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Taxing times – Part 4: Decoding the codes
Now let’s look at the tax return itself.
By default, you receive the tax return with a document préparatoire for Part 1; that covers most standard income. There is also a Part 2, that is for people who have other income, such as company directors, partners in a partnership, freelancers or self-employed professionals. If you need Part 2, you may have to contact your tax office to receive it but you can also download it here. However, the codes must still be completed on the one tax return.
The document préparatoire guide is basically the old tax return form that has been used for decades and is updated every year. It groups all sorts of income and deductions to make it easier. If you need assistance, there is also a booklet explaining what sort of income is declared where and what the conditions are for a tax deduction (there is also a booklet for Part 2). Then it is just a question of copying codes and numbers.
Looking at the tax return
When you look at your tax return, you will see that it is split up in boxes depending on the topic.
In box I you declare your telephone number and bank account if you expect a reimbursement. Box II is for your personal information, your marital status and the dependents you want to claim.
In box III, you declare the income from any real properties you may own. If you only own the house you live in, you don’t need to declare anything, but if you have a second residence or if you own a rental property, you need to declare the cadastral revenue. That will be multiplied by 1.4 and corrected for inflation. If you own it together with your spouse, you declare half in your column and half in the column of your spouse or partner (codes 1016 and 2105, where the first number goes in the first and second number in the second column). As you will see, I just mention the short codes because the last two figures are just a validation number.
If you own property abroad, you need to declare that as well (normally in codes 1130 and 2130). If you receive rent, you need to declare the rent, but if you don’t (e.g. because it is a second residence), you need to declare the rental value, that is the rent you would normally receive from a tenant. You cannot take any deductions, but the tax authorities will deduct 40% automatically. The rent or the rental value are only taxable in the country where the property is situation, but it will push up the tax rate on your other income.
Box IV will be of importance to most of us. It relates to your salary (code 1250) and the tax withheld by your employer (code 1286). If you have received any specific form of salary, e.g. an indemnity in lieu of notice, or stock options, these will be reported on your pay slip with the relevant code on the tax return. If you have been working outside Belgium and if that income is taxable in the other country, you must declare that income in your tax return, but you must mention that at the end of box IV under letter O. It is advisable to add a note to your tax return to explain why the income is taxable in the country where you worked.
Box V is for pensions. The pension will go in codes 1228 or 2228 and the tax that has been deducted goes in codes 1225 or 2225. If there are special forms of pension, the pay slip issued by a Belgian organisation will clarify the code. If you are living in Belgium and receive a pension that will normally be taxable in Belgium. However, in certain situations, the double tax treaty signed between Belgium and the country from where the pension is paid may state that the pension is taxable in the other country and that Belgium must exempt it. If so, you must mention that at the end of box V under letter C.
In Belgium, if you pay maintenance, you can deduct 80%, but if you receive maintenance, you must declare it in box VI and you will be taxed on 80% of the maintenance.
Box VII is for the income of your investments, i.e. dividends and interest. These are normally taxed by way of a deduction at source; the (Belgian) bank deducts 25% when it pays the dividend or interest. However, if you receive dividends or interest on a bank account outside Belgium, you must report the income, which will usually be under code 1444 or 2444. If you received interest on a savings account within the European Economic Area, you do not have to declare that unless the interest is over €1,880 per partner or per spouse. If it is higher, then you put the difference in code 1151 or 2151; it will be taxed at 15%.
In box IX you mostly report interest and mortgage payments to buy your main residence (letter B) or another property (letter C). As you will see, the codes relating to your main residence start with a 3 or a 4. That is because the legislation is not federal but regional, and varies depending to whether you live in Flanders, Wallonia or the Brussels Capital region.
Box X is for all sorts of payments or expenses that you have made and for which you can claim a tax reduction. That goes from donations to charities (1394), child care (1384), pension saving (1361/1362), “titres services” (3364/4364) and investments to make your house energy efficient or more secure.
If you have paid your tax in advance, e.g. because you do not have an employer who deducts the tax from your salary, you report that under 1570 or 2570 in Box XII.
Box XIII relates to the 35% withheld on the interest you have received in countries like Luxembourg or Switzerland where you were able to keep your accounts anonymously. These countries did not report the interest to Belgium but deducted 35% and paid three quarters to Belgium on an anonymous basis. However, it is a common misunderstanding that you paid this 35% tax that you do not have to report the interest anymore. You still have to declare the interest under code 1444 or 2444, pay 25% and you can recover the 35% under codes 1555 or 2555.
Finally, in box XIV you are asked to confirm that you have bank accounts outside Belgium; that links in with the obligation to report these to the National Bank. You also report whether you have overseas life insurance (which is usually not taxable). Moreover you have to confirm if you have set up a legal arrangement (a “construction juridique”) or that you are the beneficiary of such a legal arrangement. That is any structure like a trust, a foundation, a foreign company in which you accumulate income tax free. If you have, you should look out for the Cayman tax that the government is planning to introduce from this year.
When you are finished, all that is left to do is transfer the information to the pink tax return and file that. You do not need to file the guide with your notes.
Marc Quaghebeur is a lawyer and partner at De Broeck, Van Laere & Partners
More information at www.taxation.be