Tax: the Belgian approach

In the current climate of economic austerity, governments are looking to raise tax revenue and while Belgium is no exception, there are some surprising tax advantages for residents. Depending on the source of revenue, taxes can be very low indeed.

Income tax

First, the bad news: Belgium has the highest rates in western Europe and residents are taxed on their worldwide income. Tax rates vary according to where you live, but your highest rate of tax could reach 57 percent and social security payments will push this figure above 70 percent.

The basic exemption for fiscal year 2012 (revenue of 2011) is €6,570 regardless of marital status, with further exemptions for dependent children and a spouse and low income earners. For 2012, marginal income tax starts at 25 percent, rises to 30 percent over €8,070, 40 percent over €11,480, 45 percent over €19,130 with a top limit of 50 percent for incomes above €35,060.

To encourage overseas recruitment in key economic areas, expats who satisfy specific conditions come under a special taxation regime and pay Belgian tax only on income connected with professional duties carried out in Belgium, which usually means much lower overall taxes. This regime is tough to qualify for, though, and the posting must be of a temporary nature.

If you work for Nato or the EU institutions, you are deemed to be tax resident in your country of origin or perhaps the country you were recruited from. Your earned income will be taxed by your institution rather than by the Belgian government and other revenues are taxable in your country of origin.

Capital gains tax and wealth taxes

To all intents and purposes, there are no taxes on capital gains or wealth, making Belgium a very attractive destination for wealthy nationals from neighbouring countries and those wishing to realise gains made on investments or sell businesses.

Investments

While it is true to say that the tax regime with regard to investments in Belgium is benign, there are some inconsistencies to be mindful of. Capital withdrawals can be tax-free, while investment income is taxable – so, paradoxically, individuals seeking income yields should avoid income-producing investments. Directly held shares in American companies are liable for tax on dividend income both in Belgium and the US. This is something to be alert to if you are likely to receive stock options from your employer.

Inheritance taxes

This is a thorny issue in major respects. Expats arriving from common law jurisdictions need to know that civil law applies in Belgium. This means that your estate on death in Belgium is for the most part settled according to the Napoleonic code, rather than in accordance with any instructions you may have made in your will.

Many notable jurisdictions – including the UK – do not have a double taxation agreement with Belgium in respect of inheritance taxes, so you may find your estate is potentially liable to tax both in your home country and in Belgium.

Local taxes

Municipal taxes vary; 6 percent is typical although the commune of Schaerbeek in Brussels levies at a rate of 6.8 percent and Antwerp residents pay 7.5 percent.

VAT

Most goods and services are taxed at 21 percent with a lower rate of 6 percent applying to necessities such as food and transport.