Announced income tax reform

Belgium’s competitiveness at stake in income tax reform

An De Reymaeker, Tax Lawyer-Partner, Vandendijk & Partners

The personal income tax reform announced by the Belgian Government is an opportunity to reduce the country’s high cost of labor – and thereby attract investment and talent.

Belgium’s extremely high labor cost remains a huge obstacle not only for attracting foreign investment, and the extra jobs that go with that, but also for keeping the right talent in the country, especially following the COVID-19 crisis. Reducing the cost of labor should therefore be a key objective for the economic recovery.

Among OECD countries, Belgium can lay claim to the highest tax wedge: for an average worker, 51.5% of labor costs are taken by the State in the form of tax and social security contributions.

In Belgium, unlike neighboring countries such as The Netherlands and Luxembourg, employer social security contributions are uncapped – that is, they increase without limit in proportion to the salary, placing Belgian companies at a significant cost disadvantage.

What’s more, individual tax rates in Belgium are high. A 50% rate (plus municipal tax) applies as from a taxable income of €41,360 in 2021.

If Belgium wants to remain attractive for key global talent and stay competitive with other countries, labor costs need to be reduced.

We agree that Belgium’s individual tax system is too complex and that we need a fair and simple system based on legal certainty. However, this also needs to be seen in the context of international competition, so we need to take into account the very high labor cost in Belgium.

AmCham Belgium would already like to underline our concern about the eventual abolishing of certain exceptional regimes for cash, which could lead to higher labor costs for employers.

If specific benefits-in-kind, which are actually calculated on a lump sum basis (which is the case, for example, for stock options on the basis of the Law of March 26, 1999, for electricity bills paid by the employer or the benefit-in-kind for cars), would be abolished and became taxable on the real value, this would lead to a direct tax increase – which we suppose cannot be the purpose of the tax reform!

The report of the High Council of Finance of July 2021 with regard to the announced tax reform stated in its introduction that: “The fiscal and parafiscal burden on labor is way too high in our country. The additional budgetary revenue resulting from certain tax measures (the elimination of some exceptional regimes) should primarily be used to reduce the burden on labor.”

Finance Minister Vincent Van Peteghem announced last weekend a reduction of labor costs for employees. While this is a welcome initiative, the abolition of the special social security contribution (= maximum €731.28 per year in 2021) will not be enough to make salaries more attractive in Belgium in comparison to some neighboring countries.

We also need to revise the progressivity of the individual tax rates. Belgium is the only country which taxes professional income at 50% as of a taxable income of €41,360 – the highest rate at the lowest starting point when compared to neighboring countries. (The Netherlands: 49.50% as of €68,508; France: 45% as of €158,123; Luxemburg: 42% as of €200,004; and Germany: 45% as of €274,613).

In order to create an attractive investment climate, Belgium needs to reduce the high cost of labor. The proposed personal income tax reform should take this into account. AmCham Belgium’s Employee Tax Subcommittee is following this debate closely and will draft a position paper.

About the author

An De Reymaeker, Tax Lawyer-Partner, Vandendijk & Partners

An is specialized in personal taxation in an international context. She has been Chair of AmCham Belgium's Employee Tax Subcommittee since December 2017, and she is also a Vice-Chair of AmCham Belgium’s Legal & Taxation Committee.