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Remember to apply the exemption from advance payment of withholding tax for night and shift work correctly

Wednesday 23/11/2022

Stricter conditions concerning the application of the exemption from advance payment of withholding tax for shift or night work came into effect on 1 April 2022. Moreover, the tax authorities are now checking more frequently whether this exemption is applied correctly. Do you apply this exemption? If so, verify that you are doing this by the book and be prepared for a possible audit.

What does the exemption from advance payment of withholding tax imply?

If your business employs people who perform shift or night work and you pay them a shift or night work premium, you may qualify for an exemption from advance payment of withholding tax, which amounts to 22.80% of taxable remunerations including shift premiums.

This exemption means that the withholding tax for employees who perform shift or night work is deducted from their wages. However, as an employer, you are not required to pay the full amount of withheld withholding tax to the tax authorities. You are entitled to partially withhold it, which is a major advantage and offers significant cost savings.

Tax authorities increasing controls

The old legislation was complex and open to interpretation, which is why there were few controls with respect to this exemption in the past. However, this has now changed. The tax authorities are increasingly monitoring the correct implementation of this beneficial measure.

What is considered shift work?
  • Shift work occurs when at least two shifts involving at least two employees are implemented.
  • The shifts must be consecutive or there must be an overlap of no more than a quarter of the daily tasks.
  • Importantly, successive teams must be similar both in size and content. In practice equal size is often a point of discussion. If an unequal number of employees work both shifts or they do not all work the full shift, it is highly likely that the tax authorities will not simply accept the exemption.
What is considered night work?
  • Night work involves employment with tasks performed between 20.00 and 06.00 hrs.
  • Exceptions to this are work arrangements with tasks performed solely between 06.00 hrs and midnight or tasks that are usually only performed from 05.00 hrs.

One third rule

In order to benefit from the exemption from advance payment of withholding tax, employees must work shifts or night work for at least one third of every month. This is referred to as the one third rule.

Stricter implementation conditions

Stricter conditions concerning the regulation for the exemption from advance payment of withholding tax for shift or night work came into effect on 1 April 2022. Henceforth, the following, as well as other, conditions will apply:

  • The exemption for shift and night work has been split into two separate exemptions. You either invoke the shift work regulation or the night work regulation. This mainly affects the calculation of the one third rule. Under the old regulation, you were allowed to aggregate shift and night work tasks to assess whether the one third rule was met. This is no longer possible, which means that you as an employer are less likely to meet the relevant conditions.
  • The awarded premium must have minimal substance. For example, the premium for shift work must at least equal 2% of the contractual gross hourly wage and 12% for night work. Moreover, as of 1 April 2024, the right to this premium must be stipulated in a collective labour agreement, the employment terms and conditions or the individual employment contract.
  • The one third rule is now assessed on an hourly rather than a daily basis.

Stringent sanctions

If the audit reveals that you, as an employer, have improperly applied the exemption from advance payment of withholding tax for shift and night work, the consequences can be severe.

  • You must pay the unpaid withholding tax to the amount of 22.80%.
  • You will have to pay late payment interest on the overdue payment.
  • You may also be fined.
  • Since 23 October 2022 a tax increase may also be applied.

Take a closer look at your exemption

More frequent audits and stricter conditions mean that it is advisable to verify whether you are applying this exemption correctly in your business and to investigate how you can anticipate a potential audit.

Please do not hesitate to contact us should you have further questions concerning this matter. We would be happy to look at this in more detail with you.

Contact one of our experts

Saskia Lombaerts

Saskia Lombaerts

Partner Tax & Legal Services

Emma Drozdzyniak

Emma Drozdzyniak

Senior Associate Tax & Legal Services