As usual, the end of 2012 brought about its share of reforms in the area of taxation. Following a tense budget meeting, due to politically sensitive issues within the majority, a cornerstone was finally agreed for the tax component of the 2013 budget: capital income.
It should be noted that in 2011 and 2012, significant changes were made to Belgian tax law with the introduction of three measures clearly intended to enhance taxpayer transparency: the lifting of bank secrecy, the creation of registers for bank accounts and capital income (the so-called "central contact point"), and elimination of the final nature (full discharge) of the withholding tax on capital income. These reforms were accompanied by heavier taxation of capital income, namely an increase in the withholding tax rates (which rose from 15% to 21%, possibly increased by an additional 4% surcharge on income in excess of EUR 20,020).
The 2013 reform, introduced by the Omnibus Act of 27 December 2012, further increases the tax pressure on capital income (i.e. the basic rates have been increased from 21% to 25%). On the other hand, certain fundamentals of the Belgian tax system have been reinstated: the withholding tax on capital income once again constitutes a full discharge from tax liability for natural persons and no register will be created for capital income.
Re-establishment of the full-discharge effect of withholding tax, with retroactive effect
It should be noted that the 2012 reform introduced a surcharge of 4% on certain capital income in excess of EUR 20,020. Taxpayers could opt for the withholding at source of this amount. The conditions for the remittance of this contribution served as a pretext to abolish the final nature of the withholding tax and impose an obligation to declare capital income (incumbent on taxpayers) and provide information about such income (incumbent on the payers of the income). This data was supposed to allow the creation of a register of capital income, as mentioned above.
These measures never came into effect, however, as they were repealed by the Omnibus Act of 27 December 2012. Indeed, the new system drew countless criticism: questions were raised about its appropriateness and complexity as well as the implementation difficulties.
The previous system was thus re-instated with retroactive effect, more specifically:
- on the one hand, taxpayers need no longer declare all or some of the dividends and interest they received in 2012 (provided withholding tax and, if applicable, the 4% surcharge, were effectively applied) and ;
- on the other hand, payers of capital income are no longer subject to an information obligation.
While quite far-reaching, the retroactive effect of the repeal of the obligation to declare 2012 capital income does not appear to apply across the board. Indeed, taxpayers that received more than EUR 20,020 of certain capital income in 2012, and did not opt for withholding at source of the additional 4% tax, are still responsible for voluntarily declaring this income on their tax returns.
The 2013 reform has thus resulted in a simplification of the tax system, by reinstating the previously applicable rules and re-establishing anonymity.
Heightened tax pressure
The government has not wavered from its objective of increasing the tax pressure on savings. The tax rate on most interest payments and dividends rose, effective 1 January 2013, to 25% (compared to 21% in 2012 and 15% previously).
This reform effectively puts an end to the varying rates on certain types of capital income, notably the favorable tax rates applicable to dividends paid by SICAVs and other investment companies (which rose from 21% to 25%). The same holds true for dividends on shares benefitting from a reduced tax rate (notably, the well-known "VVPR strips") (the withholding tax rate on such shares has also been raised from 21% to 25%). Consequently, such dividends distributed as from 1 January 2013 will be subject to 25% withholding tax.
It should be noted that while the basic withholding tax rate has been realigned to 25%, the provisions of the Income Tax Code distinguishing between "normal" shares and "VVPR" shares are still in force. It is thus possible that, in the future, different rates will be reintroduced, depending on the government's budgetary needs.
It should further be noted that the current system of savings accounts remains unchanged (that is, an exemption up to EUR 1,880 for 2013) and that certain preferential rates continue to exist:
- 15% on interest paid on "Leterme" government bonds (i.e. government bonds issued on 4 December 2011 and subscribed between 24 November 2011 and 2 December 2011);
- 15% on income from the transfer or grant of copyright and related rights, as well as on statutory or required licences;
- 15% on savings income (above EUR 1,880 for 2013); and
- 10% on liquidation proceeds.
Finally, the Omnibus Act provides for a 15% withholding tax on the income of residential SICAFIs (which had previously been exempt).
Conclusion: the specificities of the Belgian system
Last year, the shift from a system providing for a final withholding tax to one of heightened transparency upset many. While greater taxation of savings income may make good economic sense, the sudden shift to a system of full disclosure was somewhat puzzling.
Indeed, the 2012 reform was enacted without any substantial public debate, even though it effectively overturned certain foundations of the Belgian tax system and thus raised very real questions as to its appropriateness.
Events over the past few months have shown the extent to which these questions are still pressing and relevant.
In view of the ongoing economic crisis, the time has come to take stock. On this point, it should be noted that Belgium compares favorably to its neighbors. In this context, it is necessary to examine our tax (and social) model which, it is reasonable to expect, should contribute to the prosperity of the nation and form part of the solution rather than exacerbate the problem.