Article 275/5 ITC92 provides for a partial exemption from payment of withholding taxes for shift work. One of the requirements for its application is that the consecutive shifts have to carry out the same volume of work. A difference in the number of workers between consecutive shifts often resulted in the impossibility of benefiting from this exemption. This also frequently resulted in discussions in case of an audit. The Act of 12 May 2024 containing various provisions now provides for a temporary 'pro rata' rule (until tax year 2027) with retroactive (!) effect from 1 January 2021.
Companies that use shift work and pay a shift premium to its employees can benefit from a partial exemption from payment of withholding tax. While withholding taxes must be deducted from the salary paid by the employer to the employee, the employer is exempt from paying a part of the withholding taxes to the Treasury. This corresponds to an amount of 22.8% of the total taxable salary of all employees working in shifts.
To qualify for this exemption, several conditions must be met cumulatively, including the requirement of shift work.
To qualify as shift work, the 'traditional' regime requires that:
- the work is performed in at least two shifts of at least two workers each;
- the shifts perform the same work, both in terms of content and volume;
- the shifts work consecutively;
- and without overlapping more than a quarter of the day's work between consecutive shifts.
The requirement that the shifts must perform the same work in terms of volume frequently resulted in the impossibility of applying the exemption if there were significant differences between the number of workers per consecutive shift.
A new paragraph 1/1 in article 275/5 CIR92 now provides for a pro rata exemption in case of differences in the volume of work between consecutive shifts. This means that - if all other conditions of the 'traditional' regime in article 275/5 ITC92 are met - the exemption can still be applied, but will be reduced pro rata according to the difference in volume of work between consecutive shifts.
First, the traditional total exemption is calculated ('basic amount'). Then, for each working day that shift work is performed in the relevant month, the difference in volume of work between consecutive shifts relative to the shift with the smallest volume of work is determined, on the one hand, and the total volume of work of consecutive shifts, on the other hand.
After that, the deviation on the volume of work shall be determined by a ratio expressed as a percentage, with the numerator being the sum of the difference in the volume of work of consecutive shifts determined for each working day of the said month and the denominator being the sum of the total volume of work of consecutive shifts determined for each working day of that month.
Finally, the amount of the exemption is determined by proportionally reducing the 'basic amount' based on the fixed percentage of deviation from the volume of work.
This regime will be introduced retroactively from 1 January 2021, but will in principle end as of tax year 2027.
Key message
Companies in which shift work is performed, but for which the requirement that the shifts must perform the same work in terms of volume was an obstacle, will now be able to apply this exemption.
In many cases, it will also be possible to apply the exemption retroactively, even if they had not done so in the past.
Also, in case of discussion in the context of an audit, the new regime may allow to limit the financial impact of any rectifications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.