The Act of 26 December 2015 concerning measures to strengthen job creation and purchasing power has introduced the tax shift. The social component of the tax shift is aimed at reducing labour costs. As of 1 April 2016, the employer's social security contributions will decrease gradually to 25% (by 2018). In this regard, changes are also made to the structural reductions in contributions for low wages and the targeted reductions in relation to the first employees recruited.
Context
Since 1996, labour costs in Belgium have remained higher relative to our neighbouring countries Germany, the Netherlands and France. Especially within the single market, such a labour cost handicap puts companies established on Belgian soil in a much weaker competitive position. In addition, foreign direct investments are slowed down due to the high labour costs in Belgium.
The Act of 26 December 2015 concerning measures to strengthen job creation and purchasing power introduced the tax shift. The social component of the tax shift aims to address the labour cost handicap. In this regard, the employer's social security contributions are gradually reduced to 25% by 1 January 2018. In addition, the structural reductions in contributions for low wages and the targeted reductions for the first employees recruited are adjusted, with the aim of avoiding social dumping and unemployment traps.
Current regime
The employer's social security contributions consist of a basic employer's contribution, which is distributed among several social security sectors, a wage moderation contribution, and certain additional contributions for specific purposes such as the Asbestos Fund and the annual leave for workers. The tax shift modifies the basic employer's contribution and the wage moderation contribution, and aims to bring the sum of these contributions down to 25%. In addition, the structural reductions in contributions for low wages and the targeted reductions for the first employees recruited will be altered.
In the current regime, which is applicable until 31 March 2016, the basic employer's contribution amounts to 24.92% and the wage moderation contribution equals 5.67% of 100% or 108% of the gross wage, depending on whether it relates to white collar or blue collar workers. The wage moderation contribution must be calculated on the gross wage and the basic employer's contribution. Therefore, in total it amounts to 7.48% (5.67% + 0.0567 x 24.92%). This contribution is increased by 0.40% for employees who are subject to the yearly vacation laws. The sum of the current basic employer's contribution and the wage moderation contribution amounts to 32.40% (24.92% + 5.67% + 0.0567 x 24.92% + 0.40%).
The structural reductions in contributions equate to a quarterly lump sum reduction of EUR 462.60. Both high and low wages enjoy a supplement to this reduction. Wages are considered low if the reference quarterly wage falls below EUR 5,560.49.
An employer can enjoy a targeted reduction for certain categories of employees. Such a reduction is in place, inter alia, for the first five employees recruited by an employer.
Gradual reduction: 1 April 2016 until 31 December 2017
From 1 April 2016 onwards, the basic employer's contribution decreases to 22.65%. The wage moderation contribution remains the same, which results in a total of 30.00% (22.65% + 5.67% + 0.0567 x 33.65% + 0.40%). On top of this percentage, the employer will have to pay some minor contributions for specific purposes (supra).
From 1 April 2016 onwards, the amount of the lump sum structural reduction is lowered to EUR 438.00. Furthermore, the scope of application of the structural reductions in contributions for low wages is extended to quarterly wages below EUR 6,900.00.
In addition, the scope of application of targeted reductions for the first employees recruited is extended. From 1 April 2016 onwards, the reduction will also apply to the sixth employee recruited.
Gradual reduction: as of 1 January 2018
On 1 January 2018, a second reduction in the basic employer's contribution will be implemented. From that time onwards, the basic employer's contribution will amount to 19.88%. The wage moderation contribution will also be lowered in this phase – it will amount to 4.27%. Furthermore, in this phase, the contribution of 0.40% for employees who are subject to the yearly vacation laws will be abolished. Therefore, the sum of the contributions will then equal 25% (19.88% + 4.27% + 0.0427 x 19.88%). On top of this, the employer will have to pay some minor contributions for specific purposes (supra).
The structural reductions in contributions for low wages are abolished in this phase. However, the targeted reduction for the first employees recruited remains in place. The scope of application of this reduction is further extended to quarterly wages of EUR 8,850.00. From 2019 onwards, another extension of the scope of application is implemented. The reduction will then apply to quarterly wages below EUR 9,035.00.
The gradual reduction of the employer's social security contributions can be summarised as follows:
Conclusion
The social component of the tax shift results in a direct decrease in labour costs from 1 April 2016 onwards. However, it remains to be seen whether the global tax shift will result in the necessary clarity, improvement of the competitive position and attractiveness for foreign direct investments.