Tax shift: Reductions to employment taxes for employers and employees

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In October 2015, the Belgian government agreed on a “tax shift”, which was introduced as a means of decreasing the budget deficit and improving Belgium’s competitiveness in the labour market compared to its neighbouring countries.  The aim was to shift the burden of tax away from professional income, and instead increase taxes in other areas such as income from movable capital (movable income).

In order for these measures to be implemented, several changes to tax rates affecting Belgian resident and non-resident taxpayers have been introduced from 2016.  Below is a brief overview of some of the more important changes.

Tax decreases 

Income tax on professional income

For the benefit of employees, the Belgian government aims to decrease the overall income taxes on professional income (income earned by performing a professional activity, such as salaries, wages and profits from self-employment or any business enterprise).

The following changes have been introduced:

• The income tax brackets for individual income tax purposes have been adjusted; some tax bracket ranges were increased and others abolished.
• The threshold for lump sum business expenses and tax exempt allowances for employees are set to increase over a period of time.

These changes apply as of tax year 2016 and will gradually evolve further over the next four years.  They are also immediately applied in the payroll taxes to be withheld by employers.

Employer’s social security contributions        

From an employer’s cost perspective, their social security contributions will be decreased in phases, from approximately 33% to 30% in April 2016, to 25% in 2018, followed by  an additional deduction for lower wages in 2019.  With these three phases, the Belgian government endeavours to create more job opportunities and lower companies’ burdens regarding the cost of employment.

Night/shift work tax exemption

A payroll tax exemption applies for private companies and non-profit organisations that pay premiums for night and shift work, although strict rules have been put in place in order for them to qualify.  The exemption has been brought forward three years, from 1 January 2019 to 1 January 2016.  With this exemption, employers are excluded from paying 22.8% of the payroll tax withheld from employees’ salary to the Belgian Treasury.  This tax exemption includes (for salaries paid as of 1 January 2016), night and shift workers employed in the production of high-tech products, who will benefit from a further increase of 22.8% to 25%.

Tax increases 

Increase of withholding tax on movable income

Since 1 January 2016, the withholding tax rate on dividends, interest and royalties (movable income) paid or attributed as of January 1 2016, has increased from 25% to 27%.

Introduction of a capital gains speculation tax

Speculation tax applies to both resident and non-resident taxpayers (with respect to their Belgian source of income).  This is a tax on the capital gains realised on the sale of quoted shares, options and warrants held by consideration for less than 6 months.  Any gains realised while exercising a professional activity are excluded, for example free share or stock option grants, as they would already be taxed as professional income.  Since 1 January 2016, speculation tax has been levied on reselling said shares at 33%. 

Further information

For further information or to discuss any of the issues raised, please contact Gunther Valkenborg on +32 2 743 43 39, Loyens & Loeff Belgium.

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