Taxable Income

What part of my income is taxable?

Taxable income in Belgium is divided into four categories: earned income, property income, income from movable assets and miscellaneous income.

Taxable Income

Each category is strictly defined, both in terms of how the income is to be calculated and in terms of the expenses and other deductions that are allowed against gross income to arrive at net income. Married couples (including registered couples or cohabiting couples who qualify to file jointly) must determine their incomes separately for each category, applying allocation rules to any joint income.

Earned income

Includes salaries and wages as well as profits from self-employment or any business enterprise. You don’t need to declare most forms of employer reimbursement for expenses, e.g. travel costs for business trips, but you must include the value of any benefits-in-kind, such as housing allowances, personal use of a company car or other perks, unless you qualify as a temporary resident under the special programme for executives and expert researchers. The earned income category also includes profits and proceeds from former professional activities and ‘replacement income’, i.e. all redundancy or severance benefit payments, employer pensions and most forms of sick pay, all of which you must declare for tax purposes.

The Belgians have recently started taxing stock options, and these must also be included on your income tax declaration in the year they’re granted (although you aren’t taxed on any gains you make when exercising them.). A few forms of ‘social transfer’ are tax exempt, primarily child benefit payments, maternity allowances and certain disability allowances paid through the Belgian social insurance system.

Earned income can be reduced by certain expenses, including most (but not all) social security contributions. Professional expenses not reimbursed by your employer are deductible against all categories of earned income, including an allowance for commuting to and from work (based on the number of kilometres travelled from your registered residence), certain insurance premiums, and most expenses related to a business or professional practice.

Each category of allowable expenses is subject to a range of thresholds, limitations and burdens of proof. If this is too complicated, you can simply take a flat-rate deduction for professional expenses, based on the total income declared in this category.

Property income

This is either actual rental income or ‘cadastral income’ assigned by the local property register (cadastre/kadaster). Cadastral income is a hypothetical rent based on the property description and valuation listed in the property register. Property is revalued every 15 years, and an annual index is applied to the last official valuation in order to arrive at the current hypothetical rental income from the property. In practice it is much lower than the real rental income or market rental income.

If you own your own home and are currently living in it, you must declare property income at a rate of 100 per cent of your home’s indexed cadastral valuation, which should be notified to you by the local property authority. Income from other types of property is declared either as the actual net rent received (if the property is used for professional reasons, not private) or as 140 per cent of the property’s cadastral value. Therefore, if you own a second home which you don’t rent (e.g. a holiday home), you must declare property income at 140 per cent of its cadastral value.

In the case of your own home, you’re allowed to deduct from your mortgage pay back (capital + interest) from your income. For the year 2006, this lump sum deduction was 1 960 € + 620 € (during the first 10 years) + 60 € (if at least 3 children at charge) for you and your partner. You may not deduct anything from the property income for a second home. Any property you use in a trade or business generating professional income is reported on a business tax return, rather than as property income on your personal tax declaration.

Income from movable assets

This refers primarily to dividends and interest income from various types of savings account and investment. Most Belgian securities are subject to withholding, and payments received from them in the form of interest or dividends don’t usually need to be declared as taxable income. You must, however, declare all income earned abroad, including foreign income subject to double taxation treaty provisions (for which you may be entitled to a tax credit or tax deduction at a later stage), income from ordinary savings accounts and investments not subject to withholding, annuities and rental income (other than property rental). Savings account interest is subject to an exemption for the first 1 600 € per person and there are a few other exemptions, which change from year to year, based on various investment incentive programmes established by the government. Interesting to know is that capital gains on movable assets are typically not taxable in Belgium. And capital gains on property are not taxable in you keep the property at least 5 years (building) or 8 years (land). Don’t hesitate to contact your bank for more information.

Miscellaneous income

This is comprised of all income not earned by performing a professional activity. This category includes 80 per cent of maintenance payments received (most types of alimony, child support and other court ordered maintenance payments), prizes and subsidies (including scholarships and royalties), capital gains subject to taxation and even gambling and lottery winnings (you cannot even have a flutter in Belgium without the tax man breathing down your neck!)

Each category is strictly defined, both in terms of how the income is to be calculated and in terms of the expenses and other deductions that are allowed against gross income to arrive at net income. Married couples (including registered couples or cohabiting couples who qualify to file jointly) must determine their incomes separately for each category, applying allocation rules to any joint income.

Earned income

Includes salaries and wages as well as profits from self-employment or any business enterprise. You don’t need to declare most forms of employer reimbursement for expenses, e.g. travel costs for business trips, but you must include the value of any benefits-in-kind, such as housing allowances, personal use of a company car or other perks, unless you qualify as a temporary resident under the special programme for executives and expert researchers. The earned income category also includes profits and proceeds from former professional activities and ‘replacement income’, i.e. all redundancy or severance benefit payments, employer pensions and most forms of sick pay, all of which you must declare for tax purposes.

The Belgians have recently started taxing stock options, and these must also be included on your income tax declaration in the year they’re granted (although you aren’t taxed on any gains you make when exercising them.). A few forms of ‘social transfer’ are tax exempt, primarily child benefit payments, maternity allowances and certain disability allowances paid through the Belgian social insurance system.

Earned income can be reduced by certain expenses, including most (but not all) social security contributions. Professional expenses not reimbursed by your employer are deductible against all categories of earned income, including an allowance for commuting to and from work (based on the number of kilometres travelled from your registered residence), certain insurance premiums, and most expenses related to a business or professional practice.

Each category of allowable expenses is subject to a range of thresholds, limitations and burdens of proof. If this is too complicated, you can simply take a flat-rate deduction for professional expenses, based on the total income declared in this category.

Property income

This is either actual rental income or ‘cadastral income’ assigned by the local property register (cadastre/kadaster). Cadastral income is a hypothetical rent based on the property description and valuation listed in the property register. Property is revalued every 15 years, and an annual index is applied to the last official valuation in order to arrive at the current hypothetical rental income from the property. In practice it is much lower than the real rental income or market rental income.

If you own your own home and are currently living in it, you must declare property income at a rate of 100 per cent of your home’s indexed cadastral valuation, which should be notified to you by the local property authority. Income from other types of property is declared either as the actual net rent received (if the property is used for professional reasons, not private) or as 140 per cent of the property’s cadastral value. Therefore, if you own a second home which you don’t rent (e.g. a holiday home), you must declare property income at 140 per cent of its cadastral value.

In the case of your own home, you’re allowed to deduct from your mortgage pay back (capital + interest) from your income. For the year 2006, this lump sum deduction was 1 960 € + 620 € (during the first 10 years) + 60 € (if at least 3 children at charge) for you and your partner. You may not deduct anything from the property income for a second home. Any property you use in a trade or business generating professional income is reported on a business tax return, rather than as property income on your personal tax declaration.

Income from movable assets

This refers primarily to dividends and interest income from various types of savings account and investment. Most Belgian securities are subject to withholding, and payments received from them in the form of interest or dividends don’t usually need to be declared as taxable income. You must, however, declare all income earned abroad, including foreign income subject to double taxation treaty provisions (for which you may be entitled to a tax credit or tax deduction at a later stage), income from ordinary savings accounts and investments not subject to withholding, annuities and rental income (other than property rental). Savings account interest is subject to an exemption for the first 1 600 € per person and there are a few other exemptions, which change from year to year, based on various investment incentive programmes established by the government. Interesting to know is that capital gains on movable assets are typically not taxable in Belgium. And capital gains on property are not taxable in you keep the property at least 5 years (building) or 8 years (land). Don’t hesitate to contact your bank for more information.

Miscellaneous income

This is comprised of all income not earned by performing a professional activity. This category includes 80 per cent of maintenance payments received (most types of alimony, child support and other court ordered maintenance payments), prizes and subsidies (including scholarships and royalties), capital gains subject to taxation and even gambling and lottery winnings (you cannot even have a flutter in Belgium without the tax man breathing down your neck!)

Do you want to pay less tax? Do the Free tax check from ING.

This article is an extract from Living and Working in Holland, Belgium & Luxembourg from Survival Books.

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