07.15.2016

Belgian Government Approves Simple and Low Tax Rates for Sharing Economy

Increasing numbers of individuals provide services to other individuals as mini-entrepreneurs through apps and other digital platforms.

As Minister of Digital Agenda, Alexander De Croo wants to remove barriers-to-entry for this growing group of peer-to-peer service providers.

Alexander De Croo, Deputy Prime Minister and Minister of Digital Agenda and Telecom (Belgium):
“The sharing economy, or peer-to-peer economy, is developing rapidly. Through apps and digital platforms, individuals provide more and more services for their peers, from meal delivery to babysitting. Our current tax system has not yet adjusted to the reality of this new economy. A demand for clear and transparent regulation was heard. It is in place now. This is important, because it is a way for many people to earn a little extra on the side, or to get a sense of entrepreneurship on a small scale.”

Low Rate and Simple System

A tax rate of 10% will apply to services between individuals. This provides a legal framework for activities currently taking place in the “grey zone”, and helps combat fraud. Today, most activities in the sharing economy are subject to tax at a rate of 33%.
The new legislation will apply to income up to 5000 euro. This prevents unfair competition with small businesses and professional entrepreneurs.
Rather than requiring the individuals to report their income to the tax authorities, registered platforms will have to withhold taxes at source and send the information to the tax authorities.
Administrative charges will be minimal for the individuals who render the services. They will not be required to register with the Belgian Enterprises Register or apply for a VAT number. Those who want to turn a second job in the sharing economy into a profession must switch to self-employed status in a primary or secondary profession.

At the Forefront in Europe

With this new legislation for the sharing economy, Belgium moves to the forefront of peer-to-peer economies in Europe. Up to now, the United Kingdom has been the leader in stimulating the sharing economy. Last month, the British Minister of Finance announced a tax exemption of up to 2500 euro for incomes earned in the sharing economy. The French government recently rejected a proposal for advantageous treatment of incomes up to 5000 euro.

Details of Future Legislation

  • Effective tax rate of 10%. This includes:
    • 20% income tax rate
    • Lump sum deduction of expenses of 50% (proof of actual expenses is not allowed)
  • The platform withholds taxes at source. This simple, transparent method prevents fraud and reduces the administrative burden.
  • Data is sent to the tax authorities and is automatically included on tax returns.
  • 5000 euro in revenue is the maximum income to which the special tax rate applies.  If more than 5000 euro is earned, the tax payer is considered as self-employed in a primary or secondary occupation. This avoids unfair competition with small businesses.
  • As long as revenue remains below the maximum amount of 5000 euro, the services are fully exempt from VAT (e.g., VAT-registration or client lists are not required).
  • Social Security legislation does not apply.  In other words, contributions to Social Security are not owed as long as the income does not exceed 5000 euro.
  • The legislation applies if the digital platform has been registered with and recognized by the tax authorities. This also applies to foreign platforms. Modalities for these cases will be provided by the Minister of Finance by royal decree after the new legislation has been voted in Parliament.
  • The legislation applies to consumer-to-consumer services. The system does not apply to sporadic sales of goods through a digital platform (e.g., home-made crafts, used cars or furniture). It should be noted that cooking a meal is considered a service and is part of the sharing economy; compiling a box of ingredients is not considered a service.
  • The legislation will also apply to income from the occasional renting of rooms through digital platforms such as Airbnb. In this situation, the platform must also be registered and the maximum income of 5000 euro applies.

In Belgium, income from the renting of rooms is currently split over three categories of taxable income: immovable income, movable income and miscellaneous income. This remains unchanged. The new sharing economy scheme will only apply to the portion which qualifies as miscellaneous income. This portion is considered to amount to 20% of the total rental price and relates to e.g. the provision of bed linens, reception, changing bedding and providing breakfast.

The remaining 80% of the rental fee is considered as immovable income (48%) and movable income (16%), which are subject to tax under the existing rules and which should be reported in the annual personal income tax return.

Overview

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