The tax return form on income year 2013 was released on 28 March 2014. For the first time in many years, the form contains less items as compared to prior years. This is not the result of a desire for simplification of the tax form but is the result of the abolishment of a number of tax deductible items.

This will be the last ‘traditional’ federal tax form as from income 2014 onwards, regional taxation rules come into play and for next year substantial changes to the form are expected by tax specialists.

Income from real estate

This section of the form has not been substantially changed. There is only a more refined reference for properties, which are let out to private individuals, who do not use the property for professional purposes.

Many Belgian residents own real estate abroad and often tax payers forget to include such properties in their Belgian income tax return. Since international data exchange between tax authorities is increasing each year, these tax payers then subsequently get into unpleasant and most often unnecessary discussions with the local tax inspector.

The actual tax impact of including foreign real estate income in the Belgian income tax return is in most cases very limited, however, since in most cases tax treaty exemption will be available in Belgium. Therefore proper reporting of such income is highly recommended.

For houses, used by the tax payer (not rented out), the estimated annual value of the property is to be reported in  the tax return. In case a property is let out to a person, who uses the property for professional purposes, the actual rent received is to be reported. Foreign income tax paid as well as interest payments (for a property loan) are deductible from such gross taxable income.

Currently, Belgian tax law is not compliant with EU law in case a property is rented to  a private person (not using it for professional purposes). For properties, located in Belgium, the cadastral value of such property is to be reported, while for properties abroad, actual rent received must be included in the income tax return. Up to now, Belgian tax legislation has unfortunately not yet been adjusted, but tax payers could rely on European law when filing their tax returns in order to ensure equal treatment of Belgian and foreign properties.

Pensions

With effect from 1 July 2013 onwards, the tax rates on pension lump sum payments has been increased in case such payments were derived when the tax payer is either 60 or 61 years old.

The new rates (exclusive of communal tax) are:

• 20% for pension lump sums received when aged 60 years (and when one also receives state pension benefits at that moment);
• 18% for pension lump sums received when aged 61 years (and when one also receives state pension benefits at that moment);
• 16,5% for payments from the age of 62 up to 64 or for payments at age 60 or 61 if one does not yet benefit from state pension payments at that age;
• 10% for payments from the age of 65 onwards (if the tax payer has continued certain professional activities up to that age)

There is a link between the reduced tax rates and the actual retirement of the tax payer (when the state pension starts). Even if one collects a pension lump sum at the age of 60 or 61, the favorable rate of 16,5% can still be applied provided that the individual does at that moment not yet benefit from state pension benefits.

It can be noted that the Belgian tax treatment of foreign source pensions has become extremely complex due to the combination between internal tax law, international tax treaties and case law. It is therefore recommended to proceed with an in depth review of the pension before filing the Belgian income tax return. In this way errors can be avoided and favorable tax treatment (if possible) can be applied.

Passive income

During the most recent years, especially the section in the tax form relating to investment income (interest, dividends, etc…) has been subject to significant changes.

2012 was a very special year, as for that  specific year there was a general tax rate of 21% (the prior rate was 15%), which could be increased with an additional 4% levy in case certain income elements exceeded the threshold of 20.020 Euro.

Following a further increase of the general tax rate from 21% to 25% in 2013, the complicated situation, which was created for 2012, has now again be abolished and the tax form was simplified as compared to last year.

The following income elements can still benefit from a more favorable tax treatment:

• liquidation payments from companies: 10%  (which will be abolished from 1 October
  2014 onwards);
• dividends from certain real estate funds in the EU: 15%;
• interest from regular savings accounts: exempt per tax payer up to 1.880 Eur of interest income and then subject to 15% (on the excess income amount);
• interest of state loan of 4 December 2011) : 15%;
• royalty income (for use of intellectual property): 15% up to a gross amount of income of 56.450 EUR and then either 25% or the normal progressive rates, depending on the type of activity of the tax payer.

Income, which has been subject to Belgian withholding taxes no longer has to be reported in the income tax return. There is an exception for royalty income (as there are different possible tax rates, which in the end can be applicable).

When looking at savings accounts, Belgium was (again) not acting in line with European rules on the free movement of services and capital. In the past, the exemption and the reduced tax rates were only granted for investments in Belgium.  In the new form, exemption (up to 1.880 Eur per tax payer) and reduced taxation will now also apply to income with banks and financial institutions in the EU. The change actually is retro active to 1 January 2012. Tax payers can therefore even claim tax refunds for last year’s income.

Tax reductions

Many tax reductions have been reduced or abolished:

• PWA-cheques and service vouchers: there is lower deduction from 1 July 2013 onwards
• Energy savings expenditure: only roof insulation still qualifies for deduction (for an existing home)
• No deduction any more for the purchase of certain electric vehicles nor for the installation of a recharging unit
• No deduction any more for renovation of houses in certain urban areas
• No deduction any more for the purchase of bonds of ‘Caisse d’investissement de Wallonie’

Special reporting requirements

Every year more special reporting requirements are included in the tax form. One must note, however, that it is very difficult for the authorities to audit compliance with these obligations and that it is unclear which sanctions would apply in case improper reporting takes place.

As from last year onwards, individual life insurances, concluded outside Belgium (by the tax payer, his partner and dependent children) must be mentioned. This obligation is continued for the tax return of 2014 (in case one had such an insurance policy at any time in 2013).

There is now a new reporting requirement, which may affect many individuals, who have moved to Belgium. From tax year 2014 (income 2013) onwards,  the tax payer must disclose the existence of any legal structure, which he has either established or to which he is a (potential) beneficiary. The reporting obligation also applies to the partner and the dependent children.

This obligation relates to legal structures under which assets or entitlements are brought under the management of a third party in order to manage them to the benefit of certain beneficiaries or for a specific purpose. It also applies to foreign legal structures, which have been established in a tax haven or in a country where they fall under a beneficial tax regime.

This definition is unfortunately very general and rather unclear. One can assume that foreign trusts would fall under the obligation. One also expects a list of countries (with beneficial tax regimes) and of legal structures, which fall under the obligation will further be published.

In line with previous years, foreign bank accounts must also be disclosed to the Belgian tax authorities. In the tax return form only the existence of foreign accounts must be mentioned but no further details are to be disclosed. From 2014 onwards, however, the tax payer will have to report the foreign bank account numbers with the National Bank of Belgium (NBB). This reporting must according to the law at the latest be done when the tax return is submitted. In the tax return, one will then have to confirm that the reporting has been completed.

The specific organization of the reporting structure with the NBB, however, is still not yet fully operational (this should already have been the case in 2012). Consequently, the reporting in the tax return can not yet be done this year, but is likely to come into existence in the not too distant future.

This does not mean that no reporting of the account numbers will be requested. Tax payers, who will indicate the existence of foreign bank accounts in the tax return will be invited by the tax authorities to provide the required information to the NBB within a 2 month period and not earlier than November 1, 2014.

The reported information will become accessible to the tax authorities in case of tax evasion or in case the authorities believe that the level of reported taxable income does not correspond with the expenditures, made by the tax payer.