Developments in the Member States

Part III

BELGIUM 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008

A. Structure of revenues % of GDP Ranking 1 € bn B

Indirect taxes
VAT
13.7
7.2
13.2
6.9
13.2
6.9
13.3
6.8
13.4
6.9
13.5
7.1
13.7
7.1
13.3
7.1
13.1
7.0
14
21
45.2
24.1
e
Excise duties and consumption taxes 2.4 2.3 2.3 2.4 2.4 2.4 2.2 2.2 2.1 25 7.1 l
Other taxes on products (incl. import duties)
Other taxes on production
2.2
1.9
2.2
1.9
2.1
1.8
2.2
1.9
2.2
1.9
2.3
1.8
2.4
1.9
2.4
1.6
2.3
1.8
6
8
7.8
6.1
g
Direct taxes 17.5 17.7 17.5 17.1 17.4 17.5 17.2 17.0 17.2 5 59.4
i
Personal income 13.2 13.5 13.3 13.0 12.9 12.9 12.3 12.2 12.6 4 43.5 u
Corporate income 3.2 3.1 3.0 2.9 3.1 3.2 3.6 3.5 3.3 11 11.5
Other 1.1 1.1 1.2 1.2 1.4 1.4 1.3 1.3 1.3 5 4.4
m
Social contributions 13.9 14.1 14.3 14.2 13.9 13.6 13.5 13.6 13.9 7 48.0
Employers´ 8.3 8.5 8.6 8.6 8.4 8.2 8.2 8.2 8.4 8 29.0
Employees´ 4.3 4.5 4.5 4.4 4.3 4.2 4.1 4.2 4.2 8 14.6
Self- and non-employed 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.3 10 4.5
Less: amounts assessed but unlikely to be collected 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

TOTAL 45.0 45.0 45.1 44.6 44.7 44.7 44.3 43.9 44.3 3 152.6
Cyclically adjusted total tax to GDP ratio 44.1 44.7 45.1 45.2 44.7 44.6 43.7 42.4 43.0

B. Structure by level of government % of total taxation

Central government 36.8 34.9 34.8 33.6 32.8 32.1 31.6 30.3 29.6 27 45.2
State government2) 22.9 24.3 23.1 24.1 23.6 24.1 24.1 24.4 24.7 1 37.7
Local government 4.3 4.6 4.9 5.2 5.0 5.0 5.1 5.3 4.6 18 7.0
Social security funds 34.3 34.6 35.8 35.8 37.4 37.6 38.0 38.7 39.9 3 60.8
EU institutions 1.7 1.6 1.3 1.4 1.2 1.2 1.3 1.3 1.3 4 1.9
C. Structure by economic function % of GDP
Consumption 11.3 10.9 10.9 10.9 11.0 11.1 11.2 10.9 10.7 20 36.7
Labour 24.2 24.7 24.8 24.6 24.0 23.8 23.0 23.0 23.6 4 81.3
Employed 22.2 22.6 22.7 22.4 22.2 21.9 21.3 21.3 21.8 3 75.2
Paid by employers 8.3 8.5 8.6 8.6 8.4 8.2 8.2 8.2 8.4 10 29.0
Paid by employees 13.9 14.2 14.1 13.8 13.8 13.7 13.1 13.0 13.4 2 46.2
Non-employed 2.0 2.1 2.1 2.1 1.8 1.8 1.7 1.7 1.8 9 6.1
Capital 9.5 9.4 9.3 9.2 9.7 9.9 10.1 10.0 10.0 6 34.6
Capital and business income 6.2 6.1 5.9 5.7 5.9 6.2 6.4 6.3 6.3 8 21.8
Income of corporations 3.2 3.1 3.0 2.9 3.1 3.3 3.5 3.5 3.3 13 11.5
Income of households 0.5 0.6 0.5 0.5 0.5 0.6 0.6 0.6 0.6 16 2.1
Income of self-employed (incl. SSC) 2.4 2.4 2.4 2.3 2.3 2.3 2.3 2.2 2.4 5 8.2
Stocks of capital / wealth 3.4 3.3 3.4 3.5 3.8 3.7 3.8 3.7 3.7 3 12.8
D. Environmental taxes % of GDP
Environmental taxes 2.3 2.3 2.2 2.3 2.4 2.3 2.2 2.1 2.0 23 6.8
Energy 1.4 1.4 1.4 1.4 1.5 1.5 1.4 1.3 1.2 26 4.3
Of which transport fuel taxes 1.4 1.3 1.3 1.3 1.3 1.3 1.2 1.2 1.1 24
Transport (excl. fuel) 0.6 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 12 2.0
Pollution/resources 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 7 0.5
E. Implicit tax rates %
Consumption 21.8 20.9 21.4 21.4 22.1 22.3 22.5 22.1 21.2 11
Labour employed 43.6 43.3 43.3 43.1 43.8 43.6 42.5 42.4 42.6 2
Capital 29.6 29.5 30.7 31.6 32.7 32.8 33.1 31.8 32.7
Capital and business income 19.1 19.2 19.5 19.5 20.0 20.6 20.8 20.1 20.6
Corporations 24.4 24.2 23.2 22.3 22.0 22.0 22.7 20.9 21.4
Households 12.9 13.0 13.8 14.2 14.9 15.6 15.2 15.3 15.7
Real GDP growth (annual rate) 3.7 0.8 1.4 0.8 3.2 1.8 2.8 2.9 1.0
See Annex B for explanatory notes. For classification of taxes please visit: [Link]
1) The ranking is calculated in descending order. A "1" indicates this is the highest value in the EU-27. No ranking is given if more than 10 % of data points are missing.
2) This level refers to the Länder in AT and DE, the gewesten en gemeenschappen / régions et communautés in BE and comunidades autónomas in ES.
n.a. not applicable, : not available
Source: Commission Services

Taxation trends in the European Union 1

Part III Developments in the Member States

BELGIUM
B
e Overall trends in taxation
l Structure and development of tax revenues
g
i The structure of the Belgian tax system, in terms of the share of revenue raised by the different taxes, has remained
u relatively stable since 2000, in spite of a far-reaching tax reform of direct taxation over the last years. The structure is
characterised by a relatively high share of direct taxes (38.9 %, EU-27 32.4 %), reflecting a broad reliance on corporate
m
and personal income taxes. By contrast, with 29.6 %, the share of indirect taxes is the lowest in the EU (EU-27 37.6 %).
Following the 2002 corporate tax reform and a favourable business cycle, the share of corporate tax revenue had
significantly increased. A reduction in the tax base of corporations thanks to the ACE system (see below) seems to have
reversed this trend. The tax reform was complemented by successive targeted reductions in employers' social security
contributions.

Belgium is a federal State with a large fiscal autonomy for the regions. This translates into varying specific tax legislations
across regions, e.g. registration duties, inheritance and estate taxes.

Belgium belongs to the group of EU countries with the highest tax levels, alongside the Nordic countries and Austria.
Slightly increasing by 0.4 percentage points, the 2008 total tax ratio was, at 44.3 %, the third highest in the EU after
Denmark and Sweden (EU-27 37.0 %). This difference is equally reflected when the cyclically-adjusted indicator is taken
into account (43.0 % compared to 35.0 %).

Taxation of consumption, labour and capital; environmental taxation

The implicit tax rate on consumption further declined in 2008. At 21.2 %, it was slightly below the EU average for the
second time in a row since 2000 (EU-27 21.5 %). As a percentage of GDP, VAT and excise duties collection are amongst
the lowest in the EU-27 at respectively 7.0 % and 2.1 % (EU-27 7.8 % and 3.0 %).

Despite noticeable labour taxation reforms, Belgium still imposes relatively heavy taxes on labour with an implicit tax
rate of 42.6 %, the second highest in the EU. Targeted rebates in employers' social contributions were used as the main
instrument to reduce labour costs( 1 ). The 2000–2006 reform programme paved the way for easing the tax burden on
labour and led to a decrease in the ITR by 1.3 percentage points between 2004 and 2006( 2 ). The ITR on labour has been
relatively stable since 2006.

The ITR on capital somewhat increased from 29.6 % in 2000 to 32.7 % in the year 2008. By and large, the 2008 ITR on
capital and business income of households is comparable to its 2005 level, while the ITR on corporations has slightly
decreased compared to 2006. On the household side, the gradual increase since 2000 might be explained in part by the
boom in the real estate market that has resulted in an increase of registration duties. In 2008, taxes on stocks of
capital/wealth amounted to 3.7 % of GDP. This level is stable since 2004 and is the third highest value in the EU.

Revenues from environmental taxation have declined in percentage of GDP since 2004. In 2008 environmental tax
revenue amounted to 2.0 % of GDP, below the EU-27 average (2.6 %). The low revenues from energy taxation explain
this difference (1.2 % compared to EU-27 1.8 %).

(1) However, some of theses rebates are considered as wages subsidies according to the Belgian National Accounts and are consequently not deducted from the tax
revenue.
(2) When accounting with the amount of rebates that are considered as wage subsidy in the national accounts, an additional drop should be taken into account.

2 Taxation trends in the European Union

 Developments in the Member States
Part III

Current topics and prospects; policy orientation

Since 1999, tax policy has been oriented at maintaining a (non-legally binding) tax moratorium, introducing a multi-
B
annual tax reform (2000–2006). Up to 2008 achieving budgetary equilibrium and a further reduction of public debt e
remained a priority for the government in order to prepare the public finances for the budgetary impact of an ageing l
population. In spite of a steady decline between 1999 and 2007, the debt to GDP ratio remains well above the EU average g
and has been rising again since 2008 due to the economic slowdown. i
In response to the economic downturn, several measures were announced at the end of 2008 and formally approved in
u
early 2009. The ‘recovery plan’ includes a VAT rate reduction (from 21 % to 6 %) on the construction of private (up to m
€ 50 000) and social dwellings as well as a VAT rate reduction (from 21 % to 12 %) on food served in restaurants and
catering services. Moreover, an acceleration of VAT restitutions and a temporary prolonged payment delay for the wage
withholding tax was approved. The measures target energy saving (tax deductions and interest bonuses), tax reductions
for overtime, cuts in wage withholding taxes for scientific researchers and a decrease in the general wage withholding tax.
The general reduction in wage withholding taxes increases from 0.25 % to 0.75 % from 1 June 2009 and to 1 % as from 1
January 2010, whereas the reduction for scientific personnel increased to 75 % (from 1 January 2009), and the reduction
for night and shift workers increased from 10.7 % to 15.6 % (from 1 June 2009). In addition, the number of overtime
hours which qualify for reduced wage withholding tax was also increased from 65 hours to 100 hours in 2009 and to 130
hours in 2010.

Several additional measures aimed at providing incentives for individuals and companies to favour cars with low
emission levels. For individuals, a credit (directly on the invoice) of 15 % of the purchase price (with a maximum of
€ 4 270) is granted for cars emitting less than 105g CO2/km. The credit is reduced to 3 % (with a maximum of € 800) for
cars emitting between 105 and 115 g CO2/km. For companies, zero-emission cars used for business purposes became
deductible at 120 %, while the deduction of fuel costs for cars used for business and private purposes has been reduced
from 100 % to 75 % (50 % for high-emission cars used for business purposes).

Finally, while several anti-abuse measures have been introduced, the cap on the rate of the notional interest deduction
was temporally lowered from 6.5 % to 3.8 % in 2010 and 2011. So the actual Allowance for Corporate Equity rate drops
from 4.473 % in 2009 to 3.8 % (4.3 % for SME) in 2010 and 2011.

Main features of the tax system

Personal income tax

There are four categories of income: financial, real estate, professional (including labour income) and other various
income. In principle, the general rates are applied to each category, but there are exceptions, e.g. in relation to financial
income, income from private pension arrangements and other various income.

In practice, the basis for taxation at the marginal rate consists of (deemed) property and professional income. Spouses are
taxed separately, although a marital quotient exists: 30 % of the higher income is transferred to the lower one, provided it
does not exceed € 8 880. A major reform was implemented in 2000–2006, introducing changes in brackets, rates,
deductions and exemptions as well as a tax credit for lower incomes. There are currently 5 brackets (beside the basic
allowance) between 25 and 50 % and a municipal surcharge varying between 0 and 9.5 %. Within certain limits, regions
have the option to levy additional surcharges or to grant tax reductions.

Dividends (25 % or 15 %) and interest (15 %) are taxed at a final withholding tax; however taxpayers can opt to include
those in their annual income with a tax credit for the withholding tax paid. Taxation of private capital gains is almost
non-existent (except for those on some capitalisation vehicles), interest on ordinary saving accounts is exempt up to
€ 1 730 and pension savings enjoy a special regime resulting in negative effective rates, as in other EU countries.

Taxation trends in the European Union 3

Part III Developments in the Member States

Corporate taxation

B Companies in Belgium and the subsidiaries of foreign companies are subject to a fixed tax rate of 33.99 % (3 % crisis
e surcharge included) regardless of the origin and the destination of the profits. There is no tax consolidation of
l companies. Under certain conditions, a special scheme applies to SMEs having an assessed income lower than € 322 500:
g a tax rate of 24.98 % is applied on the part from € 0 to € 25 000, 31.93 % on the part of € 25 000 to € 90 000 and 35.54 %
i on the remaining part up to € 322 500 (all including the 3 % crisis surcharge).

u An allowance for corporate equity (ACE), referred to as 'notional interest on corporate capital', was introduced in 2006 to
m stimulate the self-financing capability of companies. The tax-free presumptive rate of return on equity applied under the
ACE system is based on the rate of 10-year government bonds (OLO 10) with a cap set by law. In 2009, the rate
amounted to 4.473 % (4.973 % for SMEs) and dropped to 3.8 % (4.3 % for SMEs) in 2010 and 2011. In 2003 a tax-free
reserve for new investments financed by retained earnings was introduced for SMEs benefiting from reduced rates.

VAT and excise duties

There are four VAT rates. The standard rate has remained unchanged at 21 % since 1996. A reduced 6 % rate applies to
public housing, refurbishment of old housing, food, water, pharmaceuticals, animals, art and publications and some
labour intensive services; the 2009 ‘recovery plan’ also includes the above-mentioned temporary reduction of the VAT
rate to 6 % for a maximum amount of € 50 000 on invoices of newly constructed private dwellings. An intermediate rate
of 12 % applies to a limited number of transactions and, since this year, to food in restaurants and catering services. A
zero rate applies to newspapers and certain weeklies. Excise duties in a strict sense yield relatively low revenue in
Belgium, but this is supplemented by above average levels of other taxes on products.

Wealth and transaction taxes

There are no wealth taxes. Transaction taxes are generally levied at the regional level.

Social contributions

The social security system is financed by contributions from employees and employers as well as by government
subsidies. The amounts are calculated based on the gross salary (including bonuses, benefits in kind, etc). The standard
rate is approximately 13 % for employees and 35 % for employers but there are rebates for low wage earners and some
target groups.

4 Taxation trends in the European Union