Belgian Tax reform – Individuals – Personal income tax
Latest update: 16 March 2020
Impact of COVID-19 : supportive financial measures
On 6 March 2020, as a result of the COVID-19 crisis, the Belgian government introduced the possibility for individuals and legal persons with a CBE number to request for supportive financial measures.
To the extent that these taxpayers are facing financial difficulties directly resulting from the coronavirus spread (to be demonstrated and subject to additional conditions), payment arrangements (such as the Belgian personal income tax, corporate taxes, VAT or Belgian professional withholding taxes), exemption from interest on late payment or waiver of fines due to non-payment can be requested to the competent authorities by filing a formal request prior to 30 June 2020.
The request can be introduced upon receipt of a notice of assessment or a payment notification.
Act of 2 May 2019 implementing various fiscal provisions (Official Gazette of 15 May 2019)
A first change concerns the personal income tax (PIT) treatment of capital gains and losses on passenger cars. Professional capital gains on passenger cars and similar cars (cf. the vehicles referred to in art. 66 of the Belgian Income Tax Code 1992) were, until recently, subject to PIT at 75%. This was to take into account the fact that the fiscally accepted depreciation on these cars was also limited to 75% for PIT purposes. This general deduction limit to 75% for PIT purposes has since been abandoned. Today, as far as PIT is concerned, the same deduction restrictions as for corporate income tax apply, which means that the deduction percentage is, among other things, dependent on the CO2 emissions of the car. The deduction percentages vary between 50 and 120%. An exception applies for cars purchased before 1 January 2018 where the deductible costs are at least 75%.
Considering the above, the calculation of taxable capital gains of cars for PIT purposes has also been changed. As for corporate income tax purposes, the capital gains on cars will only be taxed to the extent that the booked depreciation has also been accepted for tax purposes. To this end, one has to calculate what percentage the fiscally accepted depreciation amounts represent compared to the total of the depreciation amounts booked. Only this part of the capital gain is taxable. Based on the Act of 2 May 2019, for the calculation of the taxable capital gain, the percentage of fiscally accepted depreciation is limited to 100% (even if the higher depreciation percentage of 120% was applicable). Consequently, the taxable gain cannot be taxed for more than 100%. This new legislative clarification is also applicable as of assessment year 2019 for financial years that start at the earliest on 1 January 2018. Going forward, as of assessment year 2021, for financial years that start at the earliest on 1 January 2020, the fiscally accepted depreciation can no longer exceed 100%.
Note that the same system, but the other way around, applies for the deduction of capital losses. As of assessment year 2019 (financial years starting on or after 1 January 2018), the fiscally accepted depreciation is no longer limited to 75% for PIT purposes and potentially also exceeds 100%. Also here, the fiscally accepted depreciation above 100% will have no (additional) impact for the calculation of the deductible loss.
As regards the new rules on “fake” hybrids bought after 1.1.2018, also some changes have been made. As a reminder: the Belgian tax authorities wanted to counter the use of “fake” hybrids. Therefore, the benefit in kind of “fake” hybrids bought after 1.1.2018 will be calculated in the same way as for cars on fuel. The Act of 2 May 2019 now states that not only cars bought but also cars leased or rented after this date will fall within the scope of the new regulation. The new rules on “fake” hybrids will apply as of assessment year 2021 for taxable years that start at the earliest on 1 January 2020.
Act of 7 April 2019 (Official Gazette of 3 May 2019)
From a Belgian income tax point of view, all payments made by a company as a result of the discontinuation of the work or the termination of an employment contract of an employee are characterized as “severance pay”.
In principle, such payments are taxed in accordance with the regime set out in section 171, 5°, a) of the Belgian Income Tax Code. This means that severance pay is subject to a separate taxation at the average tax rate of the last previous year in which the taxpayer exercised a normal professional activity. The purpose of this rather exceptional method of taxation is to temper the impact of the progressive income tax rates.
In the past, the notion of “the last previous year in which the taxpayer exercised a normal professional activity” was not always fully clear. Based on the case law of the Belgian Supreme Court, the relevant year was the last previous year in which the taxpayer had worked during 12 months. However, in practice, this was sometimes difficult to apply, especially if the taxpayer had not been working for 12 months during any previous year. From a pragmatic perspective, it was in such case not uncommon in practice to already take into account (periods with) unemployment income when determining the relevant ‘last previous year’.
Recent change in tax law
The Act of 7 April 2019 changed the wording of the Belgian Tax Code in this respect, retroactively as of 1 January 2018 (tax year 2019). The change directly relates to the year regarded as the ‘reference year’ for separate taxation of severance payments. Based on the new wording of the law, the reference year will be “the year in which the taxpayer has received taxable professional income during 12 months”. Consequently, even if – during the last previous year – the taxpayer actually only worked during 6 months and, during the remaining 6 months, received replacement income (such as unemployment or pension income, which is also taxable professional income), the whole year will be regarded as the relevant reference year. This legislative change certainly brings more clarity and legal certainty with respect to the applicable ‘reference year’.
Even with this recent change in the tax law, one can say that not all uncertainties (which previously existed under the old rule of law) are solved. After all, practical difficulties will continue to arise from time to time. In some cases, strictly speaking, there will not be a particular reference year, notably when the taxpayer has not had taxable income during 12 full months. This will for example be the case for employees who take up a month of unpaid leave of absence every year. The same is true for employees who start working for the first time in a given year and are dismissed in the same year or in the following year, with severance pay being received.
Act of 17 March 2019 introducing a Mobility budget (Official Gazette 29 March 2019)
Following the introduction of the mobility allowance (“cash for car”), the government also introduced the mobility budget, which is actually the next step in the effort of reducing the number of cars on the Belgian roads. The Act introducing a mobility budget has been published and enters into force as of 1 March 2019.
The mobility budget co-exists with the recently introduced mobility allowance. Where the mobility allowance only allows the employee to receive a cash compensation (under a more tax beneficial treatment) for handing in his/her company car, the mobility budget allows the employer to provide an (eco-friendly) company car while possibly also creating still budget for other ways of sustainable transportation. The main conditions for implementing the mobility budget are foreseen to be the same as for the mobility allowance.
The amount of the mobility budget is based on the “total cost of ownership” (TCO) of the company car which is handed in by the employee. 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, … .
In practice, employees will have the possibility to spend the budget via the following three pillars:
Pillar 1: employees can opt to exchange their current company car for a less polluting or a full electric car. The CO2 emission of the chosen car has to be less than or equal to 105 g per kilometer. This amount will decrease in 2020 to 100 g per kilometer and in 2021 to 95 g per kilometer. The eco friendly car will be treated in the same way as any other company car. This means that there is a taxable benefit in kind, a limitation of the corporate cost deductibility (if applicable) for the employer based on the CO2 emission of the car and a CO2 contribution due.
Pillar 2: For the remaining part of the mobility budget created by the car handed in by the employee, he/she can choose to use this budget for alternative (and more sustainable) means of transportation, such as a subscription (for commuting purposes) or tickets (for private purposes) for public transport, for a system of car/bike sharing, buying a bike, … or even for using the budget to finance a dwelling closer to work (within a range of 5 km). This second pillar is very beneficial as this part of the budget can be provided free of personal income taxes/ social security contributions and would be fully deductible for the employers.
Pillar 3: 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) this will be paid out to the employee in cash each year. This payment is only subject to a special social security contribution of 38,07% to be borne by the employee.
The general conditions to implement a mobility budget are the same as for the implementation of a mobility allowance. Employers should have a company car policy for at least 36 months, unless the employer is a start-up. Employees are only entitled to a mobility budget when they had a company car at their disposal (or they were entitled to a company car, regardless of whether the employee did accept this company car or not) for an uninterrupted period of at least 3 months prior to the request and at least 12 months during the 36 months prior to the request.
A Royal decree of 21 March 2019 implementing the Act of 17 March 2019 has also been published in the Official Gazette on 29 March 2019.
Employer’s tax reporting and wage withholding tax obligations (Act of 11 February 2019 – Official Gazette of 22 March 2019)
The Act of 11 February 2019 introducing a reporting and wage withholding tax obligation in the hands of Belgian employers/companies, in case affiliated foreign companies grant taxable benefits to employees or company directors working for a Belgian company has been published in the Official Gazette.
A wage withholding tax obligation is introduced (for income taxable) as from 1 March 2019. The obligation to withhold wage taxes lies with the Belgian employing company, even if the employer or company does not intervene in the grant of the benefits. Following this obligation to withhold wage taxes, the Belgian company will also have to report the benefits on the 2019 salary statement (fiche 281.10/281.20), resulting from the Belgian payroll administration and which need to be submitted with the Belgian tax authorities in 2020. As there is no withholding tax obligation for the taxable benefits granted by foreign affiliated companies in the period as from 1 January 2019 up to 28 February 2019, a separate reporting obligation of the Belgian employer/company is introduced as well. However, it is not clear yet how the taxable benefits granted between 1 January 2019 and 28 February 2019 will have to be reported
Regardless the withholding tax and reporting obligation, the beneficiary will of course still have the obligation to report these benefits in his/her Belgian resident or non-resident personal income tax return.
Act of 30 March 2018 introducing a mobility allowance (Official Gazette 7 May 2018) amended by the Act of 17 March (Official Gazette 29 March 2019)
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 of 7 May 2018. As of 1 January 2018, employees (who already have a company car available) 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. For more information on the mobility allowance please refer to our newsflash of 25 May 2018.
The Act of 17 March 2019 amends parts of the legislation and clarifies some aspects of the law which lead to some uncertainties in interpretation. Via these changes the government hopes to increase the attractiveness of the mobility allowance as well as to align it with the mobility budget.
The most important changes in comparison to the law of 30 March 2018 introducing the mobility allowance are that an employee will no longer have to choose and drive a car for a minimum period of 12 months before being able to opt for this system. Having the right to a car for this period will be sufficient in order to qualify for the allowance. Next to that, the waiting period of one year will be abolished for new hires and in case of a change of function, the employee may be entitled to a different mobility allowance based on a higher (or lower) category of company car linked to the new function. Also some uncertainties with respect to the tax deductibility of a potential own contribution are clarified. Also note that the exclusion of company cars that were provided after a so called “salary sacrifice” (i.e. the employee got a company car after a decrease of his gross salary or loss of other income) is maintained.
The changes on the mobility allowance enter into force at the same date as the mobility budget (i.e. 1 March 2019).