Tax measures embedded in the 2012 Belgium budget

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Please consider this information as not final, since more updates will likely follow.

Belgium’s political parties have come to an agreement regarding the budget. The target was to save 11.3 billion Euros in the national budget in order to meet Europe’s budgetary demands on the maximum deficit (3% of the GNP). How does the next government aim at generating these savings/ tax increases ?

2012 and 2013 

The political parties have agreed that next year 42% of the cuts in the budget will come from savings, whilst 34% will be raised through taxes. In 2013 the savings will increase to 50% whilst taxes will then be reduced to 28% of the planned budgetary savings.

While information from various sources is not consistent, the headlines seem to be the following :

Corporate Tax

  • The current tax exemption on capital gains will going forward be subject to the condition that the shares are detained for at least 1 year. If they are sold within the 1-year period the gains become taxable. The tax rate for these short-term capital gains is set at a special rate of 25 %. Capital losses on shares (except in cases of liquidations to the extent of the actually paid in share capital) remain non-deductible. Also the exemption of capital gains on shares alienated after one year remains 100 %, contrary to the 95 % exemption that was discussed earlier.
  • The notional interest deduction ("NID") will be limited to 3% (3,5% for SME’s). The carry forward of future unused NID will be abolished. The notional interests that companies currently have carried forward will remain deductible but their future deductibility will be limited annually. The percentage being put forward is 60 % but would not seem to apply under a treshhold of 1 million €.

As to the dividend received exemption, the anticipated increase of the detention period (from 1 to 2 years) was not withheld, thus the current so called ‘RDT-DBI’ regime remains unaffected.

Taxation of individuals

It appears that the negotiating parties have agreed on a number of tax increases but also on some new taxes.

  • The withholding tax of 15% (on interests and dividends from certain shares) will increase to 21%,
  • It is uncertain whether the current withholding tax rate on dividends will remain at 25% or will be reduced to 21%.
  • A solidarity contribution on important movable wealth is introduced. There would be an additional tax of 4 % if and to the extent that total movable income exceeds 20.000 Euros. In order to avoid the 4 % extra levy, the taxpayer will have either the option to communicate the amount of movable income upfront (through the finance intermediary) or ask for a refund when declaring all movable income in the tax return.
  • The special withholding tax on liquidations of 10 % will stay unaffected.
  • Interests on qualifying savings accounts will remain untaxed to the extent current thresholds are respected. Tax on stock options is currently levied at the individual tax rate but on a lump sum amount (15% - subject to decrease under circumstances) at the moment of the attribution. This lump sum amount will likely be increased to 18%.
  • The taxation of the benefit in kind of company cars will increase again but not as considerably as initially planned. Most likely the new calculation will be based on the catalogue value of the car as well as on the CO2 emission of the car. Planned budgetary result : 170 million Euros in 2012.
  • Other increases of benefits in kind (such as free electricity, free heating) have also been accepted (flat amounts of respectively 910 € and 1.820 € are put forward). The multiplicator for free housing will likely increase to 3,8 if the ‘revenu cadastral’ is lower then 745 €.
  • Internal pension schemes for independent directors will have to be transitioned in a period of 3 years to an external pensionscheme, with payment of an insurance tax the rate of which is to be clarified. In 2013, so called service vouchers will become 1 Euro more expensive and linked to the index as of then, but the expenses remain tax deductible under the current conditions.
  • Initially the budgetary plans would also introduce an important tax on capital gains on shares for individuals but this was not withheld in the final budgetary note.

Other taxes

  • The services of a bailiff and services of a notary public will become subject to VAT (tariff unknown for the moment)
  • The tax on stock exchange transactions will increase (with 30%), Normal rates will be at 0,22%, reduced rates at 0,09 % and the rates for capitalizing shares will be at 0,65 %.
  • Duties on alcohol and tobacco will increase
  • VAT on pay television increases from 12% to 21%
  • An additional tax on flight tickets was not accepted

Fight against tax and social security fraud

The budgetary efforts heavily focus on an increased fight against tax and social security fraud. For 2012 this should result already in an additional income of 700 million Euros, 1 billion in 2013 and 1,5 billion in 2014.

It is unclear up to what level the initially planned initiatives were withheld. Some of these initial initiatives are rather important. For example:

  • The introduction of a thin cap rule (in order to avoid undercapitalization of companies); a ‘general’ 5 to 1 thin capitalization (in stead of 7 to 1) is put forward, but exact details are yet unknown. It is rumoured that the current condition that the beneficiary is subject to a considerably more advantageous regime, will be suppressed.
  • The concept of a Fraus Legis is put forward, i.e. the ‘condition that a recharachterisation must meets identical or similar legal effects, as is the case under the current general anti-abuse rule, is softened.
  • Fight against usufruct constructions
  • Uniform application of tax and social security regulations;
  • Better recovery of taxes and social contributions
  • Introduction of the "most efficient investigation competencies" in all the departments;

The suggested tax amnesty was not withheld.

Budgetary cuts

As far as budgetary cuts in the national expenses are concerned, the eye catchers are

  • An increase of the minimum age for pensioning when the employer is a company in difficulties (from 52 to 55 yrs)
  • An increase of the minimum age for early retirement (from 60 to 62 yrs and on the condition of a 40 yr career)
  • An increased degressivity of unemployment payments

Preliminary conclusion

At first glance as far as taxation of business in Belgium is concerned, the impact seems limited.

In the upcoming days we will learn more about the concrete measures and can inform you in more detail.