Third European Salary Survey Deloitte - Belgium & France: very expensive countries for employers
The Belgian salary challenge explainedDOWNLOAD
Diegem, 8 December 2012 – Today Deloitte announced the results of its third European salary survey. This large scale study compared the salary costs, net salaries and net disposable income of 17 countries (6 more in comparison to previous years). The study shows that Belgium is still struggling with very high labour costs, mainly due to the unrestricted social security contributions. Furthermore, the legal indexation system that requires employers to adjust all wages automatically every year to the consumer price index reinforces the high costs for employers. The cost of living in Belgium on the other hand is significantly lower than in the richer European countries, and is somewhere in-between northern and southern Europe. Potential foreign investments could be increased if Belgium would put greater emphasis on its unique R&D wage measure.
Belgium and France are European leaders in terms of employer costs
Belgium is still struggling with very high labour costs, as it reports the highest cost for blue-collar workers of all 17 studied countries. For white-collar employees, Belgium ranks number two, after France. The salary costs in Sweden and Italy are close to that of Belgium. Patrick Derthoo, Tax Partner at Deloitte Belgium and responsible for this study: “The big villain here is social security. In 8 of the 17 countries, social security contributions that the employer has to pay are limited after a certain income. In France, Belgium, Sweden and Italy, the employer’s contributions are however unlimited.”
The Belgian social security results in sky-high contributions. Furthermore, Belgium ranks amongst the top three countries with a high legal minimum salary (with Luxembourg on top, followed by Belgium and France). To top it all off, Belgium needs to deal with an annual legally required indexation of all wages. In addition to Belgium, Luxembourg, Slovakia and Spain also have a legal indexation system that requires employers to adjust wages annually and automatically to the consumer price index.
Belgium considerably cheaper than the richer European countries
The net disposable income obtained in Belgium by means of ‘corrections’ on the basis of cost of housing,living and child support, scores even better in this year’s rankings. Belgium is considerably cheaper than the richer European countries and essentially stands in the middle between northern and southern Europe. The cost of living in Brussels is for example lower than in Luxembourg, Zurich, London, Paris, Dublin, Copenhagen and Amsterdam, and the gap is actually becoming bigger. On the other hand, the cost of living seems to be higher than in for instance Poland, the Czech Republic, Slovakia, Greece and Portugal and this difference is getting smaller.
Belgium attractive because of R&D measure, but does not attract multinational headquarters
The active or professional income is heavily taxed in Belgium, as a result of which companies in Belgium often have a difficult time attracting qualified employees. Companies that employ workers in Research and Development may, provided that they meet a number of conditions and formalities, avail themselves of a fiscal measure that enables them to recover 75% of the pay-as-you-earn tax per researcher. As a result, these employers make a direct and attractive saving on wage costs which gives Belgian companies in the highest wage categories an advantage over their competitors in neighbouring countries. None of the other countries studied has such an advantageous and structural system. Patrick Derthoo: “Belgium would perhaps score even higher and be able to attract more R&D activities by better and more aggressively promoting this fiscal measure at international level.”
Belgium traditionally belongs to the ‘short list’ of countries that successfully attract multinational headquarters (together with, amongst others, Luxembourg, the Netherlands, Ireland and Switzerland). But due to the high fiscal pressure, the competitive position of Belgium has declined during the past years. Because of the relatively low taxes and social security contributions, Switzerland systematically has an advantage here. Belgium scores points in the area of fiscal security, an important factor in attracting headquarters. If one takes into account corrections for housing, cost of living and child support, the Belgian net disposable income scores better than the rest. However, one may expect that companies will base themselves on the gross salary cost and fiscal (in)security. Because of this, chances are slim that the net disposable income will be the decisive factor in the choice of Belgium.
More and more countries use top rates for income tax of 50% or more
In 2011, the tax rate in Belgium turned out to be the 2nd highest in the 11 countries studied. Sweden came in first with 56%, Belgium second with 53.5%, with the important difference that this top rate in Belgium was attained already from an income of ±€36,000 and in Sweden only from €58,700. Deloitte concluded in the previous edition that many countries were not immediately prepared to increase the top rate of income tax above the psychological threshold of 50%. When the study was extended, it turned out that 6 out of the 17 countries now use a top rate of 50% or more, and that some countries have indicated that they will increase this in the near future. Derthoo: “The difficult economic and financial circumstances have perhaps led to a situation where the psychological threshold is fading and/or disappearing. We note here that the average amount on which the top rate applies is far higher in most countries than in Belgium (e.g. about twice as high in Denmark and Sweden, and about 10 times as high in Spain and Switzerland).”
Non-working partner is remunerated in Belgium, but also in other countries
A sole wage earner in Belgium is taxed heavier than, for instance, a married taxpayer with a non-working partner and two children. The difference in tax burden fluctuates in Belgium roughly between €4,000 and €5,500 and last year the study assumed that Belgium was the odd man out, with the exception of higher income categories where the differences in tax burden were even more striking in Germany and France. With the expansion from 11 to 17 countries in this salary study, it appears that several countries have a rather conservative attitude to the household and the income taxes payable by a household. In France and Germany, but now also in Luxembourg, Portugal and Switzerland (in 1 or more scenarios), the difference in tax burden based on personal circumstances exceeds the level of Belgium.
Slight rise in tax rates on passive income; also in Belgium
In line with the previous year, the Belgian investor still pays an average tax on interest and dividends, in comparison to the other European countries. The tax rate in the 17 countries studied amounts on average to about 23.42% on interest and 25.13% on dividends (the United Kingdom and Denmark are not considered here because the applicable progressive rates are very diverse). The only country studied that does not tax dividends at this moment is Slovakia.
Property tax remains the exception in Europe
Most European countries do not seem to dare considering a formal property tax. France, Spain and now, newcomer Switzerland, require their taxpayers to pay a tax on net assets that exceed a certain limit. In Switzerland, low percentages apply in this context, and the limit as of which the net assets are taxable depends on the canton and the city where a person lives, but roughly hovers around CHF 3 million (±€2,700,000).