Self employed persons – new rules for calculating social security contributions

The way, in which social security contributions for self employed persons are calculated in Belgium, is currently giving rise to difficulties, especially in case the income of the individual significantly fluctuates from year to year.

The reference for the calculation of the social security contributions is not the gross income of the self employed person (as is the case for employees), but is the net taxable income of the individual. This is the gross income, but reduced with the social security contributions and tax deductible expenses.

Because the taxable income is not yet known at the beginning of a year and also due to the fact that the taxable income can still change in future years following a tax audit, the social security contributions are calculated on the basis of the taxable income of the 3^rd year, preceding the current income year.

This calculation method can give rise to difficulties for the individual. In case a person earns a high income during a number of years and then has a significant reduction of income, the current system leads to a continuation of the high contributions during 3 years. This can give rise to significant income difficulties for the individual, who has to pay contributions, which are not aligned with his actual income level.

From 2015 onwards, a new system would be applied, whereby the reference income for calculating the social security contributions would be the actual income of the current income year. At the moment when this is not yet known (for example at the beginning of the year), reference would still be made to the income of the current year minus 3  years, but an adjustment is possible as soon as the actual income is known.

In case an individual is expecting a significant increase of his income, he can opt to voluntarily increase his social security contributions in order to avoid ending up in a situation of underpayment of the contributions.

In certain cases, a self employed persons will also be allowed to ask for a reduction of his contributions, provided that the expected income does not exceed certain (quite low) tresholds.

There will be a bonus for each year in which there is overpayment of contributions. Similary, a penalty will apply in case of underpayment, though this can be avoided by using the income the third preceding year as a reference for calculation of the contributions.

In case there is a change in activity from a principal activity to a secondary activity (i.e. for example combination between a self employed activity and an employment agreement), there is no longer a recalculation of contributions under the rules for the starting up of a fully new activity. In such case, year minus 3 will be used as the calculation reference.

For incomplete income years, the income will be annualized first before the social security contributions are calculated.