The end of the year is almost there, which means that individual taxpayers in Belgium have about two weeks left to optimize their tax situation for 2021. With these tips, you can prepare now to save on taxes in 2022. It is important to act before 31 December, to make sure it is still taken into account for this taxable period. Some expenses entitle you to a tax reduction, others to a tax deduction or a refundable tax credit.
We hereby give you an overview of some tax planning opportunities that may be available to you:
- Service Cheques
If you purchase Service Cheques (‘dienstencheques/titres-services’) for a household help, you get a tax benefit. The exact benefit depends on the region where you live. Usually, you pay €9 per cheque but can claim back 20% on a maximum amount of €1,530 (or 170 cheques) in the Flemish Region. If you file jointly, you each get this benefit separately. In Brussels, you get a tax benefit of 15% for a maximum amount of 163 cheques and in Wallonia you get 10% on maximum of 150 cheques.
If you are not yet at the maximum allowed amount of Service Cheques this year, it might be interesting to purchase some more cheques to increase your tax benefit, as they remain valid for 12 months.
2. Pension Saving Plan
One of the most common individual retirement schemes in Belgium, is the personal Pension Saving Plan. You can pay into the plan irrespective whether you are an employee, self-employed or if you are without professional income. This can be done via a pension saving fund via your bank or a pension insurance fund via an insurance company.
Since a few years, there are two maximum amounts you may choose to contribute. Either you deposit a maximum of €990 per person this year for a tax exemption of 30% or €297. Or, if you deposit a higher amount for a maximum of €1,270, you get a deduction of 25% or maximum €317.50.
- Investment Insurance Policy
If you invest in a Branch 21 or Branch 23 insurance policy, you can also receive a tax benefit. You will be able to claim 30% on a maximum premium payment of €2,350. This will give you a benefit of €705 under the so-called ‘long-term savings scheme’. You may combine long-term saving with the above pension saving scheme.
If you have a home mortgage loan as well, this might also qualify for tax relief under the long-term savings scheme, depending on when the loan initially started and in which region you live. The maximum amount for which you can claim a tax benefit, may already have been reached, in which case no additional tax relief can be obtained for payments into an insurance policy.
- Charity Donations
If you donate to a recognized charitable organization, you may generally deduct 45% of the amount. This was increased to 60% in 2020 due to the pandemic but is now again at 45%. You must donate at least €40 to the same organization. This can be done in one or several times. If you donate €40 euros, you will receive €18 back. Donations are tax deductible up to 10% of your net taxable income, with an absolute maximum of €392,200.
- Legal Assistance Insurance
The premium paid for a stand-alone legal assistance insurance will entitle you to a tax benefit. The legal assistance section in your fire, car or family policy is not eligible for this. It must be a separate policy for legal expenses that you individually subscribed to with an insurer in the EEA. The policy must meet certain legal requirements before it is considered for tax purposes.
You are entitled to a tax reduction of 30% for a maximum amount of €310 per year. This will create a maximum tax benefit of €124 annually.
- Private SME financing
In the three regions in Belgium, private individuals can lend money to SMEs and receive a tax benefit. In Flanders this is done via the ‘Win-win loan’, in Brussels via the ‘Proxiloan’ and in Wallonia via the ‘Prêt coup de pouce’. The maximum amount you can lend is €75,000 per year, with Wallonia allowing you to lend up to €125,000 annually.
The tax benefit is between 2.5% and 4% of the average balance of the outstanding loan amount, with some regional differences.
- Development Fund Investment
Development funds like ALTERFIN, INCOFIN and OIKOCREDIT provide micro-financing and other financial services to small businesses in developing countries. These funds typically allow you to invest by becoming a co-owner of their cooperative company. You should hold the shares for at least 5 years to get the maximum tax benefit. Under certain conditions, the shares also entitle you to an annual dividend, which can be (partially) tax exempt.
If you acquire shares in the fund for at least €390, you can claim a tax reduction of 5% of the invested amount. The tax benefit is capped at €330, which means that you can invest up to €6,600.
- Flemish Friends’ Share
It is also possible to invest in shares of SMEs located in the Flemish Region and get a tax benefit for doing so. The idea is to encourage investment in the local economy and put those dormant savings to good use. The shares should be newly issued shares or in the context of a capital increase. The tax benefit amounts to 2.5% of the annual investment and is granted on a maximum investment of €75,000 for a period of five years. Flemish SMEs can raise a maximum of €300,000 in capital via this system.
- Federal Tax Shelter
In order to boost both start-ups and scale-ups, private individuals can also acquire shares in these companies and get a tax benefit. The tax shelter is available for both start-ups (less than four years old) and scale-ups (between five and ten years old that meet certain conditions). The tax benefit depends on the size of the company at the moment of investment. A condition for tax relief is that you hold the shares for at least four years.
- Self-Employed Pension Saving
The Free Supplementary Pension for Self-Employed (VAPZ/PCLI) is fully tax-deductible as a business expense. For the ‘standard’ plan, a self-employed individual may contribute up to 8.17% of his net taxable income from three years before, with a maximum of €3,302.77. For a ‘social’ plan, a self-employed individual may contribute up to 9.4%. The maximum in that case is €3,800.01. The social plan is not only for retirement planning purposes, but also has a guaranteed income component.
Self-employed that have a company, can also pay into an Individual Retirement Commitment (IPT/EIP). The contribution paid is a 100% deductible expense for the company. The maximum amount depends on your personal situation. For those that do not have a company, there is also the Pension Agreement for the Self-Employed (POZ/CPTI). This will give you a tax reduction of 30% on the premiums paid. There is also a maximum that depends on your personal situation.