Belgium's Minister of Finance, Vincent Van Peteghem, recently detailed his plan for the first phase of Belgian tax reform, which is scheduled to come into effect on 1 January 2024.
The following article examines several key measures and their practical impact on businesses and individuals, if these measures are adopted in their present form.
- Increase of the tax-free portion from EUR 10,160 to EUR 13,500
The proposal foresees an increase in the tax-free portion from EUR 10,160 to EUR 13,500 (which is the tax-free amount). This increase in the tax-free portion would only benefit workers (and not, for example, pensioners) and should generate a net gain of at least EUR 835.
- Extension of the 45% tax bracket up to EUR 60,000.
The draft provides for a widening of the tax bracket to 45% up to EUR 60,000. This means that the maximum 50% bracket will apply later (from EUR 60,000 instead of EUR 46,440 at present).
- Valuation of certain benefits in kind at real value
Currently, some benefits in kind are valued at a flat rate and therefore at a lower amount than their real value. The draft intends to put an end to this fiscally advantageous regime by imposing a valuation of several benefits in kind at their real value. This will be the case, for example, for the provision of free accommodation, electricity, heating or the services of domestic staff by a company to its director.
The draft, however, does not apply to the tax system of benefits in kind related to company cars, which is being taxed in a "green" way.
The draft provides for a reform of the stock option plan regime, in particular regarding the timing of the tax. At present, tax is levied when the options are granted, regardless of whether they are exercised or not and regardless of the price. To remedy this, the draft provides for the payment of tax when the option is levied.
Moreover, the draft also provides for limiting such plans to shares of the employer or of a related company. (The French text refers to "parent" companies). The Minister probably intends here to put an end to the possibility of offering option plans relating to shares of companies, which have no link with the company issuing the plan.
A new regime would also be proposed for the granting of free shares. Tax will be deferred until the shares are disposed of, with a distinction between the benefits in kind (taxed as professional income) and the increase in value between the date of granting and disposal of the stocks (taxed at a separate rate).
- Supplementary pension of the second pillar: abolition of the 80% rule
The proposal envisages a simplification of the calculation rules for supplementary second pillar pensions (e.g. group insurance, free supplementary pension for self-employed, etc.). This new system is based entirely on the gross annual pay of the year itself. The “80% rule” is abolished. As a reminder and for simplicity's sake, the "80% rule" aims to ensure that the sum of the supplementary pension of the second pillar and the statutory pension, once converted into an annuity, cannot exceed 80% of the "normal" gross pay of the last year. The part of the premiums that would exceed this 80% limit is not a deductible for the company.
It is replaced by a "12+32%" rule:
- A maximum of 12% of salary can be paid into the supplementary pension if the worker earns up to EUR 71,000 per year (the current "salary ceiling").
- Above this amount, the worker could pay 32% of the part of the salary exceeding this ceiling.
- Household taxation and alimony
The tax system for alimony will be abolished and the taxation of “joint parenthood” will also be reformed. Other measures will be planned to neutralise tax differences between forms of living together.
- Suppression of several tax benefits
The minister also plans to abolish various tax benefits (employer intervention for a private PC, acquisition of shares in starting or growing SMEs, capital losses on private “Pricaf/Privak”, etc.).
- Tightening of the RDT/DBI regime
As a reminder, the “Definitively Taxed Income” (more commonly known as “RDT” in French and “DBI” in Dutch) currently allows the parent company to deduct 100% of the dividends received for corporate tax purposes if certain conditions are met. An identical regime allows the exemption of capital gains on shares.
Among the conditions, the parent company must hold, in full ownership and uninterruptedly for at least one year, a minimum shareholding in the company distributing the dividend: either at least 10% of the capital or at least EUR 2.5 million.
The Minister intends to tighten this regime by requiring that the participation be considered as a "fixed financial asset" (i.e. that the holding of the shares must be aimed at contributing to the company's own activity through the establishment of a durable and specific link between the shareholder company and the company whose shares are held). A holding of at least 10% of the capital is presumed to be a fixed financial asset. This new condition could severely affect certain asset holding companies investing more than EUR 2.5 million in certain shares in their portfolios but without any particular link with the companies in which they hold these shares. Such shares are generally "cash investments" and not "fixed financial assets". Dividends paid to such holding companies would therefore be subject to corporate income tax.
Furthermore, from a technical point of view, the mechanism would change from a deduction to an exemption regime. As a reminder, the current RDT/DBI regime provides for a two-step system: first the dividend received is considered in the taxable base of the shareholder company and then this dividend is deducted from this taxable base. This mechanism can sometimes be problematic if the shareholder company's profit is too small to absorb the RDT/DBI deduction (even if the carry forward of RDT/DBI to future years is possible under certain conditions). It may in some cases result in less favourable tax treatment than a pure and simple exemption of the dividend and therefore be open to criticism under EU law (e.g. in some cases of intra-group transfers). This is certainly the reason why the Minister is considering switching to an exemption system in the sense that the dividend received will simply not be taken into account in the taxable base of the shareholder company. This is generally favourable to the taxpayer.
It also appears that the Minister aims to remove the favourable and popular tax regime for investment companies known as “SICAV RDT” / DBI-Bevek”. As a reminder, dividends paid by investment companies cannot benefit from the RDT/DBI regime. Under certain conditions, however, the SICAV RDT / DBI-Bevek can benefit from an exceptional regime allowing the exemption of the dividends they distribute.
- Minimum tax for multinationals
The draft foresees a minimum tax for multinationals. Although it does not explicitly refer to it, this proposal seems to echo the decision of EU member states to introduce a minimum tax of 15% for companies with a turnover of more than EUR 750,000.
- Deduction for innovation and patent
The draft provides for a reform of the innovation deduction. In particular, it foresees that the innovation deduction will depend on the existence of a patent, which was not the case until now. This could have a major negative impact on innovative companies that do not use patents (e.g. the IT field, which is already heavily impacted by the copyright tax reform).
The draft intends to "significantly" increase the deduction for sustainable and environmentally friendly investments. An accelerated depreciation system is also foreseen. The basic investment allowance and the R&D investment allowance are maintained.
Common measures for natural and legal persons
- Doubling of the securities account tax
The annual tax on securities accounts aims, as a reminder, to tax securities accounts with an average value of over EUR 1 million. The rate is currently 0.15% and the Minister is considering doubling the tax rate to 0.30%. This measure has been taken in anticipation of a proportional tax on capital gains.
- Adaptation of VAT rates to a new reduced rate of 9%
The draft foresees the overall abolition of the reduced VAT rates of 6% and 12% and the introduction of a reduced rate of 9% as well as a reduced rate of 0% for certain healthy and essential products (e.g. fruit and vegetables, medicines, etc.). The 6% rate would, however, be maintained for electricity, natural gas, domestic water and domestic heating.
- Generalisation of a reduced rate of 9% for demolition-reconstruction
The law currently provides for a reduced rate of 6% for the demolition-reconstruction of buildings under certain conditions. The measure is supposed to end on 31 December 2023 (except in certain areas). The project aims to make this reduced rate permanent everywhere, but it would increase from 6% to 9%.
This proposal by the Minister is only the first phase of the tax reform. In addition, some of the thorny issues mentioned in the "outline" published by the Minister in July 2022 are not included, such as, for example, the reduction of the withholding tax to 25%, the generalised taxation of capital gains on shares (which has been announced for later), the taxation of rents, the policy to discourage incorporation for tax purposes, the abolition of the VVPRbis regime, etc.
The proposal will undoubtedly be the subject of much discussion between members of the government and then in parliament before it is finalised. It is expected that the proposal will be formally submitted to parliament as a bill by the summer. As a result, there may be more surprises that we will be following.
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