Furthermore, the Belgian Government is considering taxation as a tool to limit vehicle use and resolve the ever-growing transport problems.
The various tax instruments in Belgium can be divided into three categories. First there are the taxes associated with the acquisition, purchase or registration of a vehicle, i.e. VAT at 21% and registration tax (Belasting op de Inverkeerstelling/ Taxe de mise en circulation).
The second category covers taxes payable in connection with possession or ownership of a vehicle, i.e. circulation tax, compensatory excise tax for cars which run on diesel, supplementary circulation tax for cars which run on LPG and insurance taxes. The third category consists of taxes directly and indirectly related to the use of the vehicles, i.e. fuel taxes.
These taxes are in most cases only partly deductible by companies that use the vehicles for business purposes.
A change in the legislation regarding the registration of vehicles in Belgium extended the possibility to register a car to its user (e.g. the lessee of a company car).
Furthermore, the Government has implemented eco-fiscal measures to encourage the use of new and less-polluting cars.
Direct tax
For direct tax purposes, companies can only deduct 75% of the costs related to passenger cars and minibuses, with the exception of fuel, car telephones and finance costs.
This rule does not apply, however, for cars used exclusively as taxis, rented with a chauffeur, exclusively used for driving instruction purposes or exclusively rented to third parties.
In principle, the way a car is acquired by a company is not relevant in order to determine the consequences for direct tax purposes.
However, should the car be reported as an asset on the balance sheet of a company (as is the case for outright purchase, hire purchase and finance leasing) it will need to be depreciated linearly over a period equivalent to the economical depreciation period (economic life) of the car, generally accepted as four to five years (with exceptions even up to ten years).
Indirect motoring taxes
Car registration
Currently, in Belgium a car needs to be registered in the name of the owner or the principal user of the car resident in Belgium, if the owner is not established in Belgium or if the owner of the car agrees that the user registers the car.
In order to enable a (legal) person to register its cars in Belgium and to receive Belgian licence plates, it must have an address (be established) in Belgium.
In cross border situations, i.e. cross border lease or cross border use of cars, the registration of the car needs to be monitored in order to avoid double registration obligations.
If lease companies agree that the lessee registers the leased car, this would result in a VAT saving on the car taxes, which do no longer have to be part of the taxable amount for the lease service (see VAT).
Car taxes
Following the registration of a car and its use on public roads in Belgium several car taxes become due.
Tax on registration of the car
When registering a passenger car minibus or motorcycle a registration tax (Belasting op de Inverkeerstelling / Taxe de mise en circulation) is charged. This tax is also charged on the change of ownership of a vehicle.
Registration tax is based on both the cylinder capacity of the car (expressed in taxable horsepower or fiscal hp) and the power of the engine (kWh/h).
The tax ranges from €61,50 to €4.957,00, with discounts for second-hand cars (10% reduction per full year until the fifth year after the date of its first registration, 5% as from the sixth year).
For cars that meet the EURO IV criteria on exhaust reduction, the tax is lowered with €323,00 for petrol cars and €620,00 for diesel cars for assessment year 2003 (the reductions amount to €248,00 and €496,00 respectively for 2004; they expire as from 2005).
In addition, a flat fee of €62,00 is charged for a vehicle's registration certificate and number plates.
Annual circulation tax
An annual circulation tax (Verkeersbelasting/Taxe de circulation) is levied on all motor vehicles that use the Belgian public highway.
Fiscal liability begins when a vehicle is officially registered in Belgium, and the rate of taxation is based on engine power for cars, minibuses and buses; and vehicle weight for HGVs.
i) Engine power is expressed in fiscal hp and calculated on the basis of the cubic capacity of the engine; for 2003 the amount ranges from €60,46 for a car with 4 fiscal hp to €1.547,04 for a car with 20 fiscal hp.
If the car's power exceeds 20hp, an additional €76,68/hp is levied - these amounts are adjusted annually based on the fuel consumption index.
ii) For HGVs, pick-ups, tractors and trailers (all vehicles designed to transport goods), the tax rate is progressive, based on weight, and is considerably lower than for category (i).
For vans less than 3.5 tonnes, an annual circulation tax of €24,84 per 500kg is due.
Annual compensatory excise tax
The compensatory excise tax is payable in respect of passenger cars and minibuses that run on diesel.
This tax ranges from €24,24 for a car with 4 fiscal hp to €1,239.27 for a car with 20 fiscal hp. If the power exceeds 20hp, the tax increases by €67,53 per hp.
Annual supplementary circulation tax
Accounting treatment
Outright purchase (and hire purchase)
Operating lease
Finance lease
VAT
Hire purchase
Leasing
Fact file:
Driver's personal tax
The employer's tax position
A supplementary circulation tax is payable in respect of vehicles that run on liquefied petroleum gas (LPG) or other liquefied gaseous hydrocarbons and serves as a substitute for an excise duty on LPG.
The tax rates applicable are:
€89,24 for < 8 fiscal hp
€148,74 for 8
An agreement qualifies as a finance lease where the minimum lease payments (and in the case of a hire-purchase contract where the minimum monthly payments plus the purchase price), completely cover the acquisition/manufacturing costs together with ancillary costs provided by the lessor.
If the purchase option is more than 15% of the acquisition/manufacturing costs, then in principle, the agreement is an operating lease for accounting purposes.
The company must record the car as a fixed tangible asset on its balance sheet at the acquisition cost (purchase price, production cost or assigned value) and depreciate it as economically justifiable with respect to the nature of the asset (economic life). This usually means that the car is depreciated linearly over a period of four to five years.
With an operating lease, the car will be recorded as a fixed asset at its acquisition cost (as above) by the lessor and depreciated (as above).
For a lessee, an operating lease is not capitalised and thus not depreciated. Lease payments are treated as operating charges in the profit and loss account. In principle, the lessee has to disclose nothing, unless the lease contract has a significant effect on the results of the enterprise.
The leased car is not capitalised in the lessor's balance sheet, so there is no provision for depreciation.
In a finance lease agreement, a car will be capitalised as a fixed tangible asset in the lessee's accounts at the acquisition price, i.e. the capital portion of the minimum lease payments.
The depreciation is treated as economically justifiable (as above). As the car is recorded as a fixed asset on the balance sheet of the lessee, it has to disclose the valuation rules in its notes to the accounts.
The above analysis may be impacted by IAS rules applicable as of 2005 (but with comparing figures as of 2003).
21 % VAT is due on most supplies of goods and/or services with regard to cars, although diplomatic posts and international organisations are exempt Belgian VAT on the acquisition of their cars (under strict conditions).
For taxable persons with a right to deduct VAT, a maximum 50% of this VAT can be recovered, although companies whose business is the sale or hiring out of cars can recover 100% of the input VAT.
A hire purchase is an agreement where both parties agree that the goods will be put at the disposal of the hirer/purchaser (i.e. transfer of economic ownership), stipulating that the legal title will automatically be transferred at the moment the hirer/purchaser pays the last instalment.
For VAT purposes a hire purchase in Belgium is a supply of goods whereby the taxable amount lies in the price that can be paid in cash to acquire the goods immediately.
Consequently, the amount of interest must be considered as remuneration of an exempt financial service and must not be included in the taxable amount for the hire purchase. The VAT due must be paid to the VAT authorities when the car is put at the disposal of the hirer/purchaser.
A lease agreement, operational or financial, whereby the customer must exercise a purchase option (if any) in order to legally acquire the vehicle, is considered in Belgium to be a service for VAT purposes.
Consequently, the finance cost needs to be included in the taxable amount of the lease for VAT purposes.
Furthermore, as legal owner of the car, the lessor can register the car in Belgium in its own name; alternatively, the lessee is also entitled to do this.
As the different car taxes are legally due by the person who registers the car, all these taxes only need to be included in the taxable amount of the lease for VAT purposes in case the lessor registers the car.
A similar treatment is given to the insurance premium paid by the lessor, unless the lessee contracts directly with the car insurer.
Corporation tax rate: 40.17 % (to be lowered to 33.99% as from accounting year 2003, assessment year 2004).
VAT rate: 21% for car-related expenses (with exceptions)
Date of next Belgian budget: January 1, 2004
Dates of tax year: January 1– December 31
The employee's tax position
There is no tax on business use of a company car, but the private use of a car (i.e. commuting and so-called weekend driving) will result in a taxable fringe benefit.
Legally a minimum of 5,000km private use per year is assumed. However, in a tax audit the Belgian authorities often check the declared number of private kilometres, taking into account the actual distance between the employee's home and his place of work, and adjust the kilometres reported.
The taxable benefit of private use is calculated by multiplying the total of private mileage by fixed kilometre rates, depending on the fiscal hp of the car. These fixed kilometre rates are deemed to include all car-related costs (fuel, taxes, insurance) and indexed yearly.
However, if the employee reimburses his employer an amount at least equal to the taxable amount of the benefit-in-kind (the so-called own contribution), no benefit-in-kind will be withheld.
From January 1, 1997 no employee's social security contributions are due on the fringe benefit of the private use of a company car. Instead, the employer only pays a special social security contribution of 33%.
Besides the above-mentioned special social security contribution, the benefit-in-kind derived from the private use of a company car on which the employee is taxable is also subject to VAT at 21%.
Where the employee pays no contribution for the private use of a company car, the VAT due by a taxable company that has deducted 50% of the input VAT charged on car costs, can be calculated on the basis of a formula proposed by the Belgian VAT Authorities:
Fringe benefit – (fringe benefit/ 1.0855) = VAT due
Where the employee pays a contribution for the private use of the company car, VAT authorities require that VAT is paid on the amount charged.
Example: An employer puts a BMW 320d (11 fiscal hp) at the disposal of his employee. Yearly a benefit-in-kind is calculated based on a private use of 7,000 km. The employee also pays an own contribution of €125,00 a month.
Benefit-in-kind: 7,000km x 11.96 (11 fiscal hp) = €2.075,36
Driver contribution: €125,00 x 12 = €1.500,00
Taxable BIK: €575,36
VAT due on taxable BIK: €575,36 - (€575,36/1,0855) = €45,32
VAT due on driver contribution: €1.500,00 x 21/121 = €260,33
Total VAT due = €305,65
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