Organizing work in shifts or during night and applying a related tax exemption? Changes ahead!

The specific tax incentive for night and shift work, with its extensive conditions being subject to interpretation at many points, will be subject to legislative changes.

Nearly two decades ago, the Belgian legislator had foreseen a specific tax incentive in order to safeguard blue-collar labor in Belgium, and thus lower the overall employer cost. By means of a partial exemption of withholding tax with respect to employees working in a night- and/or shift system, a qualifying employer could keep a part of the taxes withheld from the salary of its eligible employees. This exemption gradually went up, and currently amounts to maximum 22,8 % (or 25%) of the taxable remuneration for night and shift (higher percentage for full continuous work).

The conditions to be met are however extensive and at many points even subject to interpretation. In an attempt to at one side provide the necessary clarifications but on the other side lower the abuse of this measure, the Belgian legislator has announced changes to the applicable legislation. The majority of these changes will be applicable as of April 1^st 2022 (unless otherwise specified). This alert summarizes in 10 short general sections the current conditions versus anticipated changes (draft law; expected to be confirmed shortly).

Conditions currently already applicable

1. General

• The withholding taxes should be withheld in full by the debtor of the withholding taxes;
• The employer pays a shift premium;
• 1/3^rd rule: The employee should, on a monthly basis, perform night and/or shift work during at least 1/3^rd  of their working (or assimilated) time.

2. Specific conditions with respect to shift work: activities need to be performed in:

• at least two shifts
• of at least two employees
• performing the same activity in content and size;
• without interruption between shifts;
• without an overlap exceeding 1/4th of the shift time.

3. Specific conditions with respect to night work:

Night work implies that employees perform professional activities between 8pm and 6am, excluding those who work exclusively between 6am and midnight and those habitually starting their activity at 5am.

Updated conditions

1. Shift premium

Up until March 2022, a shift premium should be paid without further specification. Following the legislative change, a minimum substance is added.

In order to be able to apply the (partial) tax exemption for shift work the premium should amount to 2% and for night work the premium should amount to 12% of the gross hourly rate; i.e. hourly rate that the employee would be entitled to when performing the same activity in a day shift.

Important side note is that the above mentioned night and/or shift premium should as of April 1^st 2024 also be included in the collective labor agreement, the labor agreement between employee and employer or the company work regulations in order to be considered a night or shift premium for the application of this exemption.

2. Limitation

The tax exemption amounts to 22,8% of the taxable salary (including the shift premium but excluding e.g. vacation pay and/or 13^th month). It is however important to note that the amount of this tax exemption can never exceed the taxes withheld from the eligible employees combined. Therefore a limitation on group level needs to be applied with respect to the sum of the regular withholding taxes.

Prior to the legislative change, the voluntarily paid additional withholding taxes through payroll (‘Fiscaal volutariaat’/’Voluntariat fiscal’ – withheld on top of the legally determined withholding taxes) could also be used in order to increase this limit.

As of April 1^st  however, it is expected that the limit should be calculated using the legally withheld taxes through payroll for the eligible employee population only. This cap is currently foreseen in the draft law for the other withholding tax exemptions and is thus also expected to be added for the night & shift work exemption, though yet to be formally confirmed.

3. 1/3^rd rule

Before April 1, 2022, eligible working days for both night- and shift work could be combined in view of the calculation for the 1/3^rd rule per employee. As of April 1^st 2022 these measures can no longer be combined but should be strictly separated. In order to be eligible, an employee consequently needs to work either 1/3^rd of the time in the night or in shifts.

On top, only hours for which a night or shift premium is paid can be considered (if other conditions are met) as hours performed in shift/night for this exemption.  

4. Interruption

Since the start of this incentive, an interruption between two shifts was strictly speaking not allowed; else such shifts would not quality. Despite an opening in the preparatory works of the initial law (allowed flexibility), recent audits demonstrated that this part of the law was applied in a strict sense. However, one of the changes is a confirmation that an interruption of maximum 15 minutes between two shifts is allowed.

5. Supporting documents

Based on the current legislation, a nominative list demonstrating the employees for whom and the salary on which the exemption was applied should be provided only at the moment of a tax inquiry. For exemptions applied on income  paid/earned as of January 1^st 2023, a nominative list -of which the level of detail has yet to be announced- should be provided at the moment of submitting the negative fiche used to claim the tax exemption.

6. Interim offices

Interim offices can, and will also still be able to claim the tax exemption for night and shift work based on the same conditions as other companies. However, in addition to the current obligation for interim offices of having to be able to prove that all conditions in order to apply this exemption are met, interim offices will in the future (as of October 1^st 2022) also need explicit approval from their client in order to apply the tax exemption with respect to the concerned employees.

7.    General

With respect to previous income years, the first infringement detected by the Belgian tax authorities with respect to this partial tax exemption was not sanctioned with a tax increase, given absence of a legal framework as ultimately the taxes have been duly reported but just incorrectly calculated by the employer. This new legislation however ensures that even a first infringement will in the future immediately be penalized with a tax increase of 10% on the incorrectly applied tax exemption.

Kindly note that all conditions that are not specifically discussed in the above comparison will remain the same in the future. This means for example that the notions of content and size (inhoud en omvang / contenu et ampleur) remain untouched and even unclarified, keeping the discussions with the tax authorities intact. Given the importance of the measure for the employer cost combined with the strict interpretations and the announced changes, it is more than ever key to micromanage its application.

With EY’s data evaluation tool, built solely for this tax measure, a company ensures a proper risk mitigation along with full documentation and optimal application. Do not hesitate to reach out if you would like to know how this can help you in reducing the complex and time-consuming administrative burden.