6th State reform: Taxation of individuals – Changes published


On the 28th of May 2014 the law reforming the Belgian Income Tax Code in light of the 6th state reform has been published in the Official Gazette.

Due to this state reform Regions (Flanders, Brussels and Wallonia) will obtain increased fiscal autonomy. A portion of the personal income tax will be attributed to the Regions, as will the power to apply regional surcharges. Moreover, the Regions will be able to allow discounts, apply tax increases, deductions and tax credits within their areas of competence

As of the 1st of July 2014 the Regions will obtain exclusive competence with respect to the tax deductions in relation to mortgage loans for owned dwellings, the protection of a home against burglary and fire, PWA/ALE and service vouchers, energy saving expenses in a home, maintenance and renovation of protected monuments, renewal of properties located in zones of positive metropolitan policy, and renewal of low-rent dwelling houses (social accommodation).
Furthermore, there will be significant changes with respect to the calculation method of personal income taxes in Belgium. As of assessment year 2015 (income year 2014) the tax calculation will contain two major components, notably the federal personal income tax and the regional personal income tax. The tax liability may differ depending on the Region in which the residence of the taxpayer is located on the 1st of January of the respective assessment year.

This new way of calculating taxes will cause a change in the sequence of the tax reductions. For example, the tax deduction for foreign source income will impact the personal income tax calculation at a different level (i.e. before computing the regional ‘personal income tax’), which is likely to have a beneficial side-effect for Belgian residents working simultaneously in Belgium and other countries, in the case of split taxation (salary split) and on the condition that these Belgian residents are also entitled to another tax deduction (such as the tax deduction for child care expenses, pension savings, …).

With the exception of the (federal) deduction for alimony payments, all (other) “deductible expenses” are converted into (federal or regional) tax reductions. As of assessment year 2015 (income year 2014), the federal tax deduction for a taxpayer’s own dwelling has become a regional tax reduction at the highest applicable tax rate (maximum 50%). From assessment year 2016, the tax reduction for the own dwelling will be fixed at 45% for mortgage loans concluded as of 1 January 2015. As of then the Regions may apply changes to the tax benefit for mortgage loans.

As indicated in our HRS Headline of 10 January 2014 concerning the anticipated change in the taxation of expatriates and other non-residents, the 6th state reform also affects the categories of non-residents. The old distinction between non-residents with an abode and non-residents equally to abode is abolished. As of income year 2014, expatriates living in Belgium as well as other non-residents are only entitled to personal deductions (at the federal income level) provided that they earn at least 75% of their worldwide professional income in Belgium. Moreover, in order to be entitled to Regional tax benefits in Belgium, those non-residents must have maintained tax residency in another Member State of the European Economic Area.