5 tips to stay on top of your end of year taxes
Aion Bank, a new full service digital bank for individuals and businesses, put together five key points to support you with your end-of-year bookkeeping. Each tip is aimed at helping everyone from Belgian residents to business owners to expats, so you can spend less time worrying about your taxes and have confidence in your finances.
Where you lived in January matters
Personal income tax, or PIT, is the tax due on a determined “tax base”. Successive portions of taxable income (net) are charged at different tax rates - for example, anything equal to or less than €13,440 is charged at a rate of 25%, while anything over €41,060 is charged at a rate of 50%.
But since 2014-15, tax calculations in Belgium include two major components - the federal PIT and the regional PIT. While the federal tax rate is fixed across the country, Belgian regions are able to grant tax deductions or credits or retain surcharges.
This is based on the region where you lived on the 1st January in the relevant tax year - so if you’ve moved, you need to take that into account when calculating your taxes.
Investment income is taxed differently
Not all income is subject to the same tax rates. Income from investments such as interest or dividends are largely subject to a flat-rate tax of 30%, provided they are paid by a Belgian financial institution.
For normal savings accounts, the first €990 is exempt from tax in 2020, while anything exceeding that is taxed at 15% - and dividend payments are tax-free up to €812.
Any investment earnings collected abroad need to be declared in your tax return for the net amount (that is, after any taxes at source) and will be taxed at the flat-rate.
Living abroad? You only pay Belgian tax on Belgian sources
While Belgian citizens are all eligible to pay tax in Belgium, living abroad affects what payments are taxable.
Belgian residents are taxed on worldwide earnings, regardless of the source, so any money coming in from overseas still contributes to the taxable base in Belgium. Because of tax treaties with some other countries, it may be the case that this income is exempt from tax on foreign income - but it still needs to be declared in your tax returns.
Expats, on the other hand - citizens living outside the country - are only taxable on income from Belgian sources.
If you’re living outside the country that means that you need to research whether you might need to pay tax locally for that income rather than at Belgian rates.
However, it’s worth remembering that the tax rates in Belgium are the same for both residents and expatriate citizens; the only difference is which income is taxable or not.
You are still required to pay communal taxes when living abroad, at a rate of 7%, which in some cases may also be levied on otherwise exempted income from foreign sources.
Expatriates may be eligible for tax rebates or reductions
If you’re living abroad, it’s more than just the tax sources you need to consider. If you’re still earning at least 75% of your worldwide professional income in Belgium while living abroad, you may be able to receive deductions or tax rebates.
If you think you might be eligible, you should consider talking to a financial adviser to see what deductions could be available.
Your business’ corporate tax may be lower than you think
Businesses established in Belgium have a corporate tax rate of 29%, as well as a surcharge tax of 2% - meaning the total effective tax rate in 2020 is 29.58%. This is set to decrease in 2021, alongside plans to scrap the surcharge tax.
But your company may be eligible for lower corporate tax rates if the business is more than 50% owned by individuals - such as, if you own your business. You also must have a low taxable profit - that’s profit of under €100,000 a year. If you meet the low taxable profit and ownership requirements, you’ll only need to pay a tax rate of 20%, not including the surcharge.
However, there’s a surcharge of 6.75% on your final corporate tax bill, which can be avoided by making sufficient tax payments in advance.
You can get deductions from investments
There are other ways to save on corporate tax. Investments that meet specific conditions are tax exempt for part of the profits and income, equal to a certain part of the investment or acquisition value. This only applies if the investments were made during assessment year 2020.
There are different types of investment that can qualify for exemptions. Investments in patents or environmentally friendly or energy-saving opportunities can offer a deduction of 13.5%, while investments in securing premises for work and business vehicles offer 20.5% if your company is a small-to-medium sized enterprise (SME).
SMEs can also get deductions for investments in digital fixed assets for operating digital payments, and data security technology - 13.5%, and investments in tangible and intangible fixed assets offer 20% in 2020.
If your business gets profits exclusively from shipping, investments in sea vessels provide deductions of 30%.
While these tips are great starting points for a wide variety of situations, it’s important to remember that taxes often have a great deal of variation between people. As such, these tips should help you identify areas to explore further, and you may wish to talk to a financial advisor to help you understand your own position.
Aion Bank offers powerful tools for entrepreneurs that work behind-the-scenes to make businesses run more efficiently. As a fully digital bank, businesses can create an account and apply for a loan without the need for paperwork or branch visits. Aion also saves business owners time with smart tools for invoice issuing, expenses and VAT estimations. Additionally, Aion offers access to digital bookkeeping, powered by accounting partner BDO, with its My Accountant feature.
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