purpose, even in the absence of the option to choose this form of taxation.
Your taxable remuneration, consisting in wages and salaries, of course benefits from a flat 10% deduction. However, like any average employee you may choose to deduct greater real professional costs, on the condition that you are able to prove the reality thereof during a tax audit (in the context of a “document-based audit” or an individual adversarial tax audit [ESFP]).
Some executives are not viewed as employees for the purposes taxation, even if practically speaking they are taxed according to the rules governing salaries and wages. This is the case of majority managers in limited liability companies, managers/active partners, the managers of a personal company which has opted for a corporate tax scheme (partnerships and real estate investment companies in particular).
For the company, the remunerations paid to the executives of course constitute a deductible cost, on the condition that they correspond to effective work and that they are not excessive in light of the duties performed.
These remunerations are subject to tax on wages if your company is not subject to VAT or has not been subject to VAT on at least 90% of its turnover.
For all useful purposes, it is noteworthy that the ordinary directors’ fees paid to the members of the Board of Directors or the Supervisory Board are taxed as investment income, according to the procedures applied in the tax scheme specific to dividends.
If your company is not subject to corporate tax
The remuneration paid to the executives/shareholders of a personal company which has not opted for corporate tax (in particular partnerships and real estate investment companies) or a joint stock company which has chosen the scheme which applies to personal companies, entails particular taxation procedures.
It is subject to income tax in the executive’s name, in the category corresponding to the nature of the activity pursued by the company and consequently depends on whether it falls into the category of industrial and commercial profits or non-commercial profits, or even agricultural profits or real estate income. Furthermore, it is not deductible from the company’s profits.
However, the remuneration of wage-earning non-shareholder/managers is subject to taxation in the category of salaries and wages and is indeed deductible in determining the company's tax results, inasmuch as it corresponds to effective work and is not excessive in relation to the service rendered.
How to find the right solution?
In this maze of specific rules which depend on the tax scheme, the legal form, the nature of the activity pursued by the company, etc., a maximum number of precautions must be taken concerning your remuneration. In your own interest, but also for the company’s sustainability, you must make the best possible choice if an ideal formula cannot be found.
In other words, avoid running useless risks, in particular as regards to the amount of your emoluments liable to be considered as excessive remuneration by the tax administration, in the case of an audit of the company’s accounts.
In addition to the usual assistance provided by your certified public accountant, you can count on complementary assistance of PICOVSCHI’s team of knowledgeable attorneys who possess a wealth of experience to advise you upstream regarding the choice of your remuneration and possibly assist you downstream… in the event that the company underwent a tax audit.