Co-operating spouses: Co-operating remuneration or co-operating tax deduction?

We frequently receive the question whether a co-operating spouse in the self-employed business should receive a working co-operating remuneration or if it is more advantageous from a tax perspective to claim a co-operating tax deduction based on his or her performed working hours in their income tax return.

If your spouse works in your business without receiving any remuneration, you may be eligible to claim the co-operating tax deduction depending on the number of hours your partner worked in the business. To qualify for this deduction, you must meet the requirement of yourself working at least 1,225 hours. The deduction is a maximum of 4% if your spouse worked more than 1,750 hours in your business. If the number of hours worked is less than 525 hours, the co-operating tax deduction is 0%. The rate at which this deduction can be claimed will be gradually reduced to the lowest tax rate in the income taxes the coming years.

Alternatively, you can provide your partner with a compensation for the hours worked. If this compensation amounts to at least €5,000, it is deductible when calculating your taxable profit amount. Such a co-operating remuneration needs to be:

• Business-like.
• Documented in writing.

Whether it is advisable to grant your spouse an employment compensation or choose to apply the maximum 4% co-operating tax deduction in your income tax return depends on the following factors:

• The number of hours your partner worked.
• The tax rate at which the co-operating remuneration is taxed.
• The ability to utilize tax credits.

In general, a co-operation remuneration is from a tax perspective more advantageous if your spouse does not have any other income and can make full use of the tax credits. Therefore, it is important to continuously evaluate whether a remuneration is beneficial or not.

More from the HBK Update June 2023

• New (temporary) legislation regarding box 3
• Holding on to definitive assessments and objections with income in box 3
• Restructuring box 3 assets before October 1st (valuation date arbitrage)
• Excessively lending act
• Limitations/Abolition of Business Succession Facilities
• Tax authorities will start checking for pseudo self-employment from 2025
• Convert loss from substantial interest into tax credit
• No tax-free allowance for each day working from home
• Repaying Deferred Tax Payments
• MIA and Vamil
• Reimbursement of costs for assistance with filing income tax return for foreign employees
• Co-operating spouses: Co-operating remuneration or co-operating tax deduction?