Reduction of labour costs

The special social security contribution was introduced in 1994 to (additionally) fund the Belgian social security system. The contribution is calculated on net taxable income (excluding certain items) of the household.
The draft law aims to reduce the special social security contribution for lower and middle income household as from TY 2023 (income year 2022) by: 

• reducing the relevant rate; and 

• making a distinction in the calculation between single taxpayers and taxpayers with joint filing obligation.
  

The monthly wage tax would be decreased accordingly.

Entry into force: the reduction would be applicable on income earned as from 1 January 2022 and connected to TY 2023 (or a later tax year), whilst the decrease of monthly withholding is effective on 1 April 2022.

The changes put forward by the draft law will require employers to re-examine their practices in connection with the various payroll incentive measures and, amongst other, adjust their HR systems (such as reporting and payroll) and update their company agreements, work regulations, and/or employment contracts.

Stricter conditions for the wage tax partial exemption for shift or night work

In recent years, the wage tax exemption for shift or night shift work has become the most significant payroll tax incentive measure in terms of its cost, noted in the 2019 Belgian Court of Audit’s report as requiring expenditure of over EUR 1.4 billion in 2017 (the latest year covered by the report). In the report, the Court of Audit found that the government had lost effective control of the system, due both to abuse of the relief and the overall complexity of the measure.

According to the draft explanatory memorandum to the draft law, the main objectives of the proposed changes in the draft law can be summarized as:

• Transposing some of the recommendations from the Court of Audit’s 2019 report, e.g., implementing a stable and comprehensible legislative framework, clarifying the concept of shiftwork, and tackling challenges in terms of the audit of temporary work agencies;

• Strengthening the legal framework in order to promote a secured application;

• Achieving the pre-established budgetary objective through specific modifications of the measures while maintaining the scope, target groups, and exemption percentages;

• Ensuring better alignment of these measures with European state aid regulations.
  

The draft law proposes the following changes to apply as from the wage paid or attributed as of 1 April 2022, unless otherwise stated:

Minimum premium requirement

The benefit of the measures would be conditional on the granting of a shift or night premium of at least 2% or 12%, respectively, of the contractually agreed gross hourly wage that the worker would earn by providing the same services outside the framework of shift work or night work.

The requirement for a minimum amount of shift or night premium is intended to prevent the introduction of new, minimalist shift or night premiums purely for tax purposes, which are not the result of social consultation or the employer's desire to compensate for shift or night work.

Employers who previously have obtained a tax ruling confirming that (i) the premium they are paying is a valid shift or night premium within the meaning of the tax law and (ii) the anti-abuse provision does not apply, probably will have to request an update to the ruling in view of this new requirement. Employers whose current shift or night premiums are not expressed as a percentage of the hourly wage but as a fixed daily or monthly amount may also consider applying for a tax ruling to obtain confirmation that they satisfy the new requirement.

The draft explanatory memorandum suggests that a company may only qualify as a company in which shift work is performed if all employees who perform shift work (or work in a continuous labour system), receive the shift premium. The government wants to avoid situations where some employees undertaking shift work receive a shift premium while others do not.

It is also explicitly stated that employers can differentiate premiums between shifts (i.e., different premiums can be paid for a morning shift, late shift, weekend shift, etc.).However, where an employer differentiates the shift premium among different shifts, the situation needs to be considered as a whole to assess the validity of the shift premium.

Finally, the draft explanatory memorandum also clarifies that if the shift system includes a night shift, it is sufficient only to pay a night premium for hours performed during the night. In this scenario, the night premium is deemed to qualify as a shift premium for tax purposes, so that for hours performed during the night, it is not required to grant an additional shift premium as well as the night premium. For shift work performed during the day, a shift premium must continue to be paid.

Formalisation of minimum premium

As from 1 April 2024, the required minimum shift or night premium would have to be formalised in either a collective bargaining agreement that applies to the company, work regulations, or an employment contract.

Distinction between night and shift work

A strict distinction between the rules and definitions applicable to shift work and those applicable to night work would be introduced by including two separate paragraphs in the law.

The distinction would be necessitated by the fact that different minimum premium requirements would apply for shift and night premiums and also would allow for better monitoring in the form of a spending review, which was one of the recommendations from the Court of Audit’s report.

One-third rule

The “one-third rule” (i.e., the requirement for an employee to have performed shift or night work for at least one-third of their working time during the relevant month to be eligible for the measure) would be tightened as follows:

• A separate assessment would be required for shift work and night work; shift and night work could not be combined to assess whether the conditions of the one-third rule were met.

• The calculation of the one-third rule would need to be performed on an hourly basis; calculation on a daily basis would no longer be allowed. This would align with the decision of the Court of Appeal of Mons of 21 October 2020 and subsequent updates to the Belgian tax authorities’ administrative guidelines. For previous coverage, see our tax alert of 25 November 2021.

• A new requirement would be introduced that, in addition to the hours being performed within the framework of shift work or night work, a shift or night premium would need to be paid for those hours to be taken into account for the assessment of the one-third rule.

• When calculating the one-third rule, the numerator of the fraction may include "suspensions in the performance of the employment contract with continued paid salary." In accordance with the provisions of the draft bill this would apply only "if it can be shown that the concerned worker, in accordance with his or her working arrangements, would have worked in shifts and would also have received a shift premium for this." 

These changes may have significant practical consequences and result in fewer employees being eligible for the shift or night work wage tax incentive. For example, employees may rotate shifts during the month (e.g., morning shift, afternoon shift, night shift) and receive shift premium only in consideration of specific shifts (e.g., the afternoon shift and the night shift but not the morning shift). In such a scenario, the hours worked in the morning shift would no longer be taken into account for the assessment of the one-third rule, even though these hours are performed in shifts and the employee has earned a shift premium at some point during the month (i.e., while working the afternoon or night shift). As a consequence, some employees who previously met the one-third rule may be excluded if the employer fails to grant a premium for all shifts.

Definition of shift work

The definition of shift work would remain unchanged. However, the current administrative tolerance with respect to a limited break of 15 minutes between two successive shifts would be explicitly provided for in the legislation.

Similarly, where companies organise a system of continuous work with at least four shifts (resulting in an entitlement to a 2.2% increase in the exemption to 25%), a maximum 15 minute break between two successive shifts would be acceptable.

Combination of different payroll incentives

Further limitations on the combination of different payroll incentives: The draft law explicitly foresees that the wage tax exemptions for employees in the inland navigation sector or employees completing building works may not be combined with the wage tax exemption for shift or night work.

Temporary work agencies

The Court of Audit found many problems in the use of the exemption by temporary work agencies. Therefore, as from 1 October 2022, it is proposed that temporary work agencies could utilise the exemption for shift or night work only if they had obtained their client’s upfront consent. Such agencies would be able to apply the wage tax incentive where they could prove that all the requirements were satisfied.

Procedural aspects

• When filing a “negative” wage tax return, the employer would not only have to provide evidence that the employees for whom the exemption is requested “performed shift work,” but also that they “received a shift premium in consideration of the hours worked in shift” that meet the minimum requirement.

• The statute of limitation currently is five years as from 1 January of the year during which the wage tax is paid. This five-year limitation period allows employers to claim a refund of excessive wage tax paid in the last five years where they omitted in those years to apply the partial exemption to which they were legally entitled.

As from 1 April 2022, it is proposed to reduce the statute of limitation for refund claims of wage tax (based on articles 275/1 to 275/12 of the Belgian Income Tax Code) to three years following the tax year to align with the tax authorities’ investigation period.

In addition, the tax authorities’ investigation and assessment period would be extended by up to six months for refund claims for overpaid wage tax.

• As from 1 April 2022, a tax increase (ranging from 10% to 200%) for incorrect reporting in the second withholding tax return (the negative wage tax return) is proposed. The basis for calculating the increase would be the amount of the incorrectly reported partial wage tax exemption.

• A more extensive mandate would be provided to the king to be able to amend the applicable reporting obligations. The King would be required to define such changes via royal decree. The explanatory memorandum alludes to an additional annual reporting obligation, requiring more detailed information to be disclosed that the tax authorities currently may obtain only via a formal request for Information. The additional and more extensive reporting obligations would apply as from income year 2023.
  

Other amendments to payroll incentive measures

Other proposed amendments to payroll incentive measures that are not specific to the wage tax incentive for shift or night work include:

• Stricter conditions for onsite building works: Under the proposals, employers would only be able to claim the wage tax exemption for employees working in shifts to complete building works onsite if they had fulfilled their notification obligations to the National Social Security Office (RSZ), unless exempt.

• The combination of the research and development (R&D) payroll tax exemption with the tax credit for R&D.

• For the various payroll tax incentives: The draft law clarifies that the exemption basis would be restricted to the wage withholding tax that must be legally withheld by the employer. Any excess withholding (referred to as “fiscal voluntarism”), would formally be excluded.

• A definition of statutory overtime would be included in the law regarding the wage withholding tax incentive for overtime.

• Refinement of the payroll tax exemption for merchant shipping, dredging, and towage by introducing a broader definition of “seagoing vessel.”