New bill of Program Law adopted in House of Representatives
The House of Representatives adopted a new bill of Program Law (please click here for the full text of the adopted bill). The bill is sent to the Senate, which has until 20 June 2012 to determine whether it will use its right to treat the bill (under its right of “evocatie/évocation”).
The main tax measures in the bill contains relate to:
- The tax treatment of pension income and pension contributions
- The application of the solidarity levy (of 4%) on investment income
- The Tax on Stock Exchange Transactions
The bill also contains some amendments to the new thin capitalization measure. For an overview of the changes in this respect, reference is made to the Ernst & Young Tax Alert of 8 May 2012 (please click here for the full text of this alert). In the current version of the bill, the new thin cap rule will enter into application on 1 July 2012 (and no longer on a date to be set by Royal Decree).
Tax treatment of pension income and pension contributions
Reinforced reporting obligations
In order to closely monitor the application of the new tax measures relating to the complementary pension plans (second pillar), the bill provides that contributions remitted by the employer into those plans will not be tax deductible (on top of the 80%-rule) when they are not disclosed via the database held by Sigedis.
This will apply for payments made as from 1 January 2013.
Additional social security levy on contributions remitted within complementary pension plans
The deduction of employers’ contributions will not be limited (concurrently with the 80% threshold) to the maximum amount of pension attributable to the civil servants as it was originally planned. Instead, employers’ contributions remitted in the complementary pension plans become subject to a 1.5% special social security levy to the extent that a certain threshold is exceeded.
The payment will be due at year-end along with the payment of regular social security contributions due on the compensation attributed during the 4th quarter of the year.
In a transitory regime, which applies from 1 January 2012 until December 31, 2015 at the latest, this threshold is set at EUR 30,000 per year (subject to annual indexation) and is compared to the sole contributions remitted into complementary pension plans (2nd pillar).
As from 1 January 2016 or an earlier date to be determined by Royal Decree, the threshold will be called “pensioendoelstelling/objectif de pension”, will be linked to the maximum amount of pension attributable to the civil servants and will be compared to the aggregate amount of estimated pension income accrued under the 1st and 2nd pillars.
The rules are identical for self-employed workers except that during the transitory regime, the amount of the VAPZ/PLCI is not taken into account for the purpose of determining whether the threshold of EUR 30,000 has been exceeded. At the latest as from January 2016, the social security levy of 1.5% will be due on the contributions paid in excess of the “pensioendoelstelling/objectif de pension” by the legal entity for which the self-employed worker is active.
Increased taxation of the part of the pension capital funded by employers’ contributions
The tax rates applicable to the capital accrued under a complementary pension plan and at the age of 60 or 61 years will be increased from 16.5% up to 20% (payment at the age of 60) and 18% (payment at the age of 61) to the extent that it relates to the contributions remitted by the company. This will apply to payments made as from 1 July 2013.
Anticipated taxation for the part of the pension capital funded by personal contributions remitted before 1993
The capital accrued under the 2nd of the 3rd pillar will be subject to a one-shot anticipated tax of 6.5% for the part of the capital funded by personal contributions remitted before 1993. This income was until now subject to a flat tax rate of 16.5%. Under the new rules, the remaining 10% will be levied at the time of the payment at pension age (or in the 5 years before). Payments funded by personal contributions remitted as from 1993 remain subject to a reduced rate of 10%.
The date of entry into application of this measure will be determined by Royal Decree.
Externalization of pension provisions
The government intended to prohibit the build-up of internal individual pension commitments (“aanvullende individuele pensioentoezeggingen/engagements individuals de pension complémentaire”) for directors and other self-employed workers as from January 2012.
Internal pension provisions existing at the end of the last financial year closing before 1 January 2012 will be subject to a special income tax of 1.75% on the total amount set aside in the accounts. The taxpayer may opt to spread the payment of this tax over three years at a rate of 0.6% per year (for a total of 1.8% over the three years).
The transfer of those existing internal pension provisions to an insurance company or other external provider will on the other hand be exempt from the special tax of 4.40%.
In the Program Law of 29 March 2012, the reporting obligation concerning the Solidarity Levy was imposed on the paying agent for qualifying income from other than nominative securities (please click here for prior coverage on this subject), whereas the withholding agent remained subject to the reporting and withholding obligation for qualifying income from nominative securities.
In order not to cause any misunderstanding by using the word ‘paying agent’ (given its specific meaning in the context of interest payment subject to the EU Savings Directive), the term ‘paying agent’ has been replaced by the – more neutral – term “market participant” (“marktdeelnemer/opérateur économique”) as to emphasize that all qualifying investment income (and not only interest income) is subject to the given Belgian Solidarity Levy.
Furthermore, the current provisions were considered not sufficiently clear and specific in relation to the obligation in case of the Solidarity Levy is levied at source. Via a new indent to article 174/1 ITC 1992, it is explicitly confirmed that the persons subject to the reporting obligations are also held to meet the withholding obligation in case of the application of the Solidarity Levy at source.
Apart from some minor technical changes, the Program Law also provides for additional guidance in relation to the temporal (retrospective) effect of the current amendments: no adverse tax consequences should arise from uncertainties in the law between 1 January 2012 and the entry into force of the law voted in the House of Representatives on 14 June 2012.
Tax on Stock Exchange Transactions
The Program Law holds a new (and thus second) increase of the rates of the Tax on Stock Exchange Transactions: from 0.22% to 0.25% (for transactions regarding financial instruments that are not subject to the 0.9% rate) and from 0.65% to 1% (for redemptions of accumulating shares in collective investment vehicles). The maximum amounts of tax per transaction also increase to EUR 740 and EUR 1,500 respectively. These new rates will apply as from the first day of the second month following the publication of the Program Law in the Belgian Official Gazette.
Other interesting measures
Other measures in this bill deal with:
- The increase of excises on tobacco;
- The increase of non-proportional VAT penalties;
- The improved collection of social contributions;
- The reduction of the period to submit inheritance tax returns;
- The introduction of an annual tax on the savings deposits at the level of credit institutions (please click here for prior coverage on this matter);
- The increase of the bank levy for the guarantee for savings deposits (please click here for prior coverage on this matter).
Ernst & Young welcomes the fine-tuning of some of the existing tax measures, such as the new thin cap regime and the Solidarity Levy.
On the other hand, the new measures are again mainly focused on the further increase of taxes. In this respect, Ernst & Young would welcome measures that are focused on Government savings as opposed to tax increases !