Get our post in your mailbox

Income Tax in Belgium


Taxes on personal income:

Belgium taxes its residents on their worldwide income, irrespective of their nationality.

Residents of Belgium are taxable on their worldwide income, while non-residents are only taxable on Belgian-source income.

Personal income tax (PIT) is calculated by determining the tax base and assessing the tax due on that base. Taxation is charged on a sliding scale to successive portions of net taxable income. For income year 2017, the federal tax rates range between nil and 50%.

As of assessment year 2015 (income year 2014), the tax calculation contains two major components, notably the 'federal PIT' and the 'regional PIT'. Pursuant to the 6th Reform, the Belgian regions are now entitled to retain surcharges on 'reduced federal personal income taxation', and also grant tax reductions/tax credits. The tax liability may therefore differ depending on the region in which the residence of the taxpayer is located on the 1st of January of the respective tax year.

Tax rates are the same for resident and non-resident taxpayers, but some deductions or tax rebates are only granted to non-residents, provided that they earn at least 75% of their worldwide professional income in Belgium.

Personal income tax rates:

Tax brackets for income year 2017 are applicable to net taxable income after the deduction of social security charges and professional expenses.

Taxable Income (EUR)
Rate (%)
Over
Not Over

0
11,070
25
11,071
12,720
30
12,721
21,190
40
21,191
38,830
45
38,831
And Above
50

Local income taxes:

For residents of Belgium, communal taxes are levied at rates varying from 0% to 9% of the income tax due. The average rate being 7%. For non-residents, a flat surcharge of 7% is due. In some cases, communal taxes may also be levied on exempted foreign-source income.

Residence:

Residents of Belgium are those who have established their domicile or, if they do not have a domicile in Belgium, their centre of economic interests in Belgium. Persons deemed to be residents of Belgium are those who have registered in the population register of a commune in Belgium. The fiscal residence of married couples and legal cohabitants is determined by the place where the family is located.

In civil law, domicile is essentially the same as residence in income tax law; the term is generally used when considering liability to inheritance tax.

Generally, an international assignee is considered to be a Belgian resident if:

·        as a married person (or legal cohabitant), they are accompanied by their family to Belgium, or
·        as a single person, they establish their permanent home and centre of economic interests in Belgium.

Income determination:

Belgian residents and non-residents are taxed on their employment income, movable income, property income, and miscellaneous income. Other taxes that may be relevant are gift and succession taxes.

Belgian residents are taxed on their worldwide income, but their foreign-source income is exempted with a progressive reserve in Belgium if it is taxable, taxed, or effectively taxed (depending on the wording of the double tax treaty [DTT]) in another country according to the applicable DTT. Please note that in some cases exempted income may be subject to local taxes (e.g. exempted income from Bahrain, China, Congo, France, Germany [only for employees], the Netherlands, Rwanda, San Marino, Singapore, and the United Kingdom).

Belgian non-residents are taxed on their Belgian income source only.

Employment income:

Employment income is widely defined and includes all fringe benefits provided by an employer (e.g. the private use of a company car, bonuses, stock options, commissions, tax equalisation reimbursements, cost of living allowances, housing allowances).

Personal income tax is calculated by determining the tax base. Taxation on a sliding scale is applied to successive portions of the taxable income. Rates vary between 25% and 50% (plus local taxes).

In determining the tax base, employee compulsory social security contributions paid either in Belgium or abroad are fully tax-deductible. Professional expenses can also be deducted from the taxable income (either on an actual basis, or on a lump sum basis). Income tax is calculated on that base, after allowing for part of that base to be exempt from tax (the so-called personal tax exemption.

In addition to these standard personal deductions, some non-business expenses may reduce tax liability (such as gifts made to recognised institutions, child care expenses for children younger than 12 yeas old, titres-services/dienstencheques, reduction for own dwelling, etc.).

Since income year 2014, expatriates living in Belgium as well as other non-residents are only entitled to personal deductions (at the federal income level - such as deduction for child care expenses, tax reductions for gifts made to recognised institutions, etc.). 

Special tax regime:

Foreign executives or specialists working temporarily in Belgium and qualifying for the non-resident special tax status do not have to include in their gross taxable income reimbursements for additional expenses incurred from their transfer to or employment in Belgium. The additional expenses listed below may be reimbursed tax free on the basis of actual amounts or by means of lump-sum allowances:

·        One-time moving expenses and the costs of setting up a house in Belgium.
·        Ongoing expenses, e.g. cost-of-living, housing allowances, school fees, home leave allowance, travel expenses of children studying outside Belgium, exchange losses, and tax equalisation (up to a certain limit).

Such ongoing expenses will be, within certain limits, exempt from tax to the extent that the total annual amount (excluding school fees and one-time expenses) does not exceed EUR 11,250 (EUR 29,750 in the case of executives working at a research centre or scientific laboratory).

Moreover, professional duties performed outside Belgium by non-residents are proportionately exempted (the so-called travel exemption), but declaration must be made for the total worldwide income earned within the employer’s group.

Company cars:

The private use of a company car is considered a taxable benefit in kind, but is exempted from employee social security charges.

The yearly benefit in kind on which the employee or company director is taxed is equal to 6/7 of the catalogue value of the car (to be understood as the list price of the car for a sale to an individual when it was new, including options and the actually paid VAT, but excluding any discounts and rebates) multiplied by a percentage linked to the car’s CO2 emission rate (the 'taxable percentage').

In addition, the benefit in kind takes into account the age of the car, by multiplying the catalogue value with a percentage in function of the age of the car (based on the first registration of the car). The benefit in kind decreases by 6% per annum, with a maximum of 30% decrease.

The base taxable percentage to apply to the catalogue value of the car is 5.5% for a diesel car with a CO2 emission rate of 87 g/km and for a petrol car with a CO2 emission rate of 105 g/km. This base taxable percentage of 5.5% is then increased/decreased by 0.1% for each CO2 gram/km above or below the CO2 emission thresholds of 87 g/km and 105 g/km (with a minimum percentage of 4% and a maximum percentage of 18%). In no circumstance can the benefit in kind be lower than EUR 1,280 per annum (amount for income year 2017).

The following formula will be applied to determine the taxable benefit in kind (figures 2017):

·        Diesel cars: [(5.5% + (CO2 emissions of the car - 87)) * 0.1 %] * catalogue value * age % * 6/7 (minimum 4% and maximum 18% of the catalogue value - if CO2 emissions are not known, they are deemed to be 195 g/km)
·        Petrol, LPG and natural gas cars: [(5.5% + (CO2 emissions of the car - 105)) * 0.1 %] * catalogue value * age % * 6/7 (minimum 4% and maximum 18% of the catalogue value - if CO2 emissions are not known, they are deemed to be 205 g/km)
·        Electric cars: Catalogue value * 4% * 6/7

As of 2018, employees will be able to exchange their company car with a 'Mobility Budget', which will increase their net income.

Equity compensation:

Stock options accepted in writing within 60 days of the offer date:

Stock options accepted in writing within 60 days of the offer date are taxed to the beneficiary on the 60th day following the offer date. The taxable basis of a stock option listed on a stock exchange is determined as the closing market price of the day preceding the offer date of the option.

The taxable basis of a stock option accepted in writing within 60 days and not listed on a stock exchange is the sum of

·        The 'taxable time value': 18% of the stock fair market value at the time of the offer for options that have a life of five years maximum. For options that have a life of more than five years, the value will be increased by 1% for each year or part of a year in addition to the five years. Under certain conditions, the above mentioned percentages are reduced by 50%. No social security contribution is due on the taxable time value of the stock option.

·        The 'taxable intrinsic value': The positive difference between the fair market value of the stock at offer date and the exercise price, after deduction of possible applicable Belgian employee’s social security contributions.

Stock options accepted in writing after the 60th day following the offer and stock options that have not been formally accepted

Stock options accepted in writing after the 60th day following the offer date and stock options that have not been accepted in writing are taxable at exercise. The taxable basis for such options consists of the positive difference between the fair market value of the underlying shares at exercise and the exercise price paid, after deduction of possibly applicable Belgian employee’s social security contribution.

Business income:

Profits from a business or profession also include capital gains on the sale of business assets, although a favourable tax treatment applies if these assets have been held for more than five years. Self-employed expatriates do not qualify for the special tax regime described above.

Capital gains:

Capital gains are not taxable to individuals in Belgium, provided they are realised within the framework of the normal management of the individual's private estate. Capital gain taxes for private individuals are levied only on sales to a foreign (non-European Economic Area [EEA]) company of substantial holdings in a Belgian company and on sales of property in certain circumstances.

Capital gains and foreign-source investment income cashed outside the country are not taxable for non-residents working in Belgium.

The 33% speculation tax (taxe sur les plus-values sp├ęculatives - speculatietaks) introduced in 2016 has been abolished as of 1 January 2017.

Since 1 January 2017, all stock exchange transactions are subject to a stock exchange tax.

Dividend income:

As of 1 January 2017, dividends paid or attributed via a Belgian financial institution are subject to WHT at a flat rate of 30% (17% is also applicable on dividends in some restrictive cases).

Interest income:

As of 1 January 2017, the WHT rate on most movable income, such as interest, is fixed at 30%.

The first EUR 1,880 of interest on a savings account is exempted from taxation (limit applicable to each taxpayer in case of a joined account). Interest from saving accounts exceeding that threshold remains taxable at 15%.

Rental income:

Owners occupying residential houses are taxed on the notional rental income. Properties rented out are taxed on the notional rental income or on the net rental income received (after deducting lump-sum rental expenses). Non-resident expatriates are liable to tax on Belgian real estate.

Cayman tax:

The ‘Cayman tax’ is a tax charge on certain income from certain legal constructions (which are deemed to be transparent) in the hands of Belgian individuals (and Belgian entities subject to legal entities tax).

The legal constructions include, among others, foreign trusts, foundations, undertakings for collective investments or pension funds when not publicly offered, low-taxed or non-taxed entities, etc. to which the Belgian individual (or Belgian entity subject to legal entities tax) is, in one way or another, linked as a founder, effective beneficiary, potential beneficiary, etc.

Under these new provisions, the income of certain legal constructions becomes taxable in the hands of the private individual before distribution of the income. Consequently, the owner may be taxed on income that one has not yet received.

The taxpayer has to mention on one's yearly tax return the existence of a legal construction (including additional information) of which one (or one's spouse or one's children) is the founder or the third beneficiary.



Tax administration:

Taxable period:

The Belgian tax year runs from 1 January to 31 December. Taxation occurs the year after the income year (e.g. income year 2017, tax year 2018).

Tax returns:

A tax return is sent during the tax year by the tax authorities to be filled in by the taxpayer. An assessment note is sent by the tax authorities within six months following the tax year. Any tax due must be paid to the tax authorities within two months following the sending of the assessment notice.

Spouses and legal cohabitants must file a joined tax return even though their income is taxed separately.

Payment of tax:

There is a compulsory income tax withholding from salaries (also for directors, now called 'key men').

Professional WHT is due under the following circumstances:

·        When remuneration is paid or attributed by Belgian residents, in Belgium or abroad, to Belgian residents or non-residents.
·        When remuneration is paid or attributed by Belgian non-residents if the remuneration concerned can be classified as professional expenses, that is, relating to income of the non-resident employer that is taxable in Belgium.
·        To calculate the WHT, employers must follow the legal scales as published by the tax authorities. Employers may, however, on their own responsibility, take into account the special regulations that pertain to the taxation of foreign executives and specialists working temporarily in Belgium for the determination of the WHTs.

Corporate - Taxes on corporate income:

Corporate income tax (CIT):

In general, the tax base for CIT purposes is determined on an accrual basis and consists of worldwide income less allowed deductions. The rules are equally applicable to companies and PEs. It is assumed that all income received by a company is, in principle, business income. The income tax base is based on the Belgian Generally Accepted Accounting Principles (GAAP) financial statements of the company.

General rate:

CIT is levied at a rate of 33% plus a 3% crisis tax, which is a surtax, implying an effective rate of 33.99%. This rate applies to both Belgian companies (subject to Belgian CIT) and Belgian PEs of foreign companies (subject to Belgian non-resident CIT). Capital gains on qualifying shares realised without meeting the one-year holding requirement are taxed at 25.75% (25% plus a 3% crisis tax, which can be offset against available tax losses), provided certain conditions are met (and at 0.412% [or 0% for SMEs] if this one-year holding period and certain other conditions are met). Non-qualifying shares are subject to the 33.99% rate.

Fairness tax:

Large companies (i.e. not SMEs, see below) are subject to a fairness tax on all or part of their distributed dividends. The fairness tax is a separate assessment at a rate of 5.15% (5% increased by a 3% crisis surtax) borne by the company distributing the dividends.

The tax is only applicable if, for a given taxable period, dividends have been distributed by the company that stem from taxable profit that has been offset against (current year) NID and/or carried forward tax losses. Liquidation bonuses and share buy-back proceeds are not in scope of the fairness tax.

First step

The taxable basis of the fairness tax is determined by the positive difference between the gross dividends distributed for the taxable period and the taxable result that is effectively subject to the nominal corporate taxes of generally 33.99% (there are some exceptions).

Second step

This positive difference as determined in the first step will be decreased with the part of the dividends stemming from taxed reserves constituted, at the latest, during tax year 2014. To identify the origin of the reserves, a last in first out (LIFO) method is applied.

Third step

The outcome of the above calculation is limited by a percentage, being the result of the following fraction:

·        The numerator consists of the amount of carried forward tax losses and NID that has been effectively used in the taxable period at hand.
·        The denominator consists of the taxable result of the taxable period at hand, excluding the tax-exempt reductions in the value and provisions.

The fairness tax itself is not tax deductible. The fairness tax due can be offset against prepayments made and tax credits.

Large companies are in scope of the fairness tax, whereas it does not apply to SMEs.

Belgian PEs of foreign companies are also in scope of the fairness tax. For Belgian PEs, 'distributed dividends' are, for the purposes of the fairness tax, defined as the part of the gross dividends distributed by the head office, which proportionally corresponds with the positive part of the accounting result of the Belgian PE in the global accounting result of the head office.

Progressive rates

A progressive scale of reduced rates applies to taxpayers with lower amounts of taxable income. If the taxable income is lower than 322,500 euros (EUR), the following rates apply (including the 3% crisis tax):

Taxable Income (EUR)
CIT Rate (%)
0 to 25,000
24.98
25,001 to 90,000
31.93
90,001 to 322,500
35.54

In case the threshold of EUR 322,500 is reached, the total taxable basis of the company is subject to the general CIT rate of 33.99%. Even if their taxable income does not exceed the aforesaid ceilings, certain companies are excluded from the reduced rate and are subject to the normal CIT rate. These companies include, amongst others, companies that are owned 50% or more by one or more companies.

Surcharge:

A surcharge is due on the final CIT amount upon assessment (including the crisis surtax). The surcharge can be avoided if sufficient advance tax payments are made. For tax year 2016 and 2017 (i.e. accounting years ending between 31 December 2015 and 30 December 2017, both dates inclusive), the surcharge is 1.125%.

Secret commissions tax:

A special assessment of 103% (100% plus 3% crisis tax) is applicable to so called ‘secret commissions’, which are any expense of which the beneficiary is not identified properly by means of proper forms timely filed with the Belgian tax authorities. These expenses consist of:

·        Commission, brokerage, trade, or other rebates, occasional or non-occasional fees, bonuses, or benefits in kind forming professional income for the beneficiaries.
·        Remuneration or similar indemnities paid to personnel members or former personnel members of the paying company.
·        Lump-sum allowances granted to personnel members in order to cover costs proper to the paying company.

The secret commissions tax can be limited to 51.5% (50% plus 3% crisis tax) if certain conditions are met. In some cases, no secret commissions tax applies.

Taxable income of non-residents:

Certain income attributed by a Belgian tax resident to a non-resident is taxable in Belgium. A paragraph in the Belgian Income Tax Code functions as a ‘catch all clause’ to tax certain payments made to a non-resident of Belgium.

The catch all clause applies in case the following conditions are all met:

·        Revenues stem from ‘any provision of services’.
·        Revenues qualify as benefits or profit in the hands of the non-resident beneficiary.
·        The services are provided to an individual tax resident in Belgium in the framework of one’s business activity, a corporation, a taxpayer subject to the legal entities tax, or a Belgian establishment.
·        There are (in)direct links of interdependence between the foreign supplier and its Belgian client.
·        Such revenues are taxable in Belgium according to a double tax treaty (DTT) or, in the absence of any DTT, if the non-resident taxpayer does not provide evidence that income is actually taxed in the state where the taxpayer is resident.

Given the condition of ‘any direct or indirect links of interdependence’, provision of services between non-related parties should thus, in principle, remain out of scope.

The rate amounts to 33% on the gross fee paid (resulting in an effective tax rate of 16.5%, as a lump sum deduction of 50% as professional expenses is allowed).



Income determination:

Inventory valuation:

Belgian accounting law provides for the following four methods of inventory valuation: the method based on the individualisation of the price of each item, the method based on the weighted average prices, the last in first out (LIFO) method, and the first in first out (FIFO) method. All of these methods are accepted for tax purposes.

Capital gains:

Capital gains are subject to the normal CIT rate. For tax purposes, a capital gain is defined as the positive difference between the sale price less the costs related to the disposal of the asset and the original cost of the acquisition or investment less the depreciation and write-offs that have been deducted for tax purposes.

Capital gains realised on tangible fixed assets and intangible assets could be subject to a deferred and spread taxation regime, provided that certain conditions are met.

Capital gains on shares:

Net capital gains realised by a large Belgian company (or Belgian PE) on shares are subject to a 0.412% tax, provided the subject to tax condition and the one-year holding period are met. The 0.412% tax is not applicable to SMEs.

If the net capital gain is realised before the minimum holding period of one year was reached and the taxation condition (see below) is met, the net capital gain is taxed at a rate of 25.75% (25% plus a 3% crisis tax, which can be offset against available tax losses). There are some exceptions (e.g. for financial institutions).

Dividend income:

Dividends received by a Belgian company are first included in its taxable basis on a gross basis when the dividends are received from a Belgian company or on a net basis (i.e. after deduction of the foreign WHT) when they are received from a foreign company.

Provided certain conditions are met, 95% of the dividend income can be offset by a dividends-received deduction (DRD).

Dividends-received deduction (DRD):

A DRD of 95% of dividend income can be applied under certain conditions (see below). Any unused portion of the DRD from dividends received from a European Economic Area (EEA) subsidiary or a subsidiary from a country with which Belgium has concluded a DTT with a nondiscrimination clause on dividends can be carried forward to future tax years. The same also applies for dividends from Belgian subsidiaries.

The DRD is subject to a (i) minimum participation condition and (ii) taxation condition.

In addition, a rule against hybrid instruments has been introduced into Belgian law. Under this rule, dividends received by the parent company will no longer be tax exempt whenever the distributed profit is tax deductible in the jurisdiction of the subsidiary (e.g. hybrid loans). Further, a general anti-abuse rule (GAAR) has been introduced into Belgian legislation. As a result, the DRD will be denied whenever the dividends originate from legal acts or a whole of legal acts that are artificial (i.e. no valid business reasons that reflect economic reality) and merely in place to obtain the DRD exemption.

Minimum participation condition:

According to the minimum participation condition, the recipient company must have, at the moment of attribution, a participation of at least 10% or an acquisition value of at least EUR 2.5 million in the capital of the distributing company. The beneficiary of the dividend must have been holding the full legal ownership of the underlying shares for at least one year prior to the dividend distribution or commit to hold it for a minimum of one year.

Taxation condition:

The taxation condition, in summary, means that the dividend income received must have been subject to tax at the level of the distributing company and its subsidiaries if the former redistributes dividends received.

The taxation condition is based on five ‘exclusion’ rules and certain exceptions to these rules. Basically, the exclusion rules apply to the following:

·        Tax haven companies, which are companies that are not subject to Belgian CIT (or to a similar foreign tax) or that are established in a country where the common taxation system is notably more advantageous than in Belgium. Countries in which the minimum level of (nominal or effective) taxation is below 15% qualify as tax havens for the application of the regime (a list of tainted countries has been published). The common tax regimes applicable to companies residing in the European Union are, however, deemed not to be notably more advantageous than in Belgium.

·        Finance, treasury, or investment companies that, although are subject in their country of tax residency to a corporate tax similar to that of Belgium as mentioned in the item above, nevertheless benefit from a tax regime that deviates from common law.

·        A Belgian real estate investment trust or foreign regulated investment trust that benefits from a substantially more advantageous tax regime than the Belgian tax regime.

·        Offshore companies, which are companies receiving income (other than dividend income) that originates outside their country of tax residency and in these countries such income is subject to a separate taxation system that deviates substantially from the common taxation system.

·        Companies having PEs that benefit globally from a taxation system notably more advantageous than the Belgian non-resident corporate taxation system. This exclusion is deemed not applicable to EU companies with an EU PE.

·        Intermediary holding companies, which are companies (with the exception of investment companies) that redistribute dividend-received income, which on the basis of regulations mentioned under the items above would not qualify for the DRD for at least 90% of its amount in case of direct holding.

While this is a summary of the exclusion rules, numerous exceptions to these exclusion rules exist and need to be analysed on a case-by-case basis.

Bonus shares (stock dividends):

Distribution of bonus shares to shareholders in compensation for an increase of the share capital by incorporation of existing reserves is, in principle, tax free. The situation may be different if the shareholder has the choice between a cash or stock dividend.

Interest, rents, and royalties:

Interest that accrued, became receivable by, or was received by a company, and rents and royalties received by a company, are characterised as business profits and taxed at the general CIT rate of 33.99%. The income can be offset against available tax assets.

Foreign income:

A Belgian resident company is subject to CIT on its worldwide income and foreign-source profits not exempt from taxation by virtue of a DTT. This income is taxable at the normal CIT rate in Belgium (i.e. 33.99%).

A foreign tax credit may be available for foreign royalty income and foreign interest income.

Undistributed income of subsidiaries, whether or not they are foreign, is not subject to any Belgian income tax in the hands of the Belgian corporate shareholder (i.e. no CFC rules).

Tax administration:

Taxable period:

The assessment is based on the taxable income of a financial year. For the application of the rules on statutory limitations and of new laws, an assessment year is related to each taxable period. If the financial year corresponds with the calendar year, the assessment year is the following calendar year (e.g. financial year closing 31 December 2017 corresponds with assessment year 2018). If the financial year does not correspond with the calendar year, the assessment year, in principle, equals the calendar year during which the financial year ends (e.g. financial year closing 30 June 2017 corresponds with assessment year 2017).

Tax returns:

As a general rule, the annual resident or non-resident CIT return cannot be filed less than one month from the date when the annual accounts have been approved and not later than six months after the end of the period to which the tax return refers. For instance, assuming that the accounting year has been closed on 31 December 2017, the corporate tax return needs to be filed, in principle, by 30 June 2018 at the latest (this deadline is often postponed).

Payment of tax:

CIT is payable within two months following the issue of the tax assessment. Interest for late payment is charted at the (non-cumulative) rate of 7% per year.

The advance tax payments needed to avoid the CIT surcharge  can be made in quarterly instalments. In the situation where the company's financial year ends on 31 December 2017, the due dates for the advance tax payments are 10 April 2017, 10 July 2017, 10 October 2017, and 20 December 2017. If the due date is a Saturday, Sunday, or a bank holiday, the payment is due on the next working day. Advance tax payments give rise to a tax credit. The tax credit amounts to 1.5%, 1.25%, 1%, or 0.75% of the advance tax payment made, depending on whether such payment has been made respectively in the first, second, third, or fourth quarter (percentages applicable for tax year 2018 [financial years that close as of 31 December 2017 until 30 December 2018]). If the total amount of credits exceeds the surcharge, no surcharge is due, but the excess is not further taken into account for the final tax computation. The taxpayer can choose to either have the excess reimbursed by the tax authorities or used as an advance tax payment for the next year.



-------------------------------------------------------------------------------------------------
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.



No comments:

Post a Comment

This blog is Created by CA Anil Kumar Jain.