Golden Handshake
The Golden Handshake 2010 - fiscal aspects of the severance payment
The credit crisis has caused many companies to return to their core activities. This process usually results in a lot of redundancies. In most cases the former employees get a severance payment or 'golden handshake' from their former employer.
The severance payment can be paid for:
- immaterial damage;
- loss of income;
- loss of pension.
Payments for immaterial damage are normally not taxable.
Fiscally, the severance payment can be paid out in different ways:
- in the form of a lump sum, taxable with a maximum of 52% wage tax;
- in the form of an annuity: taxation is postponed until the moment the former employee (ultimately at age 65) receives annuity payments (annuity exemption in the wage tax legislation).
On lump sum amounts no social security premiums are due because this income is labelled as income from former employment and not as income from current employment. For the same reason the 30% ruling cannot be used regarding severance payments. If an employee has already worked 25 or 40 years for the employer, an amount of one month gross salary can be granted tax free.
Annuity entitlements can be arranged in 4 ways:
- with the former employer;
- with an insurance company or pension company;
- on the account of a bank or investment company (new as of 2010);
- through the personal annuity BV of the former employee.
Thanks to the annuity exemption in the wage tax legislation the last arrangement can be very advantageous for the former employee who wants to start his own business with the gross severance payment in his Golden Handshake BV. In most cases the former employer asks us to arrange for approval from the tax authorities before transferring the gross severance payment to the former employee's Golden Handshake BV.
We can help with the following services:
- advising in this matter for a fixed fee;
- arranging incorporation of an annuity BV by a public notary;
- drafting and filing a request for approval by the tax authorities on the applicability of the wage tax annuity exemption for a fixed fee;
- annual servicing of the BV (accounting, tax returns, publication report) for a competitive fixed fee.
