Tax reform - first details of wave 1, effective as from 2023

Further to the Government agreement on the Federal Budget for 2023 and 2024 and as part of a broader tax reform, the Finance Minister prepared a first set of tax measures.

The Government agreed on a two phase implementation plan of which the first phase would be discussed  in the course of November and introduce a legislative initiative by early December. The general purpose would be to strengthen the purchasing power and increase the employment rate. The measures of this first phase should represent a positive impact on the budget of about 6 billion euro over a three-year period. The proposed measures would enter into force as of 1 April 2023. The second phase measures, i.e. the so-called “broader tax reform”, would be prepared by September 2023.

Below we provide a brief summarized overview of the most important proposed tax measures in this  first phase.   The measures are currently described in a high level fashion and the actual change of the tax legislation and impact of these proposals is not yet clear.

Personal income  tax measures

Tax-free sum

The tax-free sum (EUR 9,270 for tax year 2023) would be raised to the level of the living wage for a single person (EUR 13,660 for tax year 2023). To avoid unintended effects, various specific measures would be taken. The professional withholding tax will be appropriately adjusted as of 1 April 2023.

Professional withholding tax

The expenditure related to the partial exemption of professional withholding tax regimes would be kept at the same level in 2023, 2024 and 2025 as in 2022. 

Harmonization of tax and social security treatment of benefits in kind

The tax treatment of benefits in kind, with the exemption of the one relating to company cars, would be aligned with their treatment for social security purposes. 

With respect to new company cars with fuel or charging cards, the current increased disallowed expense of 40% would be replaced by a benefit in kind for private use. The  present system would be maintained for existing company cars and this for another five years.

Stock option plans, carried interest regime and management incentive schemes

The tax regime applicable to stock option plans would be reformed in order to counter the existing excess use. This would be achieved by:

• Limiting the  scope of application to shares of the company-employer or a parent company thereof;
• Modifying the provision currently allowing the employer to bear the tax burden in case of a non-exercise of the option;
• Restricting the application to non-transferable and non-redeemable options.

In addition, a new tax regime would be developed allowing employees to participate in a financially favorable way in the equity of the employer, whereby taxation would only occur upon realization and only in case of an effective capital gain.  

Furthermore, Income obtained further to a carried interest scheme or another management incentive scheme would qualify as taxable professional income in the hands of the individual  directly or indirectly professionally active in the entity to which the scheme applies, and this to the extent the latter income exceeds the amount an investor would have received without being directly or indirectly involved in the entity.

Second pillar pensions: 80% rule

It is the intention to further restrict the tax deduction for premium payments into the second pension pillar.

Companies would only be able to deduct these premiums to the extent that they do not exceed 10% of the periodic gross annual remuneration, paid during the year to which the premium payments relate. The excess part of the paid premiums would be treated as a benefit in kind on behalf of the beneficiary.

Simplification of the tax return

Further to the recommendations of the High Council of Finance and for the purpose of simplifying the tax return, the reform would provide for a phase out of at least 16 personal income tax benefits, allowing a total reduction of almost 100 codes in the tax return:

Are a.o. in scope:  

• Lump sum deduction for long travels;
• Tax credit own resources;
• Bonus for advance payments;
• Tax reduction for the purchase of electric vehicles;
• Tax reduction for domestic servants;
• Tax reduction for shares in development funds;
• Tax reduction for the acquisition of employer shares;
• Tax reduction for investment in growth companies (both tax shelter start-up and scale-up);
• Tax reduction for expenses relating to an adoption procedure;
• Tax reduction for premiums in respect of a legal assistance insurance;
• Tax reduction for capital losses on privak/pricaf investments;
• Exemption of innovation premiums;
• Third pillar related tax benefits: long-term saving (life insurance premiums) and increased ceiling for pension savings;
• Exemption private PC;
• Exemption additional staff, internship bonus and additional staff

Neutrality of cohabitation

With the aim of attaining a more tax neutral treatment of various cohabitation forms, some tax benefits would be abolished or modified. For example, the marriage quotient would be phased out over a period of 10 years, decreasing the applicable maximum amount proportionally; Other measures would relate to the supplements to the tax exempt sum for single parents and parents living apart, the allowance for child care, etc.

Corporate tax measures

Dividend taxation

With respect to the dividends received deduction (DRD),  the current ‘deduction’ would be converted into an ‘exemption’ method..

However, the conditions to benefit from the DRD would be strengthened.  Whereas the 10% participation condition would remain unchanged, the € 2,5 minimum participation threshold would only apply to fixed financial assets as defined by the Royal Decree executing the Companies and associations Code. This change would equally be applied to  the withholding tax.  

Further, costs  relating to the to the acquisition, holding and alienation  of shares would become non-deductible and the beneficial DBI-BEVEK / RDT-SICAV” regime would be abolished.

Indirect tax measures

VAT e-invoicing and e-reporting

As part of the reduction of the VAT gap, e-reporting would be made mandatory “over time”, lowering the administrative burden (a.o. annual client listing).

Excise taxes on tobacco and new products

Excises would apply on new tobacco products and e-liquids. Existing excises on tobacco products would be further increased.

Reduction fossil fuel subsidies

Existing subsidies to fossil fuels in the form of reduced excise or VAT rates would be further reduced in 2024.

In case of any further questions with regard to this alert, please do not hesitate to reach out to your trusted EY person of contact.