Fiscal aspects Involved in labor and social security regulationsPublished on:
According to Article 86 of the Labor Code, employment benefits are not subject to tax on income, pursuant to Article 299 of the Tax Code, which provides that the notice and severance pay are exempt from paying income tax. The compensation to be paid in connection with a court decision handed down by a labor court for a claim for unfair dismissal or justified resignation, is not subject to income tax either, under the provisions of Article 95 of Labor Code.
In contrast to this, neither the Labor Code nor the Tax Code expressly provide a tax exemption for payment of economic assistance, which is given to the employee (or his/her heirs or beneficiaries) if the employment contract terminates by: (i) the death of the employer, (ii) the death of the worker or his physical or mental incapacity to perform the services, or (iii) due to illness or absence from work, provided the employee has been absent from duty by a total period of one year, among other, and consequently we are of the opinion that such payment, is subject to income tax.
Social Security calculations and contributions are exempt from tax or any kind of direct or indirect fee under the provisions of Article 15 of the Social Security Law. Similarly, monthly pensions equivalent to less than five (5) national minimum wages are also exempt. Moreover, Article 39 of Law 87-01 provides that participants over the age of 45 who enter the pension system and wish to compensate for their late entry may make special contributions to their own account, and such payments are also exempt from taxes up to three times the amount of a regular contribution made by the worker.
Furthermore, it is our understanding that the Internal Revenue Department (DGII) has the view that mandatory and extraordinary contributions made by employers and employees to the SDSS may be deducted from the payment to be made for Income Tax (ISR), but not in the case of voluntary contributions. Notwithstanding this, it is our opinion that the contributions, be they mandatory, voluntary, or special may be deducted from income tax (ISR) payments since the Social Security Law contains no provision that expressly excludes such an exemption. As a result of the foregoing, and pursuant to the Constitutional Principle of Legality, voluntary contributions made by both the employer and the employee should recognize as deductible from income tax payments and be treated as mandatory or extraordinary contributions.