In Chile, this concept is named “Sueldo Empresarial” and is considered a tax benefit that allows company owners to deduct, as a company expense, the salary paid to the partner or owner, subject to compliance with the requirements and conditions required by law to enjoy the benefit.
In other words it’s a deductible expense for tax purposes that can be use in some kind of entities: Partnerships (as Sociedad de Responsabilidad Limitada) and Sole Proprietorships (as E.I.R.L or Empresario Individual).
This concept is regulated in the Law of Income Tax (Ley de Impuesto a la Renta o LIR) and has a maximum deductible amount, equal to the maximum amount that may be subject to mandatory retirement and health insurance deductions. (74,3 UF for this year 2016).
The mentioned requisites that must be met are the following:
- The owners or partners of the company must be effectively and permanently working for the business or company. It may be more that one partner in a partnership if each one meets all the requisites.
- The salary assigned to the owner must be affected by mandatory retirement and health insurance deductions.
- The salary must pay the corresponding tax (Impuesto Único de Segunda Categoría).
- The salary and the related tax must be accounted in the corresponding period and must be done identifying the beneficiary.
The fact of paying the owners salary to one of the partners does not generate a labor relationship, because there is not a subordination or dependency between the worker and the employer, being both the same person. In this sense, is neither necessary to generate a labor contract that recognizes the obligation to pay the elected amount as owners salary.
The case is different for minority partners in a partnership (less than 50%) where the Labor Authority (Dirección del Trabajo) has said that they can be considered dependent workers of the partnerships and subject to all labor regulations.
Everything paid in excess of the indicated amount to be treated as a deductible expense, must be considered a rejected expense (as established in the article 33 of the Law of Income Tax).
For Corporations the concepts over this matter differ from what has been explained, so we will revise it on another post.
Santiago Henríquez C., Lawyer
Picture: Alexandre Perotto (CC0)