Executive summary

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.

Detailed discussion

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:

• Increasing the tax-free amount (the lump sum amount which is not subject to personal income tax in Belgium), irrespective of the amount of labor income earned by the taxpayer. With this measure, the Minister wants to incentivize the Belgian working population. Hence, taxpayers receiving an unemployment or pension payment are not able to benefit from this measure.
• The progressive personal tax system remains in place, but the higher end of the income range subject to 45% taxation will be increased. This should incentivize taxpayers to undertake full-time employment instead of a part-time job. Taxpayers working full time will then end up with a higher net amount as part of their labor income and will no longer fall within the 50% bracket.
• The existing incentive for taxpayers with a lower salary (work bonus) will be expanded — by phasing out the incentive more slowly and adjusting the corresponding tax credit accordingly. The intention is to increase the difference between working and not working.

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:

• The current specific regime for stock options will be restricted to options on shares of the corporate employer (or a related company) and to options that cannot be transferred.
• A general taxation regime for equity-based compensation will be designed. The mechanics of this tax regime will be simplified, and the prefinancing issue will be avoided by taxing the equities (e.g., free shares) when sold by the beneficiary. Any capital gain will be taxed differently. This should also enable start-ups and scale-ups to use this regime for attracting and retaining employees.
• Finally, a clear and dedicated legal framework will be introduced for management incentives and carried interest arrangements.

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:

• The current investment deduction and tax credit will be strengthened, by expanding the regime to sustainable investments. Also, double-declining deprecations will be allowed for tax purposes (although this was abolished during the 2017 tax reform), but exclusively for the sustainable investments.
• The future application of the partial exemption of payroll withholding taxes for qualifying research and development employees, as well as the innovation income deduction, is confirmed by the Finance Minister, but certain criteria and concepts will be further clarified and finetuned.
• The Belgian ruling commission will be integrated within the Belgian tax authorities to safeguard the legal certainty provided by granted rulings. According to the Finance Minister, the independence of the ruling commission remains key.

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:

• Implementation of a global minimum taxation (15%) for multinational enterprises operating in Belgium. Such minimum taxation is foreseen in the Pillar Two Directive which needs to be implemented at the domestic level by the end of 2023. This legislation will ensure a minimum effective tax rate of 15% (to be assessed at a Belgian group level, not necessarily for each Belgian group entity as such — based on "jurisdictional blending" principle).
• The requirements to qualify for the participation exemption (dividend received deduction) will be tightened. Share participations (below the 10% minimum) with an acquisition value of at least €2.5 million will still benefit from the participation exemption, but only if the share participation qualifies as a financial fixed asset. Furthermore, the regime will also be tightened for dividends received from certain investment vehicles.

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).

• The annual tax on securities accounts (current rate of 0.15%) will be doubled. This tax applies to a securities account with financial instruments having an average value exceeding €1 million during a given tax year.

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).

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For additional information with respect to this alert, please contact the following:

EY Brussels

• Steven Claes | steven.claes@be.ey.com
• Peter Moreau | peter.moreau@be.ey.com

EY Hasselt

• Arne Smeets | arne.smeets@be.ey.com

EY Antwerp

• Bart Desmet | bart.desmet@be.ey.com

Ernst & Young LLP, Belgian Tax Desk, New York

• Pieter-Jan Wouters | pieter-jan.wouters1@ey.com