Tax proposals to enhance the competitiveness of Belgium

The Belgian Government agreed to submit tax proposals to Parliament that are aimed to boost the competitiveness of Belgian industries. Hereafter we discuss three proposals which might have a (positive) impact on your business.

Keeping Belgium competitive for innovation – IID made optional

 The Belgian Government agreed to make the application of the Belgian Innovation Income Deduction (IID) optional. This means that taxpayers could decide not to apply (part of) the IID that would in principle have been deducted (considering, e.g. the 70% basket limitation rule). This specific part of the IID would then be carried forward indefinitely to the following taxable periods in the form of a non-refundable tax credit. Taxpayers are free to use these credits for future years.

This measure is intended to safeguard the competitiveness of Belgium for innovation, in light of the international initiatives on minimum taxation (Pillar II legislation). Indeed, if the full amount of IID would automatically be deducted, this could result in the effective tax rate of a group falling below 15%. In such case, top-up taxes may become due under the Pillar 2 rules and the taxpayer could lose part of the IID. 

Keeping Belgium competitive for real estate players – extension of the 6% VAT rate for demolition and reconstruction works

As from 1 January 2024, the Belgian government has decided to change the conditions to benefit from the reduced 6% VAT rate for real estate demolition and reconstruction works. These new conditions substantially reduced the scope of application of this reduced VAT rate thereby making it no longer useful for many real estate players (see our previous newsflash on this topic).

Now four months later, the Belgian government has reached an agreement to (i) include in the new regime buildings which are rented out to private individuals, and (ii) extend the existing regime of long-term rentals with a social character (social housing).

1. Long-term rental directly by the project owner

Currently, real estate players which demolish and rebuild real estate assets with the objective of renting them out cannot benefit from the reduced 6% VAT rate on the demolition and reconstruction works, unless the real estate assets are rented out within the scope of social housing policy (see below). 

The Belgian government has now agreed to re-include works in the scope of the 6% VAT rate (even outside the context of social housing), provided that the cumulative below conditions are met:

  • the habitable surface area of the real estate asset does not exceed 200 square metres;
  • the real estate asset is rented out by the project owner (maître d’ouvrage/bouwheer) itself. Hence, the reduced VAT rate can still not apply to a sale of the real estate asset;
  • the duration of the lease(s) must amount to at least 15 years. This duration should be computed by taking into account one or more rental agreements signed by the project owner. In the event of an interruption, the benefit of the reduced rate can be maintained if the project owner demonstrates that every effort has been made to continue the permanent rental of the building;
  • the tenants must be private individuals who establish their domicile in the real estate asset; and
  • certain formalities must be complied with (e.g. declarations or remarks to be included in the invoices).
2. Social housing

As explained above, demolition and reconstruction works on a real estate asset which is rented out can currently benefit from the reduced 6% VAT rate only if the real estate asset is rented out within the scope of a social housing policy. Currently, this only benefits social housing agencies and companies.

The Belgian government will now enlarge the scope of eligible social housing entities by including any recognised public or private persons with a social purpose (as recognised by the social housing authorities).

Keeping Belgium competitive for shift work – new salary tax exemption for shifts of unequal size

Currently, the law provides for a partial waiver to pay the salary withholding tax on salaries of employees working in shifts to the Belgian treasury. Shift work is being defined as work performed in at least two shifts by employees carrying out the same work in terms of content and size. On 8 February 2024 the Constitutional Court ruled that the requirement that shifts should be of the same size does not constitute unlawful discrimination. 

In order to mitigate the negative impact of this decision for businesses where the size of the shifts is not sufficiently identical, the Government now proposes a new transitional salary tax exemption regime for shifts doing the same type of work without having the same size. 

Under this new exemption, the salary tax exemption will apply proportionally in function of the shift with the smallest size. The amount of the exemption will be determined by applying four steps. 

The current exemption regime will remain in place for shifts performing the same activity both in size and content. Hereafter we solely discuss the new exemption for shifts of unequal size.

If adopted, the new regime will apply to salary income paid as of 2021 until 2026.

1. The four steps to calculate the new exemption 

The amount of the new exemption will be determined by applying the following four steps:

1. Multiply the total amount of taxable monthly salary, including the shift premiums of the employees who qualify for the exemption, by 22.8% (25% for full continuous work).

2. For each working day that shift work is performed in the relevant month, the following must be determined:

(a) The difference in size between the successive shifts compared to the shift with the smallest size; 

(b) The total size combined of the successive shifts.

3.  The delta in the size of work for the relevant month is then determined by the following fraction expressed as a percentage which will be used in step 4):

Sum of the delta in size of the successive shifts determined for each working day of that month
Sum of the total size combined of the successive shifts established for each working day of that month

4.  The amount of the withholding tax that can be exempt, is equal to (a) the amount determined in step 1 minus (b) the amount in step 1 multiplied by the percentage determined in step 3.

2. Simplified example

In January 2024, a total of EUR 300,000 in wages is paid out (including shift premiums). Assume that there are 30 days where shift work is being carried out in this month, whereby the morning shift for these 30 working days always consists of 200 employees and the evening shift of 150 employees.

Step 1:22.8% of EUR 300,000 in the case of shift work ⇒ EUR 68,400
Step 2:              

(a)  Difference in the amount of work between the successive shifts = 200 employees morning shift versus 150 employees evening shift: difference of 50 employees (every day during the month of January)

(b)  The total size combined of these successive shifts: 350 employees (every day during the month of January)

Step 3:Sum of delta for each working day (30 days): 30 * 50 / 30 * 350 = 1500 / 10,500 ⇒ delta of 14.28571%
Step 4:Exempt salary withholding tax: EUR 58,628.57 (= 68,400 – (68,400 x 14.28571%))

These amendments will be discussed in the Finance Commission of the Parliament on Wednesday 27 March. We are of course monitoring the discussions closely. The amendment should be adopted by 8 May 2024.

We are available to discuss the impact of this measure on your tax position.