The management company after the Summer Agreement

At the end of July 2017, the government of Belgian Prime Minister Charles Michel presented its 2017 Summer Agreement. This agreement contains a whole series of socio-economic reforms The planned reforms will have repercussions on the management company.

In the agreement, the government decided firstly to reduce the corporate income tax. In 2020 the corporate income tax should drop to 25% (at present it is 33.99% including the supplementary crisis contribution of 3%). As of 2018 the corporate income tax will even decline to 20% for SME´s on the first 100,000 EUR. 

Secondly, the Summer Agreement wants to discourage the use of companies. Henceforth it will be obligatory to pay at least 45,000 EUR per year to at least one company manager-natural person in order to qualify for the reduced SME rate (presently this figure is 36,000 EUR). The remuneration must be at least equal to the taxable income of the company if the remuneration is less than 45,000 EUR. Failure to respect this rule leads not only to a loss of the more favourable SME rate, but also to a special assessment of 10% on the too-little amount of the remuneration paid out. Starters remain protected from this measure (i.e. during the first four years after incorporation).

In view of these planned reforms, we will briefly explain once again below a number of aspects of the management company.

What is a management company?

In principle, a management company handles the management and the policy of another company (the principal), although the term is also used more broadly for all agreements that relate to the provision of services and advice. 

As its legal form one often opts for a BVBA. Two good reasons for this are 1) that a single person can set up a BVBA and 2) that the shareholder has only limited liability. The formation of a management company is often done for tax and financial-economic reasons (high personal income tax as employee, less independence as employee). The management company is an interesting vehicle for certain forms of cooperation.

Requalification & false self-employment 

Practice tells us that the conclusion of a management contract often goes hand in hand with a well-founded fear of requalification. Requalification to a commercial agency agreement or generally an employment contract can impose itself. In the latter case one speaks of "false self-employment". Vigilance is all the more necessary when the manager and the principal were previously bound by an employment contract.   

If the NSSO suspects false self-employment, it will test the collaboration against the Employment Relationship Act of 2006. This law sets the rules for determining the nature of the collaboration. The management contract is only requalified if enough elements are adduced that exclude the chosen independent collaboration. The evaluation is performed on the basis of four criteria: the intent of the parties, organisation of the working time, organisation of the work, and hierarchical control. 

The intermediary of a management company is far from being a cure-all here, as shown e.g. by the Leekens decision of 26 March 1998, in which the Labour Court of Ghent requalified the management contract between Club Brugge and the company of former trainer Georges Leekens as an employment contract.

Considering the importance of the qualification by the parties and the importance of the will of the parties, the conclusion of a good management contract with clear clauses is crucial. Clauses concerning reporting of tasks or working time, arrangements concerning illness or provisions on the reimbursement of expenses are to be avoided. In addition, the contract must also be executed in practice as a genuine independent collaboration.    

If one works with a management company, one can include provisions covering the consequences of a potential requalification. Generally the principal will want a clause stating that the manager indemnifies him for any harm, including outstanding social security contributions, that would result from the requalification - after all, the risk of requalification normally rests entirely on the principal. Practice shows that such indemnification clauses often constitute the object of negotiation.

If it is ruled that a concealed employment contract is present, the NSSO will claim outstanding social security contributions on the compensations that were paid out over the past three years (seven years in the event of fraud). These contributions are augmented by an increase of 10%, plus 7% late-payment interest per year. 

The (falsely) self-employed individual himself can also contest the qualification of the collaboration, which generally happens after the collaboration has come to an end. If the principal is deemed to be an employer, outstanding employee benefits such as vacation allowance, thirteenth month bonus, a higher dismissal compensation, etc. will be owed.

A good contract is essential   

The drafting of a management contract is very important, and not merely from the false self-employment perspective. 

The following points of attention, amongst others, are important:

• a good description of the services to be provided: it is important to strike a good balance in describing the services. If the list is excessively simplistic, later disputes could arise about the content of the assignments to be performed. By contrast, if the list is too detailed and exhaustive, the possibility of flexibility is limited and this can raise questions about the independent character;
• attention for the Employment Relationship Act (see above);
• compensation:  you can opt for a fixed compensation, or a variable one, or a combination of the two. It is recommended not to include clauses that regulate the reimbursement of expenses, given that such clauses are an intrinsic characteristic of employeeship. In principle the manager also has his own car, mobile phone and other equipment. Indexation clauses are not allowed;
• rules concerning termination of the collaboration: advance notice period and/or compensation in lieu of notice, possibility of terminating the contract effective immediately in the event of certain circumstances such as bankruptcy, fraud, deception or a serious breach on the part of the manager;
• non-compete clause, non-solicitation clause and confidentiality: the non-compete clause is less strictly regulated than in the Employment Contract Act, but it does have to be limited in time, space and targeted activities so as not to constitute an unlawful restriction on freedom of trade and industry. The clause can also certainly contain a separability or mitigation clause, so that a judge will not declare an excessively broad clause to be invalid, but only mitigate it; 
• Social Welfare Act: the contract necessarily has to contain a clause in which the manager undertakes to comply with the obligations concerning well-being at work;
• intellectual property;
• forum clause (applicable law) and competent court. 

What can we do for you?

Naturally we would be pleased to assist you in searching for the most suitable form of collaboration and drafting the necessary contracts (management contract or an employment contract). We also provide assistance if it actually comes to a dispute with the NSSO and/or the self-employed individual concerning the qualification of the collaboration. 

For more information on this topic or for further assistance, you can consult Sébastien van Damme, Dave Mertens and Sara Cockx (authors).