III. TAX ON PROFESSIONAL INCOME
(Articles 25 to 32, 35, 50 (paragraphs 4 and 5), 51 to 59, 61 (paragraphs 3 and 5), 62 to 80 of co-ordinated laws; Article 5 of the Law of July 23rd, 1932;1 Articles 7 and 8 of the Royal Decree of January 13th, 1933.2)
note noteThe tax on professional income, or professional tax, forms the third schedule. Although, in 1933, its yield was equal to that of the tax on income from personal property (37 per cent of all schedular tax yield), it is of more importance for the purposes of the present study.
The professional tax is partly impersonal and partly personal, for, while it is imposed upon income whenever earned, deductions both from the taxable basis and the amount of tax depend upon the status of the beneficiary.
1. TAXPAYERS
Professional tax is payable by all individuals or legal entities, associations without legal entity and de facto associations:
The professional tax on the different payments under (b) is collected at the source and therefore raises no difficulty. The treatment of the taxpayers referred to under (a), however, calls for certain explanations.
It was said at the beginning of this chapter that, in Belgium, the fiscal regime applying to the Belgian taxpayer domiciled or resident in Belgium is applied ipso facto to a foreigner engaged in business in Belgium, whether an individual or a company other than a share company. Foreign share companies operating in Belgium are expressly taxable at the fixed rate of 10 per cent (plus provincial and communal additions) on all profits earned by their Belgian establishments.
The regime applicable to Belgian share companies and foreign share companies differs therefore as follows. Belgian companies owe the tax on income from personal property on distributed income, and professional tax on a graduated scale (maximum of 9.9 per cent, plus provincial and communal additions) on other profits, while foreign companies are only liable to professional tax at the fixed rate of 10 per cent3 (plus provincial and communal additions) on all profits from Belgian sources.
noteColonial Companies
The Law of June 21st, 1927, as was seen (page 54), created a special system in favour of enterprises operating in the Belgian Congo. That law lumps together profits earned in Belgium and the Congo and subjects them to a combined tax, the yield from which is divided between the colony and the home country.
After the collection of the tax on income from personal property on income liable thereto, the professional tax is levied at the ordinary rates on remaining profits, except on reserves invested in the colony within the previous five years.
When colonial enterprises have operating centres abroad or work up Congo products in Belgium, the profits earned by these centres or establishments are subject to the ordinary rules of taxation. One-fifth of the State’s share in the taxes on profits of the said establishments earned in Belgium accrues to the Colonial Treasury.
National Enterprises operating abroad
When a taxpayer has his head office or principal establishment in Belgium and establishments abroad, he is taxed on all profits realised both in Belgium and abroad.1 Nevertheless, the results of the Belgian and foreign operations must be considered separately, although with due regard for the results of the general balance-sheet. For this purpose, the taxpayer concerned must attach to his annual declaration, not only the general accounts, but a copy of the separate balance-sheet and profit-and-loss account relating to the business of the separate foreign establishment (Article 54, paragraph 1, (3)). These last profits are taxed in Belgium at a reduced rate, if they have already been taxed abroad (Article 35, paragraph 7).
noteIt does not matter whether or not the foreign establishments are de facto dependent upon the centre of management in Belgium.
In the case of an individual, the whole of the profit is liable to professional tax, subject to a reduction of rate for income earned and taxed abroad.
On the other hand, in the case of a company or partnership, professional tax on total profits is subject to the deduction of distributed income or of income liable to personal property tax as income from invested capital; both taxes, moreover, are levied at reduced rates on profits earned and taxed abroad.
Foreign Enterprises deriving Income from Belgian Sources
In principle, foreign enterprises are only taxable in Belgium if they have one or more establishments in the country, at whose head office they are bound to keep separate accounts of the business transacted by or through these establishments. The only deductions allowed under the head of general or administrative expenses are expenses of this kind incurred by the said Belgian establishments (Article 27, paragraph 4).2
noteThe word establishment must be understood in its broadest sense: a place of business, an agency and a branch constitute establishments within the meaning of the law. The existence of a board of management and staff is not essential. This definition covers industrial and commercial establishments and insurance companies, which are, by common knowledge, publicly represented in Belgium by authorised agents.
A foreign enterprise operating in Belgium through an establishment is liable to professional tax at the rate, and according to the rules, applying to Belgian taxpayers of the same class. Only the profits of the Belgian establishment of a foreign share company pay the uniform rate of 10 per cent.3
noteA special regime applies to representatives of foreign firms, foreign bargemen, itinerant vendors, etc.
Subject to any exceptions provided for in international conventions, the professional tax is fixed at a minimum of 200 francs in respect of representatives of foreign firms, foreign bargemen, itinerant vendors, hawkers and other persons who carry on their business in Belgium, without having any domicile, residence or establishment in the country. The tax is paid before engaging in the business in Belgium. If, however, the resultant income justifies a higher tax, a proportionate supplement may be demanded (Article 27, paragraph 4).
Foreign Shipping Companies
In principle, foreign shipping companies whose vessels land in Belgium are liable to income-tax. The Government, however, is empowered1 to conclude international conventions granting on a basis of reciprocity full exemption from income-tax to foreign shipping enterprises not domiciled in Belgium.
noteConventions of the kind have been concluded with Norway, Denmark and Iceland, Finland, Ecuador, Sweden and France.
Negotiations are proceeding with other countries.
2. TAXABLE INCOME
The following is deemed to be taxable income:
(a) Profits of any Industrial, Commercial or Agricultural Enterprise, including Profits from the Individual Work of Members of Commercial or Non-commercial Companies having Legal Entity. — The profits of industrial, commercial or agricultural enterprises are those resulting from any operations conducted by or through their establishments.
For purposes of professional tax, the law expressly considers as profits:
Nevertheless, tax is only imposed upon the half of profits actually employed, within the country and within twelve months of the close of the trading year, on the building of workmen’s houses or installations on behalf of the staff of the enterprise.
Taxable income further includes personal expenditure, such as the rent of premises used for living purposes, the upkeep of the taxpayer’s household, cost of education and any other expenses not necessitated by the exercise of the profession or occupation.
The income enumerated above is taxable on its net amount — that is, on the gross amount less only such professional expenses as have been incurred, during the fiscal period, for the purpose of acquiring and maintaining that income.
The following, inter alia, are regarded as professional charges:
Depreciation allowances are based upon investment value or cost price.
Nevertheless, as regards business premises and industrial, commercial or agricultural plant acquired or constituted before July 1st, 1926, depreciation allowances may be based upon a cost price re-assessed under conditions and within limits to be fixed by Royal Decree; this re-assessment must be entered in the closed accounts or balance-sheets of 1931 at the latest.1
note(b) Miscellaneous Remunerations. — The co-ordinated laws of Belgium concerning income-taxes also subject the following miscellaneous remunerations to professional tax:
Advantages in kind are added to remunerations or wages; they are computed at their actual value or are re-assessed at a flat-rate, according to circumstances.
From these remunerations it is permissible to deduct sums withheld as contributions to pensions or insurance funds, and professional expenses. In the absence of evidence — and generally there is none — these charges are fixed at one-quarter if the emoluments are less than 15,000 francs and at one-fifth if they exceed that amount (with a minimum of 3,500 francs). This fixed sum, which includes the taxes deductible as professional expense, may not exceed the amount of such taxes by more than 30,000 francs.
Taxable emoluments do not include:
(c) Profits from the Liberal Professions, etc. — Lastly, the Belgian fiscal regulations subject to professional tax the profits of any kind whatever from the liberal professions, functions and offices and any lucrative employment.
These profits consist of the difference between total receipts and expenses attaching to the exercise of the calling.
Failing proof to the contrary, these expenses are fixed at one-fifth of the said receipts, but this amount may not exceed by more than 30,000 francs the taxes deductible as professional expenses.
Persons engaged in the liberal professions or fulfilling functions or offices are required, under penalty of a fine of 500 francs for each infringement, to furnish a signed and dated receipt of their fees, commissions or other emoluments.
This receipt is taken from a book with counterfoils, the model for which is prescribed by the Minister of Finance. The latter may demand that entry be made in the counterfoils and leaves of this book only of the total amount of fees, commissions or emoluments and the name of the person from whom they were due.
Any person making a payment of this kind without demanding the receipt is liable to the fine jointly with the person concerned.
The issue of a receipt is not compulsory for professional persons if they keep a classified daily record of their professional receipts and expenses. Any omission to do this makes them liable to the fine mentioned above.
3. ASSESSMENT OF TAX
(a) COMPUTATION OF TAXABLE INCOME
General Rules
The Belgian fiscal system is based upon the principle of an annual declaration of income.
Generally speaking, all those liable to the three classes of professional tax have to submit, during the first three months of the year, the return required under Article 53 of the law to the Tax Controller within whose jurisdiction they have their principal establishment or are domiciled or resident.
But taxpayers whose accounts do not cover the calendar year, and also all share companies, have to forward to the Controller of Taxes, within a fortnight of the approval of the balance-sheet and profit-and-loss account and, at the latest, within six months of the close of the trading year, a return containing, according to categories, the total income liable to the tax on income from personal property and professional tax. This return must be accompanied by a copy of the balance-sheet and profit-and-loss account, of the resolutions approving them and the Minutes or reports $$$relaing thereto; further, by a list showing the number and amount of shares and bonds issued and of securities of one kind or another bought or sold during the past financial period, and by a copy of the separate balance-sheets and profit-and-loss accounts of any separate foreign or colonial establishments.
Failing documentary evidence furnished either by the taxpayer or by the Administration, taxable profits are determined for each taxpayer by comparison with the normal profits of persons similarly placed and with due regard, according to the circumstances, for capital invested, turnover, number of workmen, motor-power used, rental value of exploited land and any other useful information. The Administration may, for this purpose, agree upon empirical bases of taxation with the professional associations concerned.
No division of profits from joint operations is allowed between members of the same family living together or between the members of any company, association or community. However, the emoluments of members of the family of an entrepreneur working with him are included among general costs, provided they do not exceed a normal wage or salary and provided they have been assessed as such to professional tax (Article 27, paragraph 3).
The tax is payable by the head of the family or by the director of the company, association or community.
Professional tax, in the case of share companies, is levied upon their profits less income distributed or liable to personal property tax as income from invested capital (Article 35, paragraph 2).
In order that the same income may not be taxed twice, Article 52 of the co-ordinated laws provides for the deduction from schedular taxes of all direct or additional taxes which the taxpayer may already have paid in Belgium on taxed income, or which share companies with their head office or principal establishment in Belgium may have already paid there on sums distributed as shares.
As regards companies other than share companies, including partnerships, having a legal entity, each member is liable separately, in respect of sums allotted or distributed to him, to professional tax if he is an active partner, or to personal property tax in other cases.
The company or partnership is liable to professional tax in respect of profits placed to reserve, the provisions of Article 52 being applicable to this case also.
The professional tax is on income, actually determined or presumed, either for the previous year, in the case of taxpayers whose accounts coincide with the calendar year, or, in the case of other taxpayers, for the twelve months covered by the accounts of the current year.
The income for the year or taxable period, as the case may be, is subject to deduction of any professional losses incurred during the two preceding years or financial periods. Thus a taxpayer, whether an individual, a partnership or a company, who keeps regular accounts and suffers professional losses during the past two years or financial periods may deduct these losses from the profits of the year following.
National Enterprises operating abroad
In determining profits earned abroad, the only deductions are the overhead expenses of the establishment and the taxes paid in the country where it is situated.
The general or administrative expenses of the head office in Belgium, even when incurred on behalf of a foreign establishment, must be placed to the account of Belgian operations. This applies to directors’ and auditors’ fees and to bond coupons; however, the amount of the coupons must be accounted to the foreign establishments if the bonds are issued abroad and for the requirements of the foreign establishments.
Profits derived from operations directed by the taxpayer from the head office in Belgium without the intervention of agents or establishments abroad are not regarded as having been earned abroad. Thus, profits from reinsurances contracted by a Belgian firm with a foreign insurance business are regarded as Belgian profits; so are the profits from speculations figuring in the head office’s portfolio and consisting in the repurchase of bonds below par.
Foreign Enterprises deriving Income from Belgian Sources
In principle, foreign enterprises which derive income from operations in Belgium are taxed on the results of their specifically Belgian operations as shown by the separate accounts they have to keep, even when the general balance-sheet reveals a loss. If the accounts fail to supply the necessary evidence,1 the enterprise is taxed on a minimum profit fixed by the Royal Decree of October 8th, 1930.2
note noteIt is therefore necessary to separate from the results of the balance-sheet, the profits (dividends, increases of capital, reserves, writings-off of foreign losses, etc.) realised by the Belgian establishment, which constitute the taxable basis.
If specific capital is set aside for the establishment in Belgium and the latter has a special account and a separate balance-sheet in the enterprise’s accounts, that special account and separate balance-sheet, duly checked, form the basis for determining the taxable profits.
Profits expressed in foreign currency are converted, if necessary, into Belgian money at the official rate of exchange at the date on which the accounts in question were closed.
Foreign Insurance Companies. — Foreign insurance companies operating in Belgium are not required to apportion their profits according to the class of policy (life insurance, temporary, mixed, etc.), but only according to the branch of insurance (life, fire, etc.).
These companies must include in their accounts:
noteThe accounts of foreign insurance companies must also mention any reinsurance business relating to policies concluded by the Belgian agencies or contracted in Belgium by agents domiciled abroad, if those agencies intervene in any way in the surrender of premiums to reinsurance companies, the payment of that part of losses refunded by the latter, the collection of reinsurance commissions, etc.
In order to ensure the requisite uniformity in the taxation of foreign insurance companies, the Administration has ordered the use of a standard profit-and-loss account containing all the information required.
Foreign Firms selling Imported Goods in Belgium, or re-exporting them abroad. — The profits from these operations are determined in Belgian francs, after deducting from the price of sale or re-consignment:
(b) COMPUTATION OF TAX AND DEDUCTIONS
Professional tax is levied on the total annual income of each taxpayer or, for periods of less or more than one year, on any proportionately equivalent sum.
It is not due when the taxable income is below the following minima:
4,800 francs in communes with fewer than 5,000 inhabitants;
5,600 francs in communes with from 5,000 to 30,000 inhabitants;
7,200 francs in communes with 30,000 or more inhabitants.
The commune taken into consideration is either that in which the calling is exercised or that in which the taxpayer is domiciled or resident, whichever he prefers.
The above minima are increased to take account of a taxpayer’s dependents.1
noteIn the case of taxpayers whose professional income does not amount to 50,000 francs, the tax varies from 12 francs to 2,256 francs, according to the size of the income and on a sliding scale fixed by Royal Decree according to the class of commune.2
noteIn the case of taxpayers with a professional income of 50,000 francs or more, the tax is computed on the following scale1:
| Net income of: | Percentage of tax |
| 50,000 and less than 60,000 | 5. |
| 60,000 and less than 70,000 | 5.5 |
| 70,000 and less than 90,000 | 6 |
| 90,000 and less than 110,000 | 6.5 |
| 110,000 and less than 130,000 | 7 |
| 130,000 and less than 150,000 | 7.5 |
| 150,000 and less than 175,000 | 8 |
| 175,000 and less than 200,000 | 8.5 |
| 200,000 and over | 9 |
On the tax thus computed, reductions are granted in respect of family charges.2
noteIn the case of industrial, commercial and agricultural profits exceeding 50,000 francs net, the professional tax is increased by one-tenth, with a minimum increase of 18 francs.
When these profits are between two-thirds of the exempted minimum and the minimum mentioned above, tax is collected at a flat rate between 10 and 25 francs on a scale fixed by Royal Decree.3
noteBy way of exceptions to the above rates, the tax is uniformly fixed at:
noteNevertheless, as regards directors, etc., who actually exercise, by election or appointment, real and permanent functions in the same company, the ordinary regime of the law remains applicable to all fixed or determinable remuneration paid to them by the said company, in so far as this remuneration exceeds the fees paid to their colleagues not vested with special functions. The part so subject to the ordinary regime of the law may not exceed for each taxpayer and company either 100 per cent of the net profit on which the statutory percentages have been computed or 100,000 francs if the application of the said percentages gives an amount less than 100,000 francs.
If all the directors, as well as those officers who can be assimilated to directors, exercise special functions in the same company, that part of the remuneration susceptible to the regime of ordinary law may not exceed for each taxpayer and company either 0.75 per cent of the above-mentioned net profit, or 75,000 francs if the application of the said percentages gives an amount less than 75,000 francs.
The remuneration is reckoned at its gross amount — i.e., without deduction of the amount allowable as actual or estimated professional expenses.
The possible exception of the 100 “additional centimes” may not be granted in connection with more than two companies to be designated by the interested parties in their annual returns.
The withholding of the tax, and the “additional centimes” connected therewith, at the source is regulated by Royal Decree.5
noteThe tax, computed according to the ordinary scales, is reduced to one-fourth for that part of the taxable income which is earned and taxed abroad.
The provinces and communes are allowed to levy “additional centimes” tax on the professional tax on industrial, commercial, agricultural and similar profits and on profits from the liberal professions, functions or offices realised in Belgium; these “additional centimes” may not be added to the tax on profits earned and taxed abroad or in the Belgian Congo.
The communes only may levy a special tax on wages, salaries and pensions.
No provincial or communal tax may be levied upon the fees of directors, auditors, liquidators, etc., of share companies already liable to the 100 “additional centimes” imposed in favour of the State.1
note4. COLLECTION OF TAX
(a) BY DIRECT PAYMENT
Professional tax on industrial, commercial and agricultural profits and on profits from the liberal professions, functions and offices is payable within two months2 of receiving the assessment notice or demand note. The Treasury is entitled to charge interest on sums due at 6 per cent per annum.
noteTaxpayers may appeal against their assessments to the provincial or district Director of Taxes.2
The Controller assesses tax on the declared income unless he deems it an incorrect figure. In this case, he may correct it on informing the taxpayer, before assessment, of the figure he proposes to substitute for the figure declared and giving the reasons for the alteration. The taxpayer is given twenty days in which to submit observations. If the parties still disagree, the dispute may be submitted to a Committee which sits in the chief town of each control area, and whose composition and functions are determined by Royal Decree.3
noteThe Committee’s opinion, with reasons for it, is notified to the taxpayer by the Controller, who also informs him of the income figure upon which he proposes to assess tax.
If this figure coincides with the opinion of the Committee, the taxpayer can only obtain a reduction by furnishing proof of the exact amount of his taxable income.
In the contrary event, the burden of proof is upon the Administration, if the income taxed is in excess of the Committee’s estimate.
The Committee must also be consulted before any ex-officio assessment is made.
(b) BY DEDUCTION AT THE SOURCE
Professional tax on the various remunerations is collected by withholding the amount due at the time of payment; the law prescribes that the persons responsible for paying the income may deduct therefrom the tax due, subject to no appeal by the beneficiaries, whatever their nationality. This deduction is effected on a scale fixed by Royal Decree;4 the tax thus withheld must be paid to the receivers of taxes within a fortnight of the end of the month in which the income was paid. The control of payments and any adjustment of the fiscal position of the taxpayers concerned are effected by means of individual forms filled up by the employer. These forms are issued to the person in receipt of the salary, wage, etc., and attached by him to his annual declaration.
noteIn the case of persons who receive professional income of different kinds, tax is computed on the total income for the previous year after deduction of any taxes collected at the time the income was paid.