Profit-based bonuses are usually approved after the financial year-end, following the approval of the annual accounts, and may be granted to employees or to directors and managers through a valid corporate resolution.
From an accounting perspective, these bonuses must be recognised as an expense of the financial year to which they relate, in accordance with the accrual principle, even if paid in a subsequent period.
From a tax perspective, bonuses paid to employees are generally deductible for Corporate Income Tax (IRC) purposes, provided they are properly documented, reasonable and effectively paid. When granted to directors or managers, deductibility may depend on compliance with legal and statutory requirements.
Regarding Social Security, profit-based bonuses are not subject to social security contributions, provided they do not have a regular or periodic nature and are clearly linked to the company’s results. Nevertheless, these amounts remain subject to personal income tax withholding, depending on the beneficiary’s status.
Correct classification and documentation are essential to prevent recharacterisation and future tax or contribution adjustments.
Conclusion
When properly structured, profit-based bonuses can be an effective tool to reward performance and share results. However, they require careful accounting and tax planning.
Nominaurea with offices in Lisboa and Oporto supports companies in the assessment, planning and implementation of profit-based bonus schemes, as well as in a wide range of accounting, tax and corporate matters, ensuring compliance and sound decision-making. Consult our team of chartered accountants and payroll specialists.
