Tax reduction for foreign source income and marital quotient system
Residents of Belgium are taxable on their worldwide income. However income derived from foreign source may be exempted from Belgian income tax. This exemption is not complete, as this foreign income will be taken into account to determine the tax rates applicable to the Belgian source income (so-called exemption with progression reserve).
Despite two decisions of the Belgian Court of Arbitration, the Belgian tax authorities still calculate the exemption on an aggregate basis (i.e. even if only one spouse derives foreign income, the exemption is calculated taking into account the professional income of both spouses, also called “cumul method”) and always apply the Marital Quotient System (notional transfer between spouse of 30% of earnings up to a ceiling of EUR 7,710). This method could, in some cases, be disadvantageous.
The tax reform voted on August 10, 2001 adapted the Belgian income tax code in this respect :
- As from income year 2001, the Marital Quotient System will not be applied if it would be disadvantageous for the married couple.
- As from income year 2004, it will be clearly written in the income tax code that the exemption with progression reserve for foreign income must be calculated according to the “decumul method”.
For additional information on the Belgian tax reform, visit http://www.taxreform.be