In early March, Finance Minister Vincent van Peteghem published his proposal for a tax reform plan that builds on the work already done in the earlier blueprint for broad tax reform. This proposal, which consists of about 20 measures and may be considered to be the first phase of the broader tax reform, would take effect from 1 January 2024 and would amount to a tax cut of nearly 6 billion euros. The reform is intended to reduce the burden on work, increase taxes on wealth, safeguard companies’ competitiveness and achieve a greener-sounder-simpler tax system. It is our pleasure to summarise these measures for you.
Work
Tax-free allowance – Working should be more worthwhile for everyone and the difference between working and not working should be greater. That is why the tax-free allowance, the part of the income on which no taxes are paid, will be increased from € 10,160 to € 13,500.
Progressive tax – The tax burden will also be considerably reduced by widening the 45% tax bracket. This bracket will be increased from € 46,440 to € 60,000. As a result, fewer people will end up in the top tax bracket of 50% and a smaller portion of above-average incomes will be taxed at the highest rate.
Work bonus – In addition, the work bonus for low-paid workers will also be extended by phasing it out less quickly, as the sudden removal of the work bonus would result in too little extra net pay in the event of promotion or working more.
Option plans – The existing system of option plans will be simplified and limited to shares in the employer or an affiliate company, so that employees can be more involved in the company’s success. In addition, a new tax regime will be developed to allow employees to participate in their employer’s equity in a financially beneficial way by levying taxes only upon realisation.
Benefits in kind – In the future a number of benefits that are valued at a flat rate today will be taxed based on their actual value. These include providing company managers with free housing, heating, electricity and domestic staff. The benefits-in-kind tax system linked to company cars will remain unchanged.
Pension – The current 80% limit on second-pillar pensions will be lifted. However, this will not affect accrual possibilities. The new system will be based entirely on the gross annual salary of the year in question. Up to an annual salary at the salary ceiling (around 71,000 euros per year at the moment), a maximum of 12% of the salary can be deposited. For salaries above the ceiling, the limit is 32%.
Personal income tax
Marital quotient – The marital quotient is a tax measure that reduces the tax burden by attributing part of the professional income of one partner to the partner who has a small/no professional income. This measure will disappear, thereby reducing the tax differential between singles, cohabitants and married couples. The marriage quotient system will be extinguished over a period of 20 years.
Parenthood – Tax parenthood will also become fairer and will ensure less division. For example, the system of taxing maintenance payments will die out over a period of 20 years. Recipients will no longer be taxed on maintenance payments and those who pay maintenance will no longer be able to deduct it. As a result, the difference between divorced parents and those who are not divorced will disappear. In addition, the tax deduction for childcare costs will be increased in stages from € 15.70 to € 24.70 per child per day. This will support parents who combine work and family. In addition, the ceilings for all income acquired by children will be equalised and increased, so that they can remain dependent on their parents for longer.
Tax return/tax declaration form – Around 100 of the federal codes on the tax return form will be scrapped now that it appears that they are used by fewer than 0.01% of taxpayers.
VAT & excise
Digitisation – Digital applications such as e-invoicing and e-reporting will be deployed. They will lead to administrative simplification by eliminating the mandatory annual customer list.
VAT harmonisation – The existing reduced VAT rates of 6% and 12% will be harmonised in a new 9% rate. The standard rate of 21% will remain. The 6% rate will be retained for electricity, natural gas, tap water and heating for domestic use. VAT will be reduced to 0% on fruit and vegetables, medicines, nappies/diapers and other intimate hygiene products, as well as public transport.
Demolition and reconstruction – To encourage thorough replacement of old homes, the reduced VAT rate for demolition and reconstruction of people’s sole, own homes will be made permanent.
Tobacco – As part of the anti-tobacco policy, excise duty on new tobacco products will be raised again and new variations and alternative tobacco products will be included in the excise duty system.
Fossil fuels – The reform plan also tinkers with the existing subsidies for fossil fuels by further reducing them. Moreover, several exemptions, such as those for paraffin (kerosine), heavy fuel oil and gas oil will be reformed. If paraffin and gas oil are used for specific purposes, they will be subject to a new tariff.
Wealth
Minimum tax on multinationals – An important and logical step in the fight against tax avoidance and tax havens involves the introduction of a global minimum tax on multinationals.
Final taxed income deduction – The final taxed income deduction, which is the regulation that prevents double taxation of profits within the structure of the same group, will not escape reform either. In fact the existing deduction will be replaced by an exemption with stricter conditions. From now on, all dividends and capital gains linked to shares held as “investments” will be taxed, including final taxed income unit trusts.
Tax on securities accounts – Pending the drafting of a proportional tax on capital gains, the tax on securities accounts with a value above € 1,000,000 will double for both individuals and companies that invest.
Entrepreneurship
Investment deduction – The investment deduction system will be strengthened in three ways, i.e. (i) the creation of a substantially increased investment deduction for sustainable investments, (ii) the introduction of a system of accelerated (double) depreciation on top of the investment deduction for sustainable investments and (iii) the extension of the research and development tax credit to sustainable investments.
Innovation deduction – For the innovation income deduction, the definition of intellectual property will be clarified. For example, there will now be a patent requirement so that this deduction can only be applied by companies that really do innovate. That means that large companies will have to have a European or international patent to use the innovation deduction. Small companies will no longer automatically be entitled to the innovation deduction, even if they have obtained a (Belgian) patent. Only if the preliminary patent examination has resulted in a positive opinion concerning the industrial applicability and predominantly positive opinions concerning the other patent conditions will small companies still be able to benefit from the innovation tax deduction. It should be emphasised that this reform measure is not aimed at the software sector.
Exemption private limited companies’ R&D – Greater legal certainty will be ensured by clearer definition of the division of competences between the various government departments and better description of the application details. For colleges and universities, the criteria required for a researcher to be eligible to use the exemption from withholding tax will be clearly defined. This will help keep the measure affordable in the long term too.
The advance decision service, Ruling – The legal certainty of advance decisions (rulings) will be increased by strengthening and deepening cooperation between Ruling and the tax administrations. Ruling and the Tax Conciliation Department will be brought under a new General Administration that is to be set up within FPS Finance. This will safeguard the independence of the various services.
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This article was written by Margaux Frère and David Walckiers. Do you have any specific questions about this subject? Then please do not hesitate to contact Margaux or David. Bofidi’s team of experts will be pleased to help you.