For many years, Belgium applies high personal income tax and social security rates. In order to increase the competitiveness of the economy and to shift the charges from employment income to other items, the government has initiated an ambitious plan to reduce social security contributions for employees.
There is a general reduction of employer contributions and specific reductions are applied for the first employees, who are recruited in Belgium (law of 26 December 2015).
1. General reduction of employer contributions
It is the intention to gradually reduce the level of employer contributions to 25%. This is a significant decrease when considering the old base rate of 32,4%. This decrease starts in April 2016 (from 32,4% to 30%) and will end in 2018 (final decrease to 25%).
Although the base principle is easy, one must bear in mind that employer social security is not calculated with one fixed rate, but that it is composed of various elements that differ, based on the activity sector of the employer and the type of employee (white collar worker versus blue collar worker). The actual rate decrease is also linked to the income level of the employee with more benefit for low salaries as compared to high salaries.
When looking at the rate that will apply from April 2016 onwards, the 30% rate is composed of two elements:
From 2018 onwards, the base rate drops to 19,88% and the salary moderation rate to 5,12%.
For employers with regular commercial activities (profit driven organizations), the existing general deductions of social security contributions will be adjusted and will be simplified:
As mentioned above, the reductions of social security are not spread equally across all employment scenarios, but are mainly aimed at those employees with the lowest salaries in order to stimulate the entry of those employees into the labour market.
For employers in non-profit activities, the general reduction of social security will not apply. There are, however, already specific reductions of social security for such organizations.
2. First employees – special reductions
From 1 January 2016 onwards, the reduction of social security for the first employees in Belgium is increased and more employees qualify for such reduction.
Small employers will benefit from a long term exemption from social security for the hiring of a first employee between 1 January 2016 and 31 December 2020. There are also reductions for the second up to the sixth employee.
For one employee there is a full exemption from employer social security contributions for an indefinite period of time. This applies to employees, hired between 2016 and the end of 2020.
The exemption is granted to employers, who never employed staff in Belgium in the past, or who did not employ staff during any of the 4 quarters, preceding the recruitment of a first (new) employee.
The exemption for the first employee is not related to a specific individual. Each quarter, the employer can appoint the individual, for whom exemption is taken. In case an employee leaves the organization, the exemption can be shifted to another individual. One can also select an employee with a higher wage (who is recruited later) to benefit from the exemption.
There is no income ceiling as to the salary of the ‘first employee’, who qualifies for the reduction of social security contributions.
A (smaller) reduction of social security also is granted for the second up to the sixth employee. These reductions are only granted for a limited time.
Per quarter the following deductions were applied up to the end of 2015 and are replaced by new deductions:
employee Old system 2015 New system 2016
l 5 x 1.550 4 x 1050 4 x 450 full exemption
2 5 x 1.050 8 x 450 0 5 x 1.550 4 x 1.050 4 x 450
3 5 x 1.050 4 x 450 0 5 x 1.050 8 x 450 0
4 5 x 1.000 4 x 400 0 5 x 1.050 4 x 450 0
5 5 x 1.000 4 x 400 0 5 x 1.000 4 x 400 0
6 0 0 0 5 x 1.000 4 x 400 0
Additional deductions for employees 3 to 6 are currently considered for 2017.
The new amounts are also applied for certain employees, who were hired in 2015, but only for the remaining quarters.