Europe is known for high taxes - especially the European income taxes. Compared to Canada and the United States, on average they are significantly higher. What are the taxes in Europe when it comes to commissions and other forms of supplementary benefits? In this blog, Financial Consultant Svetlana Sonas will explain the rules in Europe.
Commissions, bonuses and other forms of supplementary benefits, are an important element of an HR strategy and remuneration policy. Commissions and bonuses are popular types of incentives granted by the employer for the performance of the employee. From a payroll perspective, it is interesting to look at the taxation effects for both the employer and employee, and the various implications.
Zooming in on Europe, cross-country differences can be observed. We will take the countries of Sweden, the Netherlands, France and Slovenia as an example.
Employer vs. Employee taxes in Europe
How much is the actual net bonus received by the employee and how much of the gross amount is transferred as a social security contribution to the tax authorities?
This depends on multiple factors, such as the height of the commission, the regular gross salary of the employee and his/her total yearly income. Most importantly, there is a difference in contribution made by employer and employee:
Taxes in Sweden: In general, Sweden is known for high tax rates. The employer tax rate accounts to 31,42% for the total of the base gross salary and the bonus. The employee can in turn pay up to 57-58% of the amount.
Taxes in the Netherlands: The employer tax contribution is lower in the Netherlands, where it is fixed at around € 839,89 in case of permanent contracts and slightly higher for flexible contract. The employee pays an average of 52% tax (a special rate), which is only applied to the bonus and not the base salary.
Taxes in France: In France, the employer pays a bigger chunk of the commission's tax. In general, the higher the combination of commission and salary is, the more the employer pays for contributions. For the employee the contributions are between 20% and 22%.
Taxes in Slovenia: Lastly, Slovenia, an Eastern European country. In Slovenia, the employer’s charges are not that high: +/- 16,1%. In turn a 22,10% is withheld from the employee, similar to the percentage in France.
Annual income tax return
Even if a high tax rate is paid by the employee, it is possible to get a part of the paid taxes back at the end of the year with the annual income tax declaration. The rates above exclude the personal income tax which in turn depends on the personal situation and is a separate topic itself.
To conclude, there are differences in the tax distribution between employee and employer in Europe. In general, the tax rate applies to the total gross earnings of the employee per month. Usually, the employee carries a bigger burden of the tax, but there are exceptions (such as in France). This is in line with most governmental policies in Europe which promote hiring. A possible option to decrease the tax burden for the employee is to transfer a part of the bonus to the pension scheme and by this conduct a so-called bonus sacrifice.
Do you want more information about the use of commissions and other forms of supplementary benefits? Feel free to contact Monique Ramondt-Sanders, the VP of Human Resource Outsourcing at EuroDev. Interested in more information concerning our HR Outsourcing services? Please have a look at our HR Outsourcing page.
EuroDev, established in 1996 with offices in The Netherlands and France, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 300 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing and Digital Marketing.