Last updated on 3 de April de 2023
Belgium is a prosperous country between France, the Netherlands and Luxembourg, and the heart of the European Union. We analyze the most important taxes in Belgium in an easy-to-understand manner.
Content
- Introduction
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- VAT
- Real Estate Transfer Tax
- Belgium Public Finances
Introduction
With more than 11 million people and one of the youngest demographics in Western Europe, Belgium is an interesting country for expats. Especially Brussels, the de facto capital of the European Union and one of the most international cities on the continent
Located between France, the Netherlands and Luxembourg, across the channel from the UK, and very close to Germany, Belgium is very well connected geographically.
Its economy is prosperous, with a GDP per capita very similar to that of Germany or Sweden, and higher than France. And it enjoys a good quality of life.
For those who are considering moving to Belgium, understand how its tax system works is crucial. You will learn how much tax workers, investors, companies and consumers pay.
Taxes on Earned Income
Let us kick off our analysis by looking at how labor income is taxed:
Social Security
As in most Western countries, labor income in Belgium is subject to social security contributions. Both the worker and the employer must make social security payments.
Thus, workers in Belgium have to pay 13.07% of their gross salary to the Belgian social security. It should be noted that this amount is calculated on the entire gross salary, regardless of how high it is.
For their part, employers pay an average of 27% of the worker’s gross salary in social security contributions. This amount is not capped either.
Therefore, the combined rate for social security is 40.07%. Up until 2015 the combined rate was 47.7%.
Income Tax
In addition to having to contribute to the social security, workers in Belgium must also pay income taxes.
To know how much income tax an individual has to pay, the first thing is to calculate the tax base.
The tax base results from taking the gross salary, subtracting the worker’s social security contributions, the universal deduction and the standard deduction.
The universal deduction is €9,050per year. And the standard deduction is 30% of the gross salary, up to €4,880.
For example, for a worker with a gross salary of €80,000, the tax base would be reduced by €10,400 of social security payments, €9,050 of universal deduction and €4,880 of standard deduction. Therefore, taxes would be calculated on a tax base of of €55,650.
There are two types of income taxes in Belgium: federal and local.
Federal taxes are paid to the central government and are the same for everyone, regardless of where they live. They follow a progressive structure with 4 brackets:
- Up to €15,200: 0%
- From €15,200 to €26,830: 40%
- From €26,830 to €46,440: 45%
- More than €46,440: 50%
We then have to add local income taxes, which are set by the municipality where we live. The local income tax rate ranges between 0% and 9%, although the national average is 7%. In fact, non-resident taxpayers are also taxed at a rate of 7%.
The local income tax is calculated on the entire gross salary, without applying any deductions.
Total Tax Burden on Earned Income
We will now compare the employer’s total cost, which include social security contributions, with the employee’s net salary. This will allow us to see the total tax burden on labor income.
The table below summarizes, for employees with different salary levels, the total cost of employment to the company and the corresponding net salary. We can then derive the total level of taxation for labor income.
As we can see, taxation is very high. The lowest incomes face an effective burden of approximately 35%. Average incomes over 50-60%. And effective taxation for very high incomes is close to 70%.
If you want to calculate what net salary you would have left in Belgium based on your gross salary, you can take a look at this link.
Capital Income Taxes
In this section we analyze how income from savings and investments is treated in Belgium.
Interest
Interest is treated differently depending on whether it comes from a bank account or an investment in a fixed-income instrument.
Thus, the interest we receive directly from a bank deposit is tax-exempt up to €980 per year. Anything in excess of that figure will be taxed at 15%.
Regarding the interest we receive from instruments such as bonds, the applicable tax rate will be 30%.
Dividends
Dividends received from equity investments will be taxed at a flat rate of 30%. Although the first €800 are exempt.
Real Estate Income
Real estate income is also subject to taxation. However, the calculation here is somewhat unconventional, since it is not based on the actual gross rental income.
To calculate the tax base from real estate investments, which will be used to calculate taxes, the cadastral value of the property is taken and multiplied by a percentage set by the regional government, between 2 and 2.5%.
From this figure expenses associated with the ownership of the property are subtracted to arrive at the tax base, on which income taxes will be calculated using the same progressive rates that apply to earned income.
Capital Gains
Capital gains in Belgium are exempt from tax, as long as the authorities consider that they are the result of the normal management of our assets and have not been obtained for speculative purposes.
Different rules apply to different types of assets, like stocks or real estate, and for how long we have owned those assets before selling them.
Corporate Tax
The general corporate tax rate in Belgium is 25%. This rate is more or less in line with what we can find in other major European countries.
Thiss rate has been valid since 2020, when it was reduced from the previous rate of 29%. And up until 2016, the rate was 34%, one of the highest in the world at the time.
Small businesses are taxed a bit less, being able to pay 20% on the first €100,000 in profits.
VAT
The consumption of goods and services is subject to VAT, for which there are 4 different rates:
The general VAT rate in Belgium is 21% and used for all products and services not subject to any of the reduced rates.
The first reduced rate is 12% and applies to some foods and certain construction activities.
The second reduced rate, at 6%, applies to many food products, restaurants and bars, hotels, new construction housing, pharmaceutical products, public transport, sporting and cultural events, as well as bicycle and shoe repair services.
Finally, the 0% rate applies to daily newspapers and international air and sea transport.
Real Estate Transfer Tax
If we want to buy an apartment or a house in Belgium, we will have to pay taxes.
If we buy a new home, as we have just seen in the previous section, the applicable VAT rate will be 6% of the value of the purchase.
If we buy a second-hand property in Belgium, we will have to pay a registration fee. In most of the country, the fee will be equivalent to 12.5% of the highest of either the value of the transaction or the market value of the property according to the Belgian treasury.
Conditions are slightly better in the Flanders region. The rate for the registration fee is 6% if we are buying our main home, to 10% if we are buying a vacation home or investment property.
Belgium Public Finances
We will proceed to analyze the state of public finances in Belgium to assess how sustainable the current tax and spending patterns are.
In this sense, Belgium is a country with a very high level of public debt. While the Southern European countries tend to be the most indebted in the European Union, France and Belgium come right behind.
Belgium has had a public debt problem for a very long time. In fact, the issue started as far back as the 1970s.
This is because, faced with the economic recessions caused by the oil crises of 1973 and 1979, and the loss of competitiveness of many of its industrial sectors, the Belgian government opted for expanding public employment.
Simultaneously, it decided to spend a huge amount of money on subsidies to keep businesses alive in sectors such as coal, steel or shipbuilding. Public spending ballooned as a result.
Such decisions, taken at a time when tax revenues were depressed, made public debt skyrocket. And public finances never recovered:
As we can see, public debt was already very high in the 1990s. It was reduced in order to meet the criteria required to join the Euro zone, but not enough.
Debt went up rapidly following the 2008 financial crisis, in line with what was experienced in many other European economies. As a result, Belgium will at some point be forced to either increase taxes or cut public spending.
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