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02 July 2020 / news

COVID-19 measure: Partial exemption from payment of payroll taxes

A Bill of 25 June 2020 aims to introduce a new system of (partial) exemption from payment to the Belgian Treasury of withheld payroll taxes, in order to provide additional support for employment and increase financial leeway in sectors severely affected by the COVID-19 pandemic.

Please note that payroll taxes remain fully withheld from the employees’ salary.

man signing contract

Conditions of the exemption

This system of (partial) exemption from payment of withheld payroll taxes to the Belgian Treasury applies to salaries paid in June, July and August 2020.

In order for the employer to be eligible for this partial exemption, the following conditions must be met:

  • employers have benefited from the temporary unemployment system for an uninterrupted period of at least 30 calendar days between 12 March 2020 and 31 May 2020 (e. 30 consecutive days, including Saturdays, Sundays and bank holidays).
  • The employing entity must not have withdrawn funds for distribution to its shareholders. Therefore, a company that redeems its shares or equity shares or carries out a capital reduction or pays or allocates dividends during the period from 12 March 2020 to 31 December 2020 is excluded from the (partial) exemption.
  • The employing entity may neither hold a direct interest in a company established in a tax haven, nor make money transfers to companies that are established in a tax haven.

Finally, the exemption from payment of withheld payroll taxes for June, July and August combined may not exceed EUR 20 million.

Calculation and terms of the exemption

Based on the Bill (wetsontwerp / projet de loi), May 2020 will be the 'reference period' to determine what amount in payroll taxes is eligible for non-payment to the Belgian Treasury.

The exemption is equal to 50 % of the difference between, on the one hand, the total amount of the withheld payroll taxes on taxable income paid in June, July and August 2020, and, on the other hand, the total amount of payroll taxes withheld on taxable income paid during the reference period (i.e. May 2020).

With taxable income is meant the remuneration of employees (Article 31, paragraph 2, 1° and 2° ITC 92) with the exception of double holiday pay, the 13th month and arrears of remuneration. Based on the Bill, end-of-contract indemnities are excluded as well.

If the employing entity already benefits from a different partial exemption of payment to the Treasury of withheld payroll taxes  (e.g. R&D or shift work), such exemptions will be applied first.

The modalities how to declare this partial exemption are yet to be defined.

Examples

The explanatory memorandum accompanying the Bill includes some examples that illustrate the above principles:

Example 1

  • Payroll taxes May 2020: EUR 1 000
  • Payroll taxes June/July/August 2020: EUR 1 500

The partial exemption of payment of withheld payroll taxes would be EUR 250 (per month) in this situation:

EUR 1,500 – EUR 1,000 = EUR 500 x 50% = EUR 250

Example 2

  • Payroll taxes May 2020: EUR 1 000
  • Payroll taxes June/July/August 2020: EUR 1 800

The partial exemption of payment of withheld payroll taxes would be EUR 400 (per month) in this situation:

EUR 1,800 – EUR 1,000 = EUR 800 x 50% = EUR 400

Example 3

Reference period (May 2020) 

June/July/August 2020

Suppose 5 researchers that are on temporary unemployment (“furloughed”). 5 other researchers are engaged in R&D projects and together earn an income of EUR 20.000, with a payroll tax withholding of EUR 7.500.

Step 1:

Partial exemption for R&D:

·       Taxable income: EUR 20.000

·       Payroll taxes: EUR 7.500

·       Partial exemption (R&D): (80% x EUR 7.500) : - EUR 6.000 EUR

 

All researchers are working again and doing R&D. They earn EUR 40.000 in total, with a payroll tax withholding of EUR 15.000.

Step 1:

Partial exemption for R&D:

·       Taxable income: EUR 40.000

·       Payroll taxes: EUR 15.000

·       Partial exemption (R&D): (80% x EUR 15.000) : - EUR 12.000

 

Step 2: partial exemption “COVID-19”

The part of the withheld payroll taxes not to be paid in June/July/August 2020 is EUR 750 (per month):

((EUR 15.000 – EUR 12.000) – (EUR 7.500 – EUR 6.000)) x 50 % = EUR 750 

Possible deferral within the same calendar year

If, due to other partial exemption measures, the employer cannot apply this COVID-19 partial exemption from payment to the Treasury of withheld payroll taxes , the balance may be deferred to each of the following periods during which payroll taxes are due, but only within the same calendar year.



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