Customary salary scheme

The customary salary scheme applies to those who are employed by a private limited-liability company in which they – or their life partner – entertain a substantial interest (usually as director cum controlling shareholder). The statutory definition of the scheme is to be tightened up next year. The central plank effective 1 January 2015 will be that the annual pay collected by a director cum controlling shareholder must be deemed at least to amount to:

• 75% of the wage as per the most comparable employment or, if higher,
• the top wage earned by the company’s other staff or, if higher,
• € 44,000.00.

The company has the option of producing evidence to the contrary by rendering it plausible that the wage as per the (more or) most comparable employment would be lower. Allowances may be made for the efficacy margin as long as the wage is fixed at a level which is no lower than € 44,000.00. It had already become clear last year that the efficacy margin – i.e. the extent to which it is permissible for a director cum controlling shareholder’s pay to undercut the pay of an employee in a comparable position who happens not to have a substantial interest in the company – was to be curtailed. It has now been proposed to trim the margin from its current level of 30% to 25%.

As the Tax and Customs Administration has entered into arrangements with a multitude of private limited-liability companies concerning the pay earned by these companies’ directors cum controlling shareholders, it has been decided to introduce a transitional scheme for 2015 by virtue of which the director cum controlling shareholder’s pay is to be fixed at 75/70 of his (or her) pay for 2013 on condition that said pay was greater than € 43,000.00, unless it is plausible that a higher or lower amount should apply in 2015.

“Most comparable employment” is to be introduced as a new term in replacement of “”similar employment”, practice having shown the identification of “similar employment” to be fraught with problems potentially resulting in the level of pay for a particular director cum controlling shareholder being fixed at € 44,000.00 even though this would clearly represent a non-arm’s length shortfall. The current regime enables the top wage earned by the company’s other staff, or by the staff employed by a company in which the director cum controlling shareholder’s company holds a participating interest of one third or more, to be tied in with, which can make it challenging for the Tax and Customs Administration to come up with evidence. For this reason it has been decided that in future the wages may be taken into consideration of all members of staff employed by a company from which the director cum controlling shareholder’s company may benefit by virtue of the holding exemption.

It has been decided not to introduce a separate customary salary scheme for business start-ups.