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Tax shift reduces employer cost in Belgium

Deloitte European Salary Survey – 7th edition

Belgian employers see social security contributions decrease for lowest wages thanks to the tax shift. However, Belgium remains one of the most expensive countries for medium and higher salary levels.

Net income of the Belgian employee remains low. However, thanks to the cost of living and housing in Belgium which remain cheaper compared with other European countries, Belgian employee benefits from a reasonable net disposable income

Diegem, 3th December 2016 - Deloitte today announces the results of its seventh European Salary Survey. This large-scale survey compares wage cost, net income and net disposable income in 19 European countries. According to the survey, Belgian employers benefit from the tax shift initiated in 2015 and see their employment cost decreasing. The fact that there is no limit to the employer social security contributions will however always make of Belgium one of the most expensive countries. 

Belgian employers see social security contributions decreasing, especially for the lowest wages, as a result of the tax shift

The seventh edition of the survey demonstrates that Belgium is becoming more competitive compared to other European countries. Social security contributions will indeed gradually decrease towards a base rate of 25% by 2019. Even lower rates will apply for the lowest wages. This year Belgium takes the 4th position of most expensive countries across all salary levels (instead of 2nd position in 2015) as a result of the tax shift.  For lower salary levels, Belgium even ranks in 7th position (i.e. in the middle of the ranking) of most expensive countries.

Belgians have a low net income

Belgian employees have a lower net income than the other European employees. Belgium actually often languishes at the bottom of the European rankings when it comes to net income. This is due to a high marginal tax rate (53.5%), which starts at a very low income level (38,080.01 EUR), while other countries generally apply a high marginal tax rate from a higher level of income only. In Sweden, for example, employees only start paying the top tax rate as of an income level of EUR 65,947.  A marginal tax rate above 50% is however not exceptional amongst the countries surveyed.  This is indeed the case in the Netherlands, Sweden, Portugal and Denmark.  The gap between Belgium and the rest of Europe is therefore gradually closing in terms of a high marginal tax rate.

The tax shift had to allow employees with a low income to retain more of their gross income. This is indeed the case in the 2016 survey, but we see that the ranking of Belgium is only improved with one position for a low income level (around 25,000 EUR gross), which remains limited. For pay levels of 50,000 EUR gross or above, the impact of the tax shift is extremely limited. Austrian employees also benefit from a reduction of the tax rate for lower income thanks to their tax shift.

In other countries surveyed, we notice that British and Greek employees see their net income substantially decreasing, the first one because of the drop of the exchange rate of the British Pound further to the Brexit, and the second one as a result of the increased taxes.

Substantial tax benefits for a non-working partner in Belgium

In Belgium, a married taxpayer with a partner who does not earn income is less taxed than a single taxpayer thanks to the marital quotient. In comparison with other European countries, Belgium provides the biggest benefit when considering lower incomes. For higher salary levels, we are still among the frontrunners in Europe, although Switzerland, Luxembourg and France are even more advantageous. Most of the countries surveyed also provide a tax benefit for employees with dependent children. Belgium ranks relatively good in this respect. In Sweden, no distinction is made based on the taxpayer’s personal situation.  The impact in Greece is also extremely limited. Since last year, the Netherlands has also decided to stop allocating benefits according to the personal family situation.

Cost of housing and cost of living is stable in Europe, with the exception of the United Kingdom

The Deloitte salary survey calculates net income and then makes an adjustment by taking into consideration the cost of housing, the cost of living and family allowances in order to determine the net disposable income. When considering net disposable income, Belgian employees are generally worse off than its Luxembourg and German neighbours. Belgium does slightly better however than France and the Netherlands. The cost of living and housing generally remains stable in Europe.  However, in comparison with last year, we see that the United Kingdom became substantially less expensive compared to 2015, as a result of the Brexit.  The cost of housing and living remains the highest in Geneva, followed by London.  Warsaw is the cheapest, followed by Prague and Bratislava.

The cost of living and housing in Brussels is still lower than in the capital city area of most of our neighbouring countries (i.e. Luxembourg, London and Paris).

Belgian savings tax system above the European average

The European Salary Survey also looks at how taxpayers are taxed further once their net income is on their bank account.
With regard to taxation of passive income (interest, dividends), Belgium is now above the European average with its new rate of 27% applicable as from 1st January 2016, even increased to 30% as from January 1st, 2017. The same goes for Austria that increased its rate from 25% to 27.5%. “In comparison with the other European countries, which remain remarkably stable over the years, it should be noted that the Belgian tax and social security system has been subject to numerous changes, year after year”, says Patrick Derthoo, Tax Partner at Deloitte Belgium. “This is not going to change in the coming years, considering the next steps of the tax shift”.

All European countries, with the exception of Switzerland, also tax capital gains, at either a fixed or progressive rate. As a result of the tax shift, Belgium now joins the other European countries that impose an effective tax on capital gains, even though this levy is restricted to short-term profits (realised within six months of acquisition) and will be abolished as from January 1st, 2017. Finally, a wealth tax remains the exception in Europe. Switzerland, France and Spain are the only countries that levy a tax on wealth when assets exceed a certain threshold.

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