Indeed, the new Act reforming corporation tax was ratified on Christmas Day last year. The legal text was published in the Belgian Official Gazette of 29 December 2017. The proposals relating to the reform of corporation tax were filtered out of the more extensive ‘Relancewet’ (Kick-Start Act) (due to time constraints). The changes relating to car taxation are important for the self-employed, companies, employers and their employees. Indeed, the new tax rules apply to both corporation tax and personal income tax.
New Deduction Rules
The first important change is the new tax deduction rule for car and fuel expenses in both corporation tax and personal income tax. In Personal Income Tax (One-Man Companies) commencing 1 January 2018, the fixed deduction of 75% for car expenses is abolished. In order to harmonise the tax rule concerning car expenses, a deduction rule currently applied in corporation tax will be implemented. This rule makes the percentage of deduction on the CO2 emissions conditional on the vehicle in question. So, the self-employed are also encouraged to consider greening their car fleet. To preserve legal certainty, the legislator has foreseen an interim arrangement whereby passenger vehicles purchased (ordered) before 1 January 2018, or with a lease contract concluded before 1 January 2018, remain at least 75% deductible as long as the relevant passenger vehicle is used.
From 1 January 2020, the introduction of a renewed, uniform deduction rule will completely harmonise the taxation of all vehicles in both personal and corporation tax. The new deduction rule as from 2020 is explained below under ‘Corporation tax’. In parallel with the renewed legislation on the deduction of car expenses, the tax regime for professional car benefits in personal income tax is being amended. Commencing from 1 January 2018, the taxable amount of professional benefits (in the categories ‘profit’ and ‘loss’) is to be established in the same way as the corporation tax rule (based on CO2 emissions). This is in order to have the part of the taxable benefit correspond to the percentage that is equal to the ratio between the authorised depreciation and the depreciation entered into the accounts. From 1 January 2020, the new harmonised rules of car taxation will also come into play in this area (see below under ‘Corporation tax’).
In Corporation Tax the deduction rule for car and fuel expenses as it exists today shall remain unchanged up to and including 31 December 2019. Commencing from 1 January 2020, the new car expenses legislation will apply. This amendment introduces a new method for calculating the percentage of deductions for both car and petrol expenses. Indeed, from 1 January 2020 petrol expenses will follow the same regime as car expenses, and will therefore be deductible according to the CO2 emissions of the vehicle in question.
In the renewed legislation, the percentage of the deduction is calculated using the following formula: 120% - (0.5% * coefficient * number of grams CO2/km)
With the coefficient established as follows:
- 1.00: for vehicles with a diesel engine and diesel variants such as, for example, hybrid diesels (for the special rule on hybrid vehicles, see below).
- 0.90: for vehicles with an engine powered by natural gas (CNG) with a taxable power below 12 fiscal horsepower.
- 0.95: for all vehicles with a different engine to that mentioned above (petrol, LPG, biofuel, electric engine, etc.).
The percentage calculated according to the above formula may not be lower than 50%, but also not higher than 100%. For passenger vehicles with a CO2 emission of 200 grams CO2/km or more, a deduction percentage of only 40% percent applies. The 120% deduction for electric vehicles will therefore be completely abolished.
The above can be clarified by using a number of examples:
- A diesel car with CO2 emissions of 98 grams CO2/km =>71% (or 120%-(0.5%*1*98)).
- A petrol car with CO2 emissions of 98 grams CO2/km =>73.45% (or 120%-(0.5%*0.95*98)).
- A diesel car with CO2 emissions of 25 grams CO2/km =>100% (maximum)
- A diesel car with CO2 emissions of 190 grams CO2/km => 50% (minimum)
This method for calculating the percentage of deduction for car and petrol expenses shall apply to all company cars from 1 January 2020. Cars and second-hand cars purchased prior to 1 January 2020 also come under the new legislation. The only exception relates to company cars ordered, purchased or leased in the name of a one-man company before 1 January 2018 (see above: interim arrangement of personal income tax). Costs for financing a company car are explicitly excluded from the scope of the new deduction rule, and therefore remain 100% deductible.
However, a special rule is to be implemented for ‘false hybrids’. From 1 January 2020, the purchase of such vehicles will be subject to tax penalties. False hybrids (so-called “plug-in hybrids”) are defined as vehicles powered partly by fuel and partly by a chargeable electric battery, whose electric battery capacity permits only limited use, and which are therefore only able to travel short distances on their battery. These vehicles were very attractive in recent years due to their favourable tax regime (high tax deductibility and quite low benefit in kind for private use).
Despite their environmentally-friendly image, and their so-called low CO² emissions, these “fake hybrids” still produce relatively high CO² emissions. Indeed, given the limited capacity of the battery it is scarcely used or charged, and the vehicle is virtually exclusively powered by fuel. The favourable tax regime, from which such vehicles benefit today was therefore deemed to be unfair. Which is why, from 1 January 2020, the legislator will be introducing a separate CO2-emissions calculation for fake hybrids. CO² emissions are dependent upon the power capacity of the battery compared to the car’s weight (expressed as kWh/100 kg), and on the notified CO2 emissions of the car:
- If a vehicle is equipped with an electric battery with energy capacity of < 0.5kWh per 100 kg car weight or has emissions of >50 grams CO2/km => the CO2 emission level is equal to that of a corresponding vehicle of the non-hybrid version. If no corresponding non-hybrid version is available, the CO2-emission level is calculated by multiplying the notified CO2-emission level of the hybrid version by 2.5.
- If a vehicle is equipped with an electric battery with an energy capacity of ≥0.5kWh per 100 kg car weight and has emissions of ≤50 grams CO2/km => the applicable CO2-emission level is the notified emission value of the hybrid version.
For legal certainty, the legislator also provided an interim arrangement: for hybrid cars ordered or purchased or with a lease agreement concluded prior to 1 January 2018 the notified hybrid CO2-emission level continues to apply even after 1 January 2020. From 1 January 2020, false hybrids, like all other company cars, will be subject to the renewed deduction rule for car and petrol expenses. However, where applicable, a recalculated CO2-emission level will have to be taken into account when calculating the correct percentage of deduction for false hybrids. In corporation tax too, from 1 January 2020, the taxable amount of the car benefits will have to be calculated in accordance with the new method for calculating the deduction restriction.
Clarification and broadening of the exception to deduction restriction for expenses of cars belonging to third parties
Until recently, the legislation provided an exemption from application of the deduction restriction for car expenses of vehicles of taxi companies, vehicles of recognised driving schools and vehicles hired exclusively to third parties. In these cases, the car expenses were 100% deductible. However, the aforesaid tax payers could not benefit from the exemption if they did not own the vehicles, but, for example, rented them from third parties. Under the new legislation, in the aforementioned cases, the deduction restriction for car expenses of vehicles belonging to third parties is limited to the tax payer who is the end user of these vehicles provided these vehicles are exclusively rented out. Another new item, is that from now on, if car expenses are passed on, the deductions restriction must apply to the person who is invoiced for the expenses and not to the person who passes them on, provided these expenses are mentioned expressly and separately on the invoice.
Through these amendments, the legislator wishes to create clarity regarding a specific problem with the application of the restriction of deductions for car expenses. In this way, the economics of the general deduction restriction are also respected. In the aforementioned cases, this restriction shall henceforth only present itself to the end user on one occasion.
What changes now for employees?
In general terms, the benefit in kind for company cars does not change, except in the case of false hybrids. When calculating the benefit in kind for private use of a false hybrid purchased from 1 January 2018 on, the CO2 emission level, as applied for calculating the percentage of deduction in corporation tax, will be used. Aside from above new items, it is also important to note that the draft bill of 15 December 2017 (currently before the Chamber) introduces the possibility for employees who have had a company car for sufficient time, to exchange it for a mobility allowance with the same beneficial tax and social status as the company car, the so-called Mobility Allowance, also known as “Cash for Car”. According to recent reports this new legislation will be apply from 1 January 2018.
The mobility allowance cannot be combined with expenses for travel to and from work, and cannot give cause for a reduction of salary prior to the exchange of the company car. The level of the mobility allowance is calculated on the catalogue price of the company car exchanged, and is indexed annually. The mobility allowance itself, like the company car, will be subject to a solidarity contribution, is deductible for employers to the same extent as the expenses of the traded-in company car were deductible, and for the employee is taxable for an amount comparable to the private taxable benefit in kind of his company car.
If you wish to buy purchase a new car in the name of your one-man company or your company today, you would do well to conduct some research, to prevent yourself falling foul of tax legislation.
