INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are taxed separately on their earned income but their other items of income are aggregated and included in the taxable income of the spouse with the higher income.

INCOME TAX

Income is taxed at progressive rates. Taxable income is the total of the net result for each of the following four categories of income:

• Income from immovable property
• Income from movable property (including dividends interest and royalties)
• earned income (including business income, professional income, employment income, and pension income)
• miscellaneous income

The net result of each category is gross income less the expenses incurred in acquiring or preserving the income and is computed according to each category's own rules. Certain deductions may be allowable from this total net income before applying the progressive tax rates.

The personal income tax rates for assessment year 2010, applicable to tax year 2009, income are:

Allowances

Residents, both singles and married, are each entitled to tax-free allowances. For married couples, any balance that is not used up by one spouse can be transferred and applied to the income of the other spouse. Child allowance is augmented by a progressive scale (handicapped children count as two children). Allowances are also given for other dependent relatives who form part of the household.

Each taxpayer can claim a basic allowance of €6,690. Single parents or disabled individuals can claim a basic allowance of €8,060.

Residents can claim additional allowances for dependants. Qualifying dependants are descendants, ascendants, foster children, and relatives. For a single parent, the deduction is €5,180 for every disabled child.

The taxpayer may claim €1,370 for dependants other than children. For parents and relatives in the second degree who are 65 years old or older, the taxpayer may claim an allowance of €2,730.

Other allowances available to residents are housing allowance [usually fixed arbitrarily as the positive difference between 200/60 of the indexed registered cadastral income of house-owners and 12% of foreign base salary]; and cost-of-living allowance [fixed arbitrarily at 5% of foreign base salary up to a ceiling of €2,500].

RENTAL INCOME
Taxable income is based on the ‘cadastral income’, which is the property’s deemed income. This is an annual indexed value determined by the tax authorities, but in practice the 1975 index is used, so that cadastral income values tend to be lower than actual rental incomes.  

The cadastral value is increased by 40%, minus deductible expenses (which includes depreciation, repairs, maintenance, renovations, interest payments, as well as real estate and inheritance tax payments). The expenses relating to immovable property are computed on a flat basis depending on whether the property is built upon or not (which result in a deduction of 40% or 10%, respectively).

Depreciation for rented property is computed through the straight-line (property value – scrap value/estimated life) method. The annual depreciation rate of real estate is around 3% of the property’s investment value based on the original acquisition cost.

CAPITAL GAINS TAX

For developed immovable property sold within five years of acquisition, a 16.5% capital gains tax is levied. After a holding period of five years, no capital gains tax is payable.  

Capital gains tax is levied at 16.5% for undeveloped immovable property sold after five years of acquisition but within eight years of acquisition.

Capital gains tax is levied at 33% for speculative transactions and for undeveloped property sold within five years of acquisition.

However, if the property is sold within 2 years, the seller can claim back around 44% of the taxes and fees paid. All expenses incurred related to the property value are deductible, subject to proper documentation.

PROPERTY TAX

Real Estate Tax (Onroerende Voorheffing/ Pre compte Immobilier)

A levy known as "immovable withholding tax" is imposed on the deemed income from immovable property located in Belgium. Although called "withholding tax", this tax is levied by assessment. Tax on immovable property is levied on the cadastral value of the property at rates ranging from 1.25% to 2.5% depending on the location.

For the Flemish region, the rate is 2.5%, while it is 1.25% for the Walloon and the Brussels regions. Municipal surcharges increase the effective rate to between 18% and 50% or more, depending on the municipality where the property is located.

Municipal Tax

The municipalities may levy surcharges on the national income tax. Regional governments are also entitled to levy surcharges on income tax. The rates vary from 0% to 8.5%, and the average rate is 7% to 7.5%.