March 7, 2023
Belgian Finance Minister launches proposal for tax reform
The Belgian Finance Minister recently announced a tax reform allowing for a significant tax shift in Belgium. This proposal is only the first phase of a broader tax strategy for the next 10 years and is currently subject to debate within the Belgian federal Government. Even though the entry into force is foreseen for 1 January 2024, the specifics of this plan can still change during the political and legislative process. Accordingly, there is currently no full certainty about which measures will make it to the final stage.
The proposed measures should not impact the budget (budget neutral). As a result, both tax reductions and compensating measures are part of the proposal.
According to the Minister, the overall purpose is to incentivize the Belgian population to work, as well as to increase its purchasing power. This outcome will generally be achieved by shifting the tax burden towards wealth and consumption taxes (to ensure fair taxation). Finally, the proposal also seems to focus on creating an environment for sustainable investments and healthy fiscal behaviors.
This Alert summarizes the proposed corporate income tax, personal income tax and Value Added Tax (VAT) measures. The summary is based on the official press release of Minister Van Peteghem. As additional details of this proposal become available, we will publish additional alerts.
Reducing the tax burden on labor income
Reducing the tax burden on labor income is one of the cornerstones of the proposal. To achieve this goal, various measures are proposed:
To enable a sustainable balance between (full-time) work and family life, the personal income tax relief for child daycare expenses will gradually be increased.
Stock option plans
The Finance Minister recognizes the importance of equity-based plans in the war for talent while fighting any abuse. Therefore:
Establishment of a modern and simple tax regime
To simplify the overly complex personal income tax return, the Finance Minister has confirmed the goal to materially streamline and rationalize the tax return. Furthermore, benefits in kind will be treated equally for income tax and social security purposes (as currently different rules apply). In this respect, the Finance Minister indicated that certain benefits (such as heating, electricity and providing free housing to the company's director) will be taxed at fair value going forward, and no longer based on a lump sum amount.
Furthermore, the tax reform neutralizes the family position of the taxpayer (e.g., single, married, living together), by abolishing the marriage quotient (huwelijksquotiënt/regime du quotient conjugal) and the tax regime for alimony payments. A transitory regime of 20 years is foreseen for both regimes.
Finally, VAT compliance should be further automated by increasing digital applications, such as e-invoicing and e-reporting. This will result in a lower administrative burden for instance by abolishing the annual client listing.
Strengthening a sustainable and competitive environment
The Finance Minister confirms that a sustainable legal framework is a key requirement for Belgium's competitiveness. As part of the proposed tax reform, the following measures can be highlighted:
Compensating measures for companies and wealthy taxpayers
The Finance Minister states that the tax burden on labor income and capital income is disproportionate. To compensate for the reduced tax burden on labor income, the following measures are proposed:
The Finance Minister is using this opportunity to convert the dividend received deduction into a real tax exemption in order to simplify the regime. This approach should be welcomed — given the recent European Union (EU) case law about the mechanics of the dividend received deductions in the light of the EU Parent-Subsidiary Directive. Such approach may create opportunities for Belgian holding companies that want to benefit from the Belgian consolidation rule (based on current legislation, using this consolidation rule is factually limited or even excluded in taxable periods when dividend income is received due to the mechanics of this dividend received deduction).
Aiming for a sustainable and healthy society
The Finance Minister has emphasized that the Belgian tax system should enable a sustainable, healthy and climate-friendly society. The reduction of the tax burden for labor income is therefore compensated with increased taxation on consumption and pollution.
Whereas the standard VAT rate remains 21%, a specific 0% rate will be introduced for certain healthy and necessary products (including vegetables, fruit, diapers and public transportation). The current 6% rate for electricity, natural gas and tap water will remain in place. The other products that are currently subject to a 6% or 12% rate will have a harmonized 9% rate going forward.
Furthermore, the excise duties on tobacco will further increase, the reduced VAT rate for demolishment and reconstruction of the family home will become permanent and subsidies for fossil fuels will be reduced (in accordance with the EU's climate goals and the Fit for 55-package).
For additional information with respect to this alert, please contact the following:
Ernst & Young LLP, Belgian Tax Desk, New York