Chapter 18 Personal Income Tax - Tax Calculation67
18.1 Tax rate scale
Personal income tax has progressive tax rate structure meaning that the tax rate increases as income increases. The basic tax is determined by application of the following progressive rates for year 2020:
| Income bracket | Marginal tax rate |
|---|---|
| 0 – 13,440.00 | 0.25 |
| 13,440.01 – 23,720.00 | 0.40 |
| 23,720.01 – 41,060.00 | 0.45 |
| 41,060.01 and more | 0.50 |
Some income is not taxed at these progressive rates and is taxed at separate rates (e.g. certain capitals of supplementary pensions).
Everyone who is subject to personal income tax is entitled to a ‘tax-free sum’. This means that part of the taxable income below some threshold is exempt from tax. After the gross tax has first been calculated on the net taxable income, a first (lowest taxed) bracket of the net taxable income is then exempt from tax, i.e. the tax-free sum.
18.2 Calculating the tax-free amount
A first bracket, which varies with the composition of the family and personal situation, is exempt from tax. This bracket initially includes the exempt income that the taxpayer and his spouse each receive. Those amounts are then increased by the income that is exempt on account of family encumbrances and certain special family situations.
If the exempt bracket of one of the spouses is greater than the income to which it is credited against, the remainder of that exempt bracket whenever possible is transferred to the other spouse to be credited against his/her income. This exemption is applied at the base (, 2019).
Since tax year 2020, every taxpayer, regardless of the level of income, is entitled to the same tax-free amount. For year 2020 this is €8,990. This tax-free sum can then increase depending on the personal situation. The basic exemption is increased by €1,610 if the taxpayer is disabled. This is also the case if the taxpayer’s spouse is disabled.
As from tax year 2017, the way in which the tax-exempt portion of income is taxed has changed. The tax is now calculated on the basis of the tax rate scale relating to the ‘baseline’ situation (i.e. based on the income brackets and tax rates used to calculate the PIT for tax year 2016), while maintaining indexation, see table 18.2 below.
| Taxable income | Marginal tax rate |
|---|---|
| 0 – 9,310.00 | 0.25 |
| 9,310.00 – 13,250.00 | 0.30 |
| 13,250.00 – 22,080.00 | 0.40 |
| 22,080.00 – 40,480.00 | 0.45 |
| 40,480.00 and more | 0.50 |
The tax-free amount also increases due to dependents. The following persons may be regarded as dependents: children, relatives in the ascending and collateral line up to and including the second degree, but also persons the taxpayer depended on exclusively or principally during his/ her childhood. Individual must meet the following conditions in order to be considered dependent:
- he/she should be a family member of taxpayer on 1 January of the tax year ;
- he/she does not have personal means of subsistence, or they do not exceed a net amount of €3,330 during the taxable period68;
- he/she should not be in receipt of any renumeration which was a business expense for the parents69.
18.2.1 Maximum net amount of the means of subsistence
All income regardless of its designation should be taken into account when determining the net amount of the means of subsistence. However, the following categories are not included:
- family allowances, maternity allowances, legal adoption premiums, premiums for premarital saving, scholarships;
- allowances paid to disabled persons by the Treasury;
- remunerations received by disabled employed at a recognized adapted work company;
- arrears of alimony payments or additional alimony payments;
- alimony payments regularly made in compliance with an obligation under the Civil Code or Judicial Code, survivor’s pensions granted to orphans in the public sector and orphan’s pensions up to €3,330 per year received by children;
- pensions, up to €26,840 per year, received by relatives in the ascending and collateral line up to the second degree aged 65 or older;
- remunerations received by working students, students alternating work and training and self-employed students of up to €2,780 per year.
When determining the net amount of the means of subsistence, their gross amount should be reduced by the expenses of taxpayer proven to be related to their acquisition or maintenance. If there is no convincing proof, the deductible expenses are fixed at 20% of the gross amount of the means of subsistence, with a minimum of €460 in case of remunerations of employees or proceeds from an independent profession. Finally, when parents have the legal usufruct of their children’s income and their income is aggregated as a result with the income from immovable property and movable assets accruing to their children, the children in question will be considered as dependent, regardless of the amount of their income (, 2019).
The basic tax-free amount of €8,990 is increased according to the number of dependents, see the table 18.3 below.
| Number of dependent children | Increase of the tax-free income |
|---|---|
| 1 | 1610 |
| 2 | 4150 |
| 3 | 9290 |
| 4 | 15030 |
| exemption per child above the fourth | 5740 |
In addition, these amounts are increased by €600 for each child under 3 years of age for whom no tax reduction for childcare costs have been declared. Disabled children count as two dependent children (the exemption according to the rank of disabled child plus the exemption according to the child next in rank). The exemptions for dependent children are allocated to the spouse with the highest income. In the case of co-parenting after de facto separation or divorce, the increase in tax-free income can be divided between both parents upon the registered agreement on joint custody approved by a judge. When income is insufficient to offset tax-exempt quotas due, the latter result in refundable tax credit. Here the double tax exemption for disabled children and the additional exemption for children under three are taken into account. The refundable tax credit is calculated according to the marginal tax rate applicable to the spouse with the highest taxable income and is limited to €460 per dependent child (, 2019). Besides the dependent children, there are other exemptions that are listed in the following table 18.4:
| Other situations giving right to exemptions | Increase of the tax-free income |
|---|---|
| Dependent relative in the ascending and collateral line | 1610 |
| single parent with one or more dependent children | 1610 |
| disabled dependent person (except children) | 1610 |
| single person whose spouse did not have a net income of more | 1610 |
| than €3,330 in the year of marriage | |
| dependent (grand)parent, brother or sister older than 65 years | 3220 |
| other dependent person | 1610 |
Since tax year 2018, a single parent with a low income and with a dependent child or children70, on top of the already existing additional tax-free income for a single parent (€1,610), is entitled to an ‘extra’ additional tax-free amount of a maximum of €1,050 (tax year 2020). There must be a net taxable professional income of at least €3,330 (tax year 2020) to be eligible for this ‘extra’ additional tax-free income (, 2021). In order to be able to enjoy the full sum, the taxable income in this tax year may not exceed €15,630. If the income is higher, the ‘extra’ additional tax-free sum is progressively reduced according to the regressivity rule for a taxable income between €15,630 and €19,810, using the following formula: 19,810 – taxable income / 19,810 - 15,630. If the tax-exempt quota cannot be offset in full, it results in a refundable tax credit that can be offset in the same way as the advantage resulting from the increased tax reduction for child-care expenses which cannot be offset (, 2019).
18.3 Tax reductions for replacement income
Replacement income such as:
- old-age, retirement and survivor’s pensions,
- unemployment benefits,
- sickness and invalidity insurance (SII) benefits (ZIV benefits in Dutch),
- system of unemployment with company allowance (formerly called ‘bridging pensions’) (SWT in Dutch),
and other benefits that compensate for complete or partial income loss from professional activity, is subject to a tax reduction. However, no professional costs are deducted.
Starting from year 2015, the rules of tax computation changed and the tax reduction for replacement income currently comes after the calculation of the tax-exempt income, but before other federal and regional tax reductions. The unemployed and SWT employees may deduct the trade union contributions paid from the amount to be declared in unemployment benefits. In year 2019 further amendments to the law were made and the calculation of tax reductions for replacement income was changed. These changes apply from tax year 2020. The following reductions are made from the tax relating to pensions and replacement income:
- if the net income consists exclusively of pensions or other replacement income: a basic reduction of €1,802.44 and an additional reduction of €370.83;
- if the net income consists partially of pensions or other replacement income: the reduction is equal to a part of the amounts referred to above in clause 1 multiplied by the fraction (net amount of pensions and other replacement income)/(net income), where from the net income excluded:
- the wages obtained from the new employer, or the income obtained from a new self-employed professional activity in the case of obtaining a supplementary allowance;
- the active income in the case of the acquisition by a taxpayer who has reached the statutory retirement age of a statutory pension not exceeding €15,940 or in the case of the acquisition of a survivor’s pension or a transition allowance;
- a part of the active income, in the case of the acquisition by a taxpayer who has reached the statutory retirement age a statutory pension that exceeds €15,940, but not more than €23,380.
- if the net income consists exclusively of unemployment benefits: €1,802.44 euros;
- if the net income consists partially of unemployment benefits: the reduction is equal to a part of the amount mentioned above in clause 3 multiplied by the fraction (net amount of the unemployment benefits)/(net income);
- if the net income consists exclusively of statutory sickness and invalidity benefits: €2,418.60;
- if the net income consists partly of statutory sickness and invalidity benefits: the reduction is equal to a part of the amount stated above in clause 5 multiplied by the fraction (net amount of the statutory sickness and invalidity benefits)/(net income).
Active income means the professional income less:
- pensions, annuities and allowances applicable as such;
- the compensation obtained for the full or partial recovery of a temporary loss of income.
The part of the active income that is excluded from the net income is the active income multiplied by the fraction (23,380 – statutory pension)/(23,380 – 15,940).
If, for a particular fiscal year, the tax on pensions and other replacement income has not been reduced to zero after application of this section for a taxpayer with a taxable income equal up to €15,940 and consisting exclusively of pensions and other replacement income, the amount of the additional reduction (aanvullende vermindering) will be increased to the amount necessary to reduce the tax to zero. This increased amount only applies for the relevant fiscal year.
The additional reductions for pensions and other replacement income are not granted if the taxable income is €23,380 or more. When the taxable income is comprised between €15,940 and €23,380, these reductions are multiplied by a fraction (23,380 – taxable income)/(23,380 – 15,940).
If the taxable income is €46,750 or more, the reductions for all types of replacement income are only granted up to one third. When the taxable income is between €23,380 and €46,750, this limit of one third increased by a part of the remaining two thirds is determined by the ratio between, on the one hand, the difference between €46,750 and the taxable income and, on the other hand, the difference between €46,750 and €23,380 (, 2020).
18.3.1 Additional reduction
An additional reduction (bijkomende vermindering) is granted when the total net income consists solely of:
- unemployment benefits;
- unemployment benefits on the one hand and pensions, statutory sickness and invalidity benefits or other replacement income on the other.
The additional reduction is equal to the tax remaining after application of rules listed above and when the total net income consists exclusively of:
- unemployment benefits and the amount of these benefits does not exceed the maximum amount of the statutory unemployment benefit that can be granted during the first twelve months of full unemployment;
- unemployment benefits on the one hand and pensions, statutory sickness and invalidity benefits or other replacement income on the other, and the total amount of these incomes does not exceed €15,940.
When a joint assessment is established, the total net incomes of the two spouses are added together for the purposes of calculation of additional reduction.
In other cases, and when the total net income consists exclusively of unemployment benefits, the additional reduction is equal to the positive difference between the amount of the tax that remains after the calculations in the previous sections, and the difference between those unemployment benefits and the maximum amount of the statutory unemployment benefit that can be granted during the first twelve months of full unemployment.
When a joint assessment is established, both the total net income and the amount of the residual tax of the two spouses are added together for the calculation of additional income.
The additional reduction thus calculated shall be distributed in proportion to the amount of each spouse’s tax remaining after the application of reductions for replacement income (, 2020).
18.3.2 Tax reduction for foreign income
Foreign income is in principle taxable in the country of its origin, i.e. the country where the activity is carried out and where the debtor of the income resides. To avoid the double taxation, there are international agreements that allow this income to be exempted from tax calculation in the country of residence. However, Belgium applies the tax progression clause: the foreign income is exempt in itself, but does ensure that the income taxable in Belgium is taxed more heavily in a way that income from abroad is taken into account in the determination of the tax rate.
At this stage of the calculation, a reduction is granted for the part of the tax that is calculated on foreign income from countries with which Belgium has a double taxation agreement. When the country where foreign income originates from does not have such agreement with Belgium, the part of the tax on the following income categories is halved:
- income from immovable property located abroad;
- professional income earned and taxed abroad, with the exception of income from movable property and capital that the taxpayer uses for the performance of his professional activity in establishments that he has in Belgium; in case of the renumeration of company managers this provision applies only if income from their activity that they perform for the benefit of establishments located abroad is allocated to the results of those establishments;
- miscellaneous income mentioned below:
- profit or income earned and taxed abroad;
- prizes, subsidies, annuities or pensions provided by foreign public authorities or public institutions;
- maintenance allowances payable by non-residents.
When a joint assessment is established, the reduction is calculated per taxpayer on his total net income (, 2020; , 2020).
18.4 State tax
The sixth state reform has thoroughly changed the tax calculation and this for several tax years. Before the sixth state reform, the regions received an annual grant from the federal government. Since tax year 2015, this addition has been converted into a regional personal income tax. The regions levy surcharges on personal income tax.
“Principal sum” is the balance that remains after taking into account the tax-free amounts and offsetting the tax credits for replacement income and the tax credit for foreign income. The next step is the calculation of the “State Tax”. To obtain the State Tax, the “principal sum” is added to the tax due on the separately taxed income, and then from this the tax on the “income from movable income box” is subtracted.
The State tax is then divided between the Federal State and the regions based on the “autonomy factor” (24.957%). The autonomy factor determines the share of personal income tax allocated to the regions. The share allocated to the Federal State (74.043%) is called “reduced State Tax”.
The regions levy surcharges on this reduced State Tax and are expressed as its share in percent. The Special Financing Act set the percentage of the surcharges at 35.117% (up to and including tax year 2017). Since assessment year 2018, this is 33.257% for Flanders and Wallonia and 32.591% for Brussels.
This rate of the surcharges can be modified by the regions, which can also introduce differentiated surcharges per tax bracket, provided that the principle of progressiveness is preserved.
The Special Financing Act makes an exception for most movable income. The load on it is not reduced by the autonomy factor of 24.957%. The regions cannot levy surcharges on the tax on such movable income, such as dividends, interest, etc. This tax therefore remains federal (via the withholding tax) (, 2019; , 2021).
18.8 References
[1] Belastinggids 2021. ACLVB Liberale Vakbond, 2021.
[2] Circulaire 2020/C/8. Federal Public Service Finance, 2020. URL: [https://eservices.minfin.fgov.be/myminfin-web/pages/fisconet/document/0438de90-dbd1-44eb-acd7-c8a032925da2
[3] De geïndexeerde bedragen aanslagjaar 2020. 2020. URL: https://www.practicali.be/blog/geindexeerde-bedragen-aj-2020#index13.
[4] Handboek Begroting. 2020. URL: [https://vormingbegroting.fenb.be/opcentiemen/#:~:text=De
[5] Tax Survey, nr. 31. Federal Public Service Finance, 2019. URL: http://finances.belgium.be.
[6] WIB 92 §155. Income Tax Code, 2020. URL: [https://eservices.minfin.fgov.be/myminfin-web/pages/fisconet/document/aca3ce21-ec0e-4ad1-8ca0-52612ad10cdd/artikel
[7] WIB 92 §156. Income Tax Code, 2020. URL: [https://eservices.minfin.fgov.be/myminfin-web/pages/fisconet/document/6c769d11-26b5-4329-a3de-1a0bb0271174/artikel
This chapter, including the tables, mainly refers to the Tax Survey, nr. 31, 2019, from the Federal Public Service Finance (http://financien.belgium.be).↩︎
A child deceased during the taxable period is considered to be a famly member on 1 January of the current tax year in case it was already a dependent child in the previous taxable period or was born and deceased during the current taxable period. A missing child in the current taxable period is still deemed to be a dependent child.↩︎
This amount is increased to €4,810 for the single persons’ dependent children and to €6,110 for single persons’ disabled dependent children.↩︎
These are the single parents with at least one dependent child, or to whom part of the tax advantage has been granted because housing of the child(ren) has been ‘equally shared’.↩︎