Personal income tax reform act published: what will change?

Higher net income for employees

To make employment more attractive, the reform introduces several measures:

• a gradual increase of the basic tax-free allowance to approximately €15,600 from assessment year 2031 onwards;

• a simplification of the calculation of the tax benefit linked to the tax-free allowance;

• an enhancement of the tax work bonus for lower-income employees;

• a permanent tax exemption for up to 240 voluntary overtime hours without overtime premium (360 hours in certain cases within the hospitality sector);

• an increase in the number of tax-favourable overtime hours with an overtime premium from 130 to 180 hours.

Tax changes for families

Several family-related tax benefits will also be reformed.

The increases to the tax-free allowance for the first and second child will be raised and aligned.

On the other hand, the conditions for the additional tax benefit for single parents will become more stringent.

In addition, the marital quotient will gradually be phased out:

• for non-retired taxpayers, the maximum benefit will be reduced by half by 2030;

• for pensioners, an extensive transitional regime will apply.

Changes for pensioners and benefit recipients

The increase in the tax-free allowance will be partly offset by a gradual reduction of certain tax reductions applicable to pensions and unemployment benefits.

Furthermore:

• living wage benefits (social integration income) will henceforth be treated as taxable replacement income, although a specific tax reduction will apply;

• pensioners who continue working as employees after retirement will be subject to a separate tax rate of 33%.

New measures for the self-employed

Self-employed individuals, whether operating as their main or secondary occupation, will soon be able to benefit from a new entrepreneur deduction. As a result, 10% of the adjusted business profits and professional income will be exempt from taxation.

The rules governing advance tax payments will also change.

Self-employed taxpayers earning business profits or professional income will no longer be required to make advance tax payments. Please note that this measure does not apply to company directors.

Voluntary advance tax payments will remain possible and will continue to entitle taxpayers to a tax credit ("bonus").

In addition, a fifth advance tax payment period will be introduced, running from 21 December of the relevant tax year until 20 February of the following year.

Other tax measures

The reform also includes several more specific tax measures.

A new de minimis rule will be introduced. Under this rule, occasional sales via online platforms such as Vinted or 2dehands, up to approximately €2,000 per year, will be irrefutably presumed to constitute the normal management of private assets.

In addition:

• the tax treatment of maintenance payments made in the form of a lump-sum capital payment (taxed as a notional annuity) will be further aligned with the previously announced gradual reduction of the taxable percentage applicable to maintenance payments;

• from 2028 onwards, the special social security contribution will be calculated on an individual basis instead of at household level;

• a correction factor will be introduced for the municipal surcharge in order to limit revenue losses for municipalities.

Impact on companies

Limitation of benefits in kind

Benefits in kind that are valued on a lump-sum basis, such as company cars or employer-provided housing, may henceforth represent no more than 20% of the total remuneration of employees or company directors.

If this threshold is exceeded:

• for company directors, the company will lose the reduced corporate income tax rate of 20% on the first €100,000 of taxable profits;

• for employees, the excess amount will be subject to a separate 7.5% tax at company level.

This measure will apply as from assessment year 2027 and may have a significant impact on companies that currently rely heavily on remuneration packages consisting of benefits in kind.

Higher minimum remuneration for company directors

Under certain conditions, small companies may benefit from the reduced corporate income tax rate of 20% on the first €100,000 of taxable profits.

One of these conditions is that at least one company director receives a minimum level of remuneration.

This minimum remuneration will increase from €45,000 to an indexed amount of approximately €51,000 (assessment year 2027).

This stricter requirement will also affect the crediting of withholding tax on dividends distributed by DBI investment funds (DBI SICAVs), as the increased minimum remuneration has also become a condition for applying that regime as from assessment year 2026.

Copyright regime for computer software

Finally, the reform includes an important amendment to the tax regime governing copyright income derived from computer software.

We will discuss this specific change in more detail in a separate article.