Chapter 20 Personal Income Tax - Tax Credits⁹¹

Tax credits can be granted by the Regions. Just like in the case of tax reductions, tax credits must explicitly relate to the Regions’ material competences. A tax credit goes beyond a tax reduction. A tax reduction can mean that no more taxes have to be paid. A tax credit, on the other hand, can go below 0 and is refundable even if the benefit exceeds the tax to which the benefit can be applied. Tax credits have no impact on the additional municipal tax.

20.1 Tax credit for dependent children

Many families with children cannot or do not fully enjoy the tax benefits for dependent children. The increase in the tax-free amount often offers them no advantage because the income is lower than the tax-free amount itself. The part of the additional allowances for dependent children that cannot be deducted from the tax on the joint taxable income is converted into a refundable tax credit with a maximum of €470 per dependent child (disabled children count double). Tax credit for dependent children = the unsettled part of the tax-free sum × the rate of the corresponding income bracket. The tax credit is fully settled with the personal income tax so that any balance is (re)paid. The tax-free allowances for dependent children, and therefore also the tax credit for those children, remain a federal competence. Since assessment year 2013, the tax credit for married couples has been calculated at the corresponding rate that applies to the partner with the highest income and no longer the rate that applies to the partner with the lowest income. The purpose of this measure is not to discriminate against married couples compared to single people. Since tax year 2013, international civil servants can no longer use this tax credit. They often enjoy a generous income but are exempt from tax in Belgium because of their status. Because in practice they did not have to pay taxes, they therefore also enjoyed this tax credit. This tax credit has now been explicitly excluded for this category in the Income Tax Code (, 2021).

20.2 Tax credit on low income from professional activities

The tax credit is calculated on the basis of the net amount of the activity income, i.e. the earned amount, after deduction of actual or lump-sum professional expenses, of professional income which is not a replacement income or a separately taxed income. Income from an independent secondary activity is also not taken into account. Wage income is also excluded, except for statutory civil servants (because the work bonus is enjoyed with wage income). Remunerations received by the co-working spouse without own social status is considered as income from a self-employed professional activity and is therefore included in the calculation of the tax credit. The calculation of the assessment basis takes place before application of the marital quotient and the quota allocated to the co-working spouse. Taxpayers who are taxed according to the taxable minimum levels cannot benefit from the tax credit. The base is calculated per spouse and the tax credit is granted per spouse. Tax credit is computed according to the level of income and upper (L2) and lower (L1) limits within which it falls:

Income (I) braket L1	Income (I) braket L2	Tax credit amount (€)
0	5320	0
5320	7100	720 x (I-L1)/(L2-L1)
7100	17760	720
17760	23080	720 x (L2-I)/(L2-L1)
23080	and more	0

This amount is only allocated with a ratio of activity income/net professional income, and depends on the size of the net professional income. The amount of €700 should be replaced with the amounts of €330 and €790 respectively in case of co-working spouse and statutory civil servant (, 2019).

20.3 Tax credit for low-wage workers

This tax credit is granted to employees with a low income, who benefit from the social work bonus. The social work bonus is a system that grants a reduction in employee social security contributions to low-wage workers. In this way they are left with a higher net wage, without having to increase the gross wage. The taxable work bonus is calculated as a percentage of the social work bonus actually received. This percentage has been 33.14% since 1 January 2019 (instead of the previous 28.03%). The maximum amount of the tax reduction is €820 (, 2021).

20.4 Tax credit for increase in own assets

Taxpayers who declare profits and gains can enjoy a tax credit if they have increased the equity capital of their company. This concerns gross concepts, so even if costs are greater than profit, the tax credit can be received. The “own resources” are measured by making the difference between the taxable value of the operating assets and the amount of the liabilities that are needed to carry out the professional activities.

The tax credit is equal to 10% of the difference between – the value of the “own resources” at the end of the taxable period, – and the highest value they have reached at the end of any of the three previous taxable periods. The granting of this tax credit is subject to the condition that the taxpayer encloses with his/her tax return a certificate showing that he/she made all payments of his/her social security contributions as a self-employed person (, 2019).

20.5 Modelling Assumptions

20.6 Module input

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20.7 Module output