Belgian Tax reform – Individuals – Personal income tax
Latest update: 16 August 2018
On 24 July 2018 the federal government reached a social and labor “summer agreement” (so-called jobsdeal) containing some tax measures, such as changes to employer’s tax reporting obligations of some equity incentives.
At the end of 2017, the Corporate Income Tax Reform Act and the Program Act have introduced an important tax reform package, which takes effect over a three-year period (2018, 2019 and 2020). As key component of this package, the corporate income tax rate is being gradually reduced to 25% in 2020. In July, the Chamber passed the Act of 30 July 2018 on Various Income Tax Provisions, hereinafter referred to as “the amending law”. This law amends and supplements the Corporate Income Tax Reform Act and the Program Act.
From a personal tax point of view, the following measures are or would be introduced.
Employer’s tax reporting obligations
When foreign headquartered companies grant stock options to employees of their Belgian subsidiaries, such option grants, where taxable at grant, are ALWAYS reportable by the Belgian employing subsidiary on the employee’s individual statement 281.10. This reporting obligation is due irrespective of whether such subsidiary is involved in the option grant or expenses the stock option in its financial statements.
So far, no equivalent reporting obligation existed where Belgian employees were granted free shares (Restricted Stocks or Restricted Stock Units) by the foreign parent company, except where the Belgian employing subsidiary was involved in the free grant of shares (which triggers a withholding tax obligation) or expenses the free grant of shares in its financial statements. Things are likely to change. Indeed, the ‘Job Deal’ agreed upon by the government would actually provide that such free grant of shares would ALWAYS become reportable to the Belgian tax authorities, like for stock options taxable at grant.
It is unclear at this point whether this new employers’ tax reporting obligation would also apply to shares purchased at a discount (including stock options taxable at exercise) and whether income tax/social security tax withholding obligations would be impacted by this new reporting obligation.
Following the introduction of the mobility allowance (“cash for car”), the government also started working on a mobility budget, which is actually the next step in the effort of reducing the number of cars on the Belgian roads. At this point in time no texts are available and only a communication of the Minister of Finance is available.
It is anticipated that the mobility budget – if adopted by the parliament – will co-exist with the recently introduced mobility allowance. Where the mobility allowance can only be granted under the beneficial tax and social security treatment if an employee hands in his/her company car, the announced mobility budget allows the employer to provide a company car and other ways of transportation for commuting simultaneously.
The amount of the mobility budget will be based on the “total cost of ownership” (TCO) of the company car for the employer. This is the total cost, on a yearly basis, which the employer bears for providing a company car to the employee, including the cost for fuel, insurances, taxes, maintenance, … .
The main conditions for implementing the mobility budget are foreseen to be the same as for the mobility allowance. It is anticipated that similar anti-abuse legislation will be included as well.
When an employer chooses implements a mobility budget, the employee will have the possibility to opt for a smaller, more eco-friendly and potentially cheaper model (under the existing car policy of the employer). The new, more eco-friendly car will be treated in the same way as any other company car, meaning that there is a taxable benefit in kind in the hands of the employee, a limitation of the corporate cost deductibility for the employer based on the CO2 emission of the car and a CO2 contribution due.
For the remaining part of the mobility budget to which the employee is entitled, he/she can choose for alternative (and more sustainable) means of commuting, such as a subscription for using public transportation, for a system of car sharing, … or even for receiving a biking allowance and use a bike for (a part of) his commute. It is foreseen that this part of the budget can be provided tax free and would be fully deductible for the employers.
In case there is still budget available (after switching the current company car for a smaller model and/or making use of alternative means of transportation) the employee can have this remaining part paid out in cash. It is anticipated that this payment will only be subject to Belgian social security contributions, 25% for the employer and 13,07% for the employee.
Act of 30 March 2018 introducing a mobility allowance (Official Gazette 7 May 2018)
The Act introducing the Mobility Allowance (“Cash for car”) offering the employees a cash alternative for their company car has been published in the Official Gazette. As of 1 January 2018, employees (who already use a company car) can be given the choice to exchange their current company car for a cash compensation, provided that both parties (employer and employee) agree to do so. As it is a voluntary scheme, the employer needs to decide to offer this possibility (and determine the conditions within the provisions of the law) and the employee can opt (voluntarily) to apply for this scheme.
Employers who are interested in offering this choice to their employees will be bound by some restrictions foreseen in the law. The introduction of this scheme is only possible for instance if the employer has been providing company cars to its employees for a minimum period of 3 years (36 months). There is an exception for starting companies. Furthermore, it is required that the employees (who request to switch from a company car to a mobility budget) have been provided with a company car for a period of at least 12 months in the past 36 months, of which 3 consecutive months prior to requesting a mobility budget.
The corresponding cash amount (that employees will receive for no longer having the private use of a company car) is set at 20% of 6/7 of the catalogue value of the car handed in. This amount will be subject to indexation. If the employee also had a fuel card at his/her disposal, the mobility allowance is increased by 20% (24% of 6/7 of the catalogue value of the handed in).
As it is currently the case for the benefit in kind of a company car, no employee’s social security contributions is due in the hands of employees who receive a mobility allowance. Furthermore, in most cases employees with a mobility allowance will face a lower tax burden as they will become taxable on an amount which is determined by taking into account 4% of 6/7 of the catalogue value of the car handed in (which will is likely to be lower than the taxable amount of the benefit in kind of the company car). The taxable amount is also subject to indexation. The cash amount of the mobility allowance exceeding this amount is exempt from social security contributions and taxes for the employees. The amount paid by the employer is subject to the same CO2 contribution as the car handed in and will be tax deductible for the employer for 75% up to 90%.
Because the mobility allowance may not be used to replace ‘ordinary salary’ or ‘other benefits’, several anti-abuse measures are implemented.
The mobility allowance is introduced as of 1 January 2018 and will be subject to evaluation after one year.
Act of 26 March 2018 Promoting Economic Growth (Official Gazette of 30 March 2018)
- Pension savings are further encouraged by adding a second option to the tax reduction system: the existing system of pension savings provides for a 30% tax reduction calculated on a maximum amount of EUR 940 per year (tax reduction of up to EUR 282). Going forward, a second system would be introduced which will allow taxpayers to obtain a 25% tax reduction (instead of the current 30%) on a maximum savings amount of EUR 1,130 (instead of the current EUR 940) (tax reduction of up to EUR 282.50). Taxpayers have to choose between both systems. If the taxpayer pays an amount equal to or lower than the maximum amount, he obtains the tax reduction related thereto. If the taxpayer makes an additional contribution higher than EUR 940 or EUR 1,130, the bank repays the difference between his contribution and the maximum amount depending on the option he has chosen.
- Lump-sum amount for business expenses: up to now, self-employed people who received profits, have to produce evidence for their actual business expenses. As from 2018, they would be able to use a lump-sum amount of business expenses. This lump sum amount will be calculated using a unique rate of 30% with a maximum of EUR 2,950. The lump sum amount would not include the purchase price of the goods nor the personal social contributions.
- Promotion of growth companies: the tax shelter for start-up companies providing for a tax credit is extended to growth companies under similar conditions. A growth company is a non-quoted small company in the meaning of article 15 of the Companies Code aged between 5 and 10 years and having at least 10 employees. To be in scope of the new measure the turnover or the workforce of the growth company should have increased by at least 10% by assessment year in the last 2 assessment years preceding the investment. The qualifying investment is limited to EUR 100,000 per taxable period and per person, leading to a tax credit of 25%. Growth companies can only receive maximum EUR 500,000 on the basis of this measure (or EUR 250,000 if they already received EUR 250,000 as start-up). These thresholds are maximum amounts applicable for the tax shelter for growth companies and for start-ups combined. Subject to certain conditions, also non-residents could benefit from this measure.
- For private investors a new tax credit of 25% is introduced to partly cover the capital loss realised upon liquidation of private PRICAFs constituted as from 1 January 2018. The eligible capital loss is limited to EUR 25,000 by taxable period. Furthermore, the reduced dividend withholding tax rates of 20% or 15% are made applicable to dividend distributions by private PRICAFs to the extent that the underlying shares comply with the conditions of the VVPR regime.
- Other: The same law also provides for a number of other changes such as: 1. Increase of the tax free amount for single parents with limited income; 2. Tax exempted amount for starters-youngsters; 3. Broadening of the wage withholding tax exemption for shift work; 4. Tax exemption for income from community work, occasional services between citizens and the ‘sharing economy’.
Program Act of 25 December 2017 (Official Gazette of 29 December 2017)
- Participation in the company’s profits: This measure consists in allowing the employees (not applicable to self-employed company directors) to participate in the company profit, without having to hold a share in the company’s capital. This measure is optional and not mandatory for the companies.The maximum amount of the profit participation is limited to 30% of the total wage bill (‘masse salariale’/’loonmassa’) and consists in a fixed amount or fixed percentage of the employee’s salary (‘general’ profit participation premium). It is not allowed to use the profit participation as a replacement for salary. Finally, the profit participation bonus is not taken into account for calculating the payroll standard (which determines the maximum margin of increase in wage costs in the private sector and in certain State-owned enterprises).The employee is liable to pay a special social security contribution of 13.07% on the one hand and a profit premium tax of 7% on the other hand.
The employer has not to pay special employer’s social security contributions. However, the profit participation premium will be treated as a disallowed expenses for corporate tax since this premium is not considered to be salary and is therefore not deductible.
Comparing the profit participation to the CAO90 bonus, some differences need to be taken into account. The CAO90 bonus is subjected to a special solidarity contribution of 13.07% by the employee (cfr. profit participation premium) but is tax exempted up to a certain level resulting in a higher net amount for the employee.
However, the profit participation premium is intended to be less complex to implement. For example, no agreement of the labour unions is in principle needed when a ‘general’ profit participation premium is granted (if the same amount for each employee is used).
Also, the maximum amount of the profit participation premium that can be granted to an employee is much higher than the CAO bonus (30% of the total salary mass instead of an absolute maximum of 3.255 before deduction of solidarity contribution).
- Belgian tax on savings income (art. 19bis ITC): currently, capital gains realized on shares or units of capitalizing collective investment funds investing more than 25% of their assets in debt claims are subject to a withholding tax of 30%. Under the proposed rules, the 25% threshold is reduced to 10% while the investment funds in scope are extended to alternative funds not only investing in securities. These changes are applicable to income paid in relation to fund shares/units acquired as from 1 January 2018.
- Contractual investment funds (FCP/GBF): the application of the Belgian tax on savings income (art. 19bis ITC) to contractual investment funds investing in investment companies, which themselves fall within the scope of this tax, is aligned to the tax treatment of a direct investment in such investment companies. This measure enters into force as from the publication in the Belgian Official Gazette.
- The threshold for the traditional withholding tax exemption on interest received on savings deposits is decreased from EUR 1,880 to 940.
- To boost investments in shares, the government provides a new withholding tax exemption for Belgian and foreign dividends up to a threshold of EUR 627, the so-called Michel-De Croo measure; most dividends can benefit from the measure. Dividends distributed by collective investment undertakings through investment funds and legal structures are excluded. The taxpayer can choose the dividends to which the exemption applies, and the exemption has to be applied for via the tax return. The amount is increased to EUR 800 (after indexation) for dividends paid as from 1 January 2019 (assessment year 2020) (amending law)
- Tax on stock exchange transactions: as from 2018, rates increase from 0.09% to 0.12% and from 0.27% to 0.35%.
- The Cayman tax has been amended at various levels so as to increase its effectiveness and close some existing loopholes. Changes are in place to target intermediate structures. Distributions made by legal structures without legal personality (e.g. trusts) become taxable, except if they have been already taxed. This measure applies as from 17 September 2017. Some exclusions are better outlined, particularly the substance exclusion.‘Fonds dédiés’ as well as ‘de facto’ associations (labour unions) having foreign investment income (trade unions) fall within the scope of the tax.The changes apply to income received, granted or paid as from 1 January 2018
- Reduction of tax benefits: The Act provides for a reduction of tax benefits granted to people for whom the taxable period does not correspond to a full calendar year (e.g. people who leave Belgium – there is an exception foreseen in case of decease). In such case, certain tax benefits are granted on a pro rata temporis basis only. This is the case e.g. for tax residents of Belgium who leave Belgium in the calendar year and stop being tax residents during the year. A number of tax reductions (e.g. lump-sum business expenses, marital quotient, etc.) and deductions (e.g. tax-free amount, pension savings, etc.) will only be granted on a pro rata basis going forward. For Belgian non-residents, similar provisions and specific limitations have been introduced. These measures are applicable as from assessment year 2018.
Act of 7 February 2018 Introducing an Annual Tax on Securities Accounts (Official Gazette of 9 March 2018)
- Holders of one or more securities accounts in Belgium or abroad with total assets equal to or exceeding EUR 500,000 are subject to tax at a rate of 0.15% of the average value of the total amount of taxable assets. The taxable assets are the following: funds, quoted or unquoted bonds, “kasbons”/“bons de caisse”, warrants, share and bond certificates,quoted shares and unquoted shares registered in securities accounts. Registered shares registered in the share register, pension savings accounts and life insurance are excluded. However, an anti-abuse rule has been introduced to include in the scope of the tax taxable assets that were converted into non-taxable assets on or after 9 December 2017. Another specific anti-abuse measure is introduced to tackle the contribution of securities accounts to legal entities. The average value will be calculated on the basis of a reference period (1 October to 30 September). In the case of joint ownership, the securities account is deemed to be held by the holders for equal parts. Corrections can be made on the basis of supporting documents. In principle, the tax will be collected by the financial institution that will also determine the value of the accounts concerned. The withholding is automatic when the holder has a securities account equal to or exceeding EUR 500,000 with a financial institution and when the holder who has securities accounts with several financial institutions has opted for the tax withholding to be operated by the institution because he may reach the taxable threshold. In other cases, it is for the holder to file the tax return, determine the tax amount and make the payment. The securities accounts will also have to be reported in the personal income tax return. Penalties will be applicable if the compliance obligations regarding the tax return are not met, in the case of late payment of the tax or if the holder does not provide the information requested by the tax authorities. This tax entered into force on 10 march 2018.
Corporate income tax reform Act of 25 December 2017 (Official Gazette 29 December 2017)
- Reimbursements of paid-up capital: The reimbursement of capital is deemed to derive proportionally from paid-up capital and from taxed reserves (incorporated and non-incorporated into capital) and exempted reserves incorporated into the capital. The reduction of capital will be allocated to paid-up capital in the proportion of the paid-up capital in the total capital increased by certain reserves. The portion allocated to the reserves is deemed to be a dividend and become subject to withholding tax (if applicable). Share premium distribution is submitted to the same system.Exempted reserves not incorporated into the capital remain beyond of the scope of the rule.Some elements such as revaluation surplus, provisions for liabilities and charges, unavailable reserves, etc. have to be withdrawn from the reserves taken into account to calculate the coefficient. A sequence of allocation has been provided if the amount of the paid-up capital and sums being treated as capital are insufficient. This change is applicable to capital reduction decided by a general meeting as from 1 January 2018.
- Company cars: From a personal income tax point of view, tax deduction of costs linked to cars is brought into line with the rules applicable to companies as from 1 January 2018. This implies changes regarding the rate of deductibility (which will be linked to the CO2 emission), the capital gains tax on cars, the depreciation regime, etc. However, for individuals, a minimum deduction of 75% remains applicable for cars bought before 1 January 2018.In general, under the current system (applicable to companies), the deductibility rate of car costs in the hands of Belgian companies and Belgian PEs varies in a range between 50% and 120% of the costs, depending on the type (fuel) and CO2 emission of the company car. The deduction for fuel costs is set at 75%.These rules change as follows:
- The deductibility rate of car costs will be linked to the actual CO2 emission level of the car, and will range between 50 and 100% according to the following formula: 120% – (0,5% x coefficient x gr CO2/km). The coefficient is equal to 1 for vehicles with diesel motor and equal to 0,95 for vehicles with another motor. For highly polluting cars, the deductibility is limited to 40%. A highly polluting car is a car with a CO2 emission of 200 grams or more.
- Under the current rules, car costs for so-called ‘fake’ hybrid cars can easily be deductible at 90 or 100% because of the posted low CO2 emission level. According to the new rules, ‘fake’ hybrid cars are vehicles with a fuel engine and a rechargeable electric battery with an energy capacity lower than 0,5 kWh per 100 kg of vehicle weight, or with a CO2 emission level of more than 50 gr/km. Under the new rules, the deductibility is brought into line with the tax treatment of its non-hybrid counterpart. By lack of corresponding car, the CO2 emission value will be multiplied by 2,5. Transitional rules are provided. However, the current system continues to apply to hybrid cars acquired before 1 January 2018.
- Taxable benefit in kind for “fake hybrid cars”: under the current rules, the benefit in kind for hybrid cars is calculated on the same basis as for regular cars and takes into account the posted low CO2 emission level. Depending on the battery capacity of the car (in relation to the weight of the car), a rechargeable hybrid car qualifies as a ‘fake’ hybrid car or not. Under the new rules, the benefit in kind is calculated using the same CO2 emission norm as its non-hybrid counterpart. By lack of such corresponding car, the CO2 emission value will be multiplied by 2,5.
- The deduction for fuel costs will no longer be fixed (at 75%) but will also be linked to the CO2 emission of the car.
- Costs in relation to electric cars are only deductible up to 100%, instead of 120%.