Tax
Belgium | Update—Tax reform 2025
Summary
Mr. Bart De Wever, leader of the New Flemish Alliance (N-VA) and during the summer of 2024 key figure in the formation of Belgium’s new federal government, has put forward his so-called socio-economic “supernote” (a masterplan which has been reworked various times during the summer) to the potential partners. The idea was to form an “Arizona coalition”, notably a government that (if negotiated successfully) would replace the current “Vivaldi coalition” (the latter is reduced to a government of current affairs, following the 2024 federal election).
The plan of Mr. De Wever outlines significant potential reforms with respect to pensions, labor market and – last but not least – the Belgian tax system. For the proposed tax measures quite some inspiration was sought and found in the tax reform measures that were initiated by the departing minister of Finance Mr Vincent Van Peteghem (CD&V), reflections of a previous tax reform attempt for which ultimately no consensus was reached in the summer of 2023 and which ended into a complete deadlock.
One of the overarching goals of the new tax reform architecture is to make employment (and working in general) more rewarding and more attractive, for example by reducing taxes, thus widening the income gap between working and not working. As highlighted in our previous newsflash, the proposed measures to lower the personal income taxes include a higher tax-free allowance, reduced tax rates, higher income thresholds (in the tax brackets), and the elimination of the special social security contribution.
Recently, the government formation discussions were heavily revolving around the income tax measures (with the introduction of a capital gains tax being a dealbreaker). During the night of 21 to 22 August 2024 the discussions got completely stuck. The press even reports “un parfum de crise”. On Thursday 22 August a new attempt will be made to resolve the matter. Even if the negotiators ultimately do not reach an agreement, some of these tax reform measures will sooner or later be recycled again and pop-up in some kind of draft tax legislation. Without being exhaustive, please find below a high-level overview of potential individual income tax related measures.
High-level overview of potential tax measures
Professional income and family taxation
● Increased lump-sum tax free allowance
An increase is proposed of the lump-sum tax-free allowance towards the level of the minimal subsistence income for a single person (currently EUR 15.460).
● Tax brackets and rates
Furthermore, an adjustment of the progressive income tax brackets is proposed. This would include an expansion of the 25% tax bracket, lowering the tax rate of 40% to 35% and increasing the income threshold for the application of the 50% marginal tax rate.
● Special social security contribution and job bonus
The abolishing the special social security contribution (a contribution which was introduced back in 1994 as an additional funding of the Belgian social security) is proposed.
● Job bonus
One of the measures in the supernote promotes an increase in the federal job bonus (for people with a low income).
● Abolition of the marital quotient
The marital quotient allows married or legally cohabiting couples to shift up to 30% of the higher-earning spouse’s income to the lower-earning (or non-earning) spouse, effectively lowering their combined tax burden (saving at the marginal tax rate). Mr. De Wever proposes abolishing this mechanism for non-retired couples starting in 2025. For retired couples a phase- out scenario would be foreseen. Such a change would have significant implications for couples where one partner earns little to no income..
● Abolition of the tax deduction for alimony payments
Another one of the proposed potential measures that could serve as an attempt to provide more neutrality from a family taxation perspective would be the abolition of the tax deduction that is (under very strict conditions) available for (80% of the) alimony or maintenance payments made in the course of the taxable period.
● Increased tax reduction for childcare expenses
The initial socio-economic note includes the intention to increase the existing tax reduction for childcare expenses, for example from 45% to 100%, at least for people who are working.
● Reform of stock option and warrants regime
Stock options, which give the right to buy shares at a predetermined price, and warrants are currently popular as alternative forms of remuneration. However, De Wever’s plan proposes to introduce a solidarity contribution for the holder of the options and warrants making these instruments of remuneration less attractive. The scope would remain limited to options that relate to shares of the employer. The proposal aims to align the taxation of remuneration through stock options and warrants with that of cash payments.
● Taxation of (a benefit in kind for) fuel cards
To increase the “greening”, Mr. De Wever wants to promote greener transportation. Cycling would be further encouraged by increasing the maximum mileage allowance for biking, while fuel cards would face higher taxes for non-professional trips.
Management companies
● Addressing the improper use of Management Companies
As more and more executives establish management companies to optimize their tax situation in Belgium, Mr. De Wever proposes measures to curb this practice. One key measure would be increasing the minimum managerial remuneration (towards the company director) from EUR 45.000 to EUR 50.000, and subject to further indexation, in order to qualify for the reduced corporate income tax rate of 20%.
Additionally, but in practice linked to that, the revised movable income tax system would result in the phasing out of the current VVPRbis system, which (under certain conditions) allows management companies to distribute dividends at a reduced movable tax rate.
Taxation of movable (savings and investment) income
● Movable withholding tax
The initial proposal would lower the 30% dividend and interest tax rate to 25%.
● Capital gains tax
Linked to the abovementioned reduction of the flat rate for dividend and interest income, a keypoint of Mr. De Wever’;s proposal is the introduction of a 10% capital gains tax in case of the sale of financial assets, such as shares and bonds. Belgium is one of the few countries where such realized capital gains currently remain untaxed (if realized within the normal management of the individual’s private estate). To protect small investors, Mr. De Wever’s note suggests the possibility of exempting the first EUR 6.000 in capital gains from effective taxation.
● Broad tax exempt amount for movable income
The tax exemption which is currently applicable to interest income on regulated savings accounts would be extended to interest income from other accounts, state bonds and even other moveable income such as dividend income within a broad tax exempt basket.
● Tax on securities accounts
At present, there is a 0,15% tax applicable on securities accounts exceeding EUR 1 million. Mr. De Wever’s plan includes a potential reform or an expansion of this existing tax, although the specifics remain unclear, such as whether there will be an increase in the tax rate (for example to 0,30%) or an extension of the scope of application.
● Tax on stock exchange transactions
Mr. De Wever wants to give an incentive to investors to invest in the Belgian economy.
Therefore, the tax on stock exchange transactions for those who buy or sell shares in small or medium-sized quoted companies.
Taxation of immovable income
● No taxation of actual rental income
For many years now, private individuals who rent out property for non-professional purposes are taxed progressively (via their tax return) on the deemed rental income of the property, which is indexed and increased with 40%. This taxation method is beneficial, because the actual (often higher) rental income is not taxed. It seems to stay that way for the coming years. Indeed, in the supernote of Mr. De Wever no measures are proposed for changing this traditional way of taxation.
● Capital gains tax for immovable property
Although this is still very vague, the existing capital gains tax regime for real estate in Belgium would become subject to changes.
The negotiations continue…
In the second half of August 2024, it has become clear that the formation of Belgium’s new federal government had arrived at a critical juncture. When writing this flash, negotiations were still ongoing, with several challenges still unresolved. On August 19, 2024 the King of Belgium extended the assignment of formateur Mr. De Wever by 3 days. Is a solution finally in the making and will the parties find a common ground for governance? More news to come.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Sandrine Schaumont
Partner
Philip Maertens
Partner
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