Belgium: Proposal for first phase of tax reform

The Minister of Finance released a proposal for the first phase of the proposed large tax reform.  If adopted, the proposed measures will generally apply as from 1 January 2024. The second phase is to be decided by the next government after the general election in 2024.

• The tax-exempt amount will be increased in steps from €10.160 to €13.500
• The threshold for the highest income tax bracket of 50% will be increased in steps from €46.440 to €60.000
• The tax treatment of certain benefits in kind will be aligned with their social security treatment
• The tax regime for stock option plans will be limited to shares of the employer or its related company
• A special regime is proposed for the granting of stock of the employer or a related company to employees
• In the context of carried interest and management incentive schemes, any excessive / disproportionate returns for management will be taxed as professional income at a flat rate of 35%
• The tax implications of marital status and family circumstances will be revised in order to enhance the neutrality and fairness of the tax system
• The income tax return will be simplified as a result of removing and phasing out various tax benefits

• For all eligible companies there will be a budgetary effect that will occur through excluding the wage withholding taxes applicable on double vacation pay, year-end premium and outstanding remuneration from the calculation basis
• For universities, community colleges, university hospitals, funds for scientific research and recognized scientific research institutions, a minimum threshold of time spent on research and development (R&D) by the employee will be included to qualify for the incentive
• Companies performing R&D activities will continue to be obliged to notify their research projects and/or programs beforehand but will now also have to include the “goal” of the project or program
• Companies having at least 50 researchers with a specific degree (or at least five researchers representing at least 10% of the workforce) engaged in a recognized research center, will be able to fully qualify for the exemption provided that the researchers spend at least 80% of their time on R&D
• Amended definitions of fundamental research, industrial research and experimental development
• The incentive for “young innovative companies” will be substantially changed taking into account state aid limitations
• For foreign degrees, at least one of the Belgian communities will have to confirm equality to a Belgian degree in order to qualify for the incentive

• The dividends received deduction (DRD) will become a participation exemption
• For the purposes of the innovation income deduction, the definition of a qualifying patent is specified to limit its scope to patents with a novelty character
• The investment deduction allowance will be transformed into a system of three rates (basic investment deduction of 10%, thematic investment deduction of 30%, and technology deduction of 13.5%)
• The scope of the R&D tax credit will be extended, and the credit will be renamed as investment tax credit
• The 80% rule applicable to second pillar pensions will be replaced by a 12/32 rule

• Introduction of a 0% VAT rate for basic products such as vegetables and fruit, medicines, diapers and other hygiene products, as well as public transport
• Adjustment of the tariff structure in the sense that the existing reduced VAT rates of 6% and 12% will be harmonized into a new reduced VAT rate of 9%.
• VAT rate on coal would be increased from 12% to 21%
• Temporary reduced VAT rate for demolition and reconstruction would become permanent, although the new reduced VAT rate of 9% would apply instead of the existing 6% VAT rate
• Further reduction of the VAT gap and on administrative simplification through digital and automated solutions such as e-invoicing and e-reporting

• The reduced excise duties for fossil fuels will be phased out and the various exemptions for the specific use of fossil fuels (e.g., kerosene, heavy fuel oil, gas oil coal, coke and lignite) will be reformed
• The excise duties on tobacco as well as on new and alternative tobacco products will be further increased

Read a March 2023 report prepared by the KPMG member firm in Belgium