Belgium remains the country with the third heaviest tax burden in Europe - a focus on innovation may change this position over the long term.

PwC & World Bank Group - Paying Taxes 2020

  • The Total Tax and Contribution Rate (TTCR) decreased from 57.7% to 55.4%, a small decrease due to the tax shift
  • Belgium now ranks 30th out of 32 countries in the European Union and European Free Trade Association (EU & EFTA)
  • In order to remain attractive and competitive, Belgium must maintain its favourable R&D environment and focus on the talent it needs to develop further

Tuesday 26 November 2019 - The latest edition of the report by PwC and the World Bank Group, Paying Taxes 2020, shows that the Total Tax and Contribution rate in Belgium decreased by 2.3 percentage points to 55.4 % in 2018. Despite a slight improvement thanks to the tax shift that was initiated in 2017, Belgium remains one of the countries with the highest tax burden in Europe and the world. Globally, the average Total Tax and Contribution Rate is 40.5%, and in the EU and EFTA it is 38.9%.

Tax burden decreases, but Belgium continues to lag behind

Since 2004, Belgium has succeeded in reducing the total tax burden from 60.1% to 55.4% in 2018. In recent years, this "Total Tax and Contribution Rate" (TTCR) has remained relatively unchanged. In 2017 it was 57.7%; the decrease of 2.3 percentage points in 2018 is due to the tax shift. The tax shift that started in 2017 led to reductions in taxes on labour (employers' social security contributions) and the statutory corporate tax rate (from 33.99% in 2017 to 29.58% in 2018). Despite these decreases, however, Belgium is still in 30th place in the EU and the EFTA countries, just after Greece. Only France and Italy are doing worse.

"With Brexit and other geopolitical tensions in mind, it has never been more important for Belgian companies to have an effective and simple tax system," says Patrick Boone, Managing Partner, Tax & Legal Services at PwC Belgium. "In the long term, Belgium should aim for an overall TTCR in line with the EU and EFTA average of 38.9%. A headlong race to the bottom is not the goal, and is not compatible with the sustainability of our social model. On the other hand, Belgium's poor European ranking will make it extremely difficult for us to attract businesses to our country, and thus to broaden the tax base that we need to support our social model. It’s essential that the tax reforms already agreed upon be rolled out, and that the current impasse in the formation of the federal government be broken as soon as possible."

Increasing competitiveness through R&D incentives and by attracting innovation

The tax burden makes it difficult for our country to remain attractive for foreign investment compared to many other European countries. However, tax incentives for companies with highly qualified staff in R&D positions can certainly strengthen and improve this position. Belgium provides R&D tax relief through wage tax exemptions and R&D tax credits. The size of these R&D tax incentives has increased steadily between 2000 and 2018. At the same time, the wave of innovation and automation is making the cost of labour, which has long been a pain point in Belgium, less relevant when compared to low-wage countries. If we can decisively combine this development with a generalised upskilling of our labour market, we have a potential formula for success in hand.

Patrick Boone, Managing Partner, Tax & Legal Services at PwC Belgium, explains: "Belgium has the opportunity to be a major player in the fourth industrial revolution, attracting additional investment and creating jobs in sectors such as artificial intelligence, robotics, the Internet of Things (IoT) and virtual reality. To do this, we need to focus on the right priorities: maintaining an ecosystem favourable to R&D activities in order to expand our country's tax base, and ensure that our education system produces the profiles that our companies need to flourish. Needless to say, the countries around us aren’t standing still. So, just do it! ”

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