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Agreement on 2015-2016 budget and tax shift
Prime Minister Michel likes twitter. In the early hours of July 23, he sent out a tweet “Agreement”. His Government had reached an agreement on the budget for 2015 and 2016 and on a “tax shift” of €7.2 billion.

The government had to find an additional € 978 million to balance the budget for this year and to reduce the deficit to 2.5 percent as promised to Europe. An additional € 800 million will be needed for 2016, and the government has the intention to get the budget in balance by 2018.

PM Michel wanted to find an agreement before the Belgian National Day, but that was a bit too ambitious ; he had to ask his ministers to postpone their holidays until the agreement was found on a tax shift and a correction of the budget of €782 million. 

Tax shift

The buzz phrase in Belgian politics for the last months has been “tax shift”. The tax burden is to be shifted away from a tax on labor, the question was how, how much and what new taxes.  The government has expressed its concern to make Belgian enterprises more competitive and to increase individuals' purchasing power. By 2018, it should have shifted about € 7.2 billion euros to other taxes. How does it plan to do that?

In the first place, the government will bring the labour cost down to the level of the neighbouring countries. The employer's contributions on wages will gradually decrease from 33 to 25 percent in 2020, to the tune of about €2 billion.  As of next year, the social security contributions for the first three employees of an SME or a self employed employer will be reduced even further.

Furthermore, the cost of night work and shift-work will be reduced in the form of an exemption of wage withholding tax. That means that the employer withholds the normal tax on the workers' salary but only pays part of that tax to the treasury.

Moreover, the government will also introduce a one off investment deduction of 13.5 percent for SMEs who invest in tangible or intangible fixed assets; these are production tools, services and technologies that are aimed at raising their productivity in the long term. For micro enterprises the investment deduction would be 20.5%. At the same time, SMEs would be allowed to opt for accelerated depreciation for their investments in tangible fixed assets.

To increase the purchasing power of employees, the tax brackets will be adapted as of 2006 to guarantee an additional after tax income of € 100 per month for low and middle wage earners (the threshold will probably be around €2,400).  The Minister of Finance suggested the abolition of the 30 percent tax bracket.  However, since the income tax rates are not exclusively a matter of the federal government anymore, this will have to be coordinated with the regional authorities

However, that will only benefit the earners of wages and not those people who are dependent on retirement pensions or unemployment benefit.

Another measure to favour workers with low wages is to increase the so-called “employment bonus” ; that is a reduction of the worker's personal social security contributions. This reduction applies to workers with low wages and enables them to benefit from higher net wages.

New taxes

Where will the money for the tax shift of €7.2 billion come from? The following is a (provisional) overview.

The most visible measure is that the withholding tax on dividends and interest will go up from 25 to 27 percent, presumably from 1 January 2017, but the exemption for savings accounts and some reduced withholding tax rates will be maintained.

A rather symbolic speculation tax will be introduced, in the form of a capital gains tax for people who buy and sell shares of listed companies within six months. However, capital losses on such shares would be set off against the capital gains, and capital losses that were not set off would be carried forward for three tax years. The tax rate will presumably be 25 percent (27 in 2017) in line with the tax rate on dividends and interest. That is expected to raise only €28 million. Together with the transparency tax on overseas legal arrangements that has been adopted on 24 July, this speculation tax is a careful step in the direction of a wealth tax which the Christian democrat party CD&V had been pushing for.

The government did not want to touch the VAT rates, except for electricity for residential use.  A tax measure introduced by the previous government reducing the VAT on electricity for families from 21 to 6 per cent will be abandoned as of 1 September 2015. This was justified by news in the past days that there had been an "improper use" of that reduction that benefitted professional users and that has cost the treasury some € 505 million.

The excise duty on diesel fuel, tobacco and alcohol will go up and an excise duty will be introduced for unhealthy foods such as soft drinks and breezers.

These measures will now be implemented over the coming months to enter into force at the latest in 2016. However, it is anticipated that there will be new tax measures in 2017 and 2018 to pay for the tax shift.

Real property companies

Belgian real estate companies (“sicafis immobilières” / “vastgoedbevaks”) are the Belgian equivalent of real estate investment trusts (REITs). These companies are  listed on the stock exchange and supervised to the  Financial Services and Markets Authority (FSMA) and subject to specific regulations.  They have a largely tax exempt regime.

The government wants to allow private real estate companies for the use of institutional and professional investors ; they are now using foreign (read Luxembourg vehicles). These private REITS would have a similar legal framework and a similar tax regime. The government secretly hopes to collect a capital gains tax of 16.995 percent on the conversion of non regulated real estate companies in tax exempt private REITS.

And another tax amnesty ?

One of the remarkable measures announced is that there will be a new possibility to regularise undeclared capital and income in the form of a permanent regularisation procedure. Under the previous government, it had been announced that the permanent regularisation procedure  would end in 2013 and that it would not be possible to regularise income anymore.  The current government is coming back on that and hopes to raise 250 million euros per year starting in 2017.  The timing coincides with the new rules on international exchange of data on bank accounts.

11 August 2015
Marc Quaghebeur
Partner De Broeck Van Laere & Partner

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