Business News

New Tax Breaks to Encourage Profit Sharing

Ljubljana, 22 April (STA) - The government tweaked the profit sharing act on Thursday to spark interest in schemes of worker participation in profit. Profit sharing would remain voluntary, but procedures are being simplified and tax breaks introduced for companies and employees.

Economy Minister Matej Lahovnik explained that an analysis had shown only 20 companies had such incentive plans under the current law, that procedures were too complicated and that tax incentives were not favourable enough.

Under the amendments, companies will no longer have to pay welfare contributions for the share of profit they pay out to workers. "The payment of profit to workers was so far taxed more than the payment to capital owners. This anomaly is being removed."

The entire payment will be regarded as the company's outlay in the calculation of corporate income tax. This incentive will replace the current break in the amount of 70% or 100% cut in tax base for one- or three-year deferral of payment, respectively.

The amendments are abolishing the deferral of payment of profit altogether. Moreover, they would enable companies to allocate distributable profit as well.

Employees partaking in profit will have 50% of the payment included in their tax base. For those in the lowest income tax bracket (top rate of 16%), the taxation of payment will be 8%, while it will be just above 20% for those in the highest tax bracket (top rate of 41%), Lahovnik explained.

The amendments are also simplifying the procedure whereby agreement is reached on profit sharing. It will be no longer necessary to register such an agreement, but a notification to the tax administration will suffice.

"We expect companies to apply these schemes on a much bigger scale," the minister said, adding that apart from higher tax breaks the schemes would also result in better motivation of workers and their identifying with the company.

The payment of profit will remain capped at two gross monthly salaries or EUR 5,000. The law will also keep the options of payment in money or shares, or a combination of both.

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