This article has been updated. It was originally published on 28 March 2024
One of the ways that employers can reward their employees is by providing loans that are either interest-free or at a reduced rate of interest. Such loans are not tax-free to the employees, as they are considered benefits in kind that are subject to income tax and social security contributions. Advances granted for longer periods – i.e., not recovered with the next payroll run -- also can constitute a taxable benefit in kind.
The value of the benefit in kind is calculated by comparing the interest rate applied to the loan with the official rate of interest set by the government. The official rate of interest varies depending on the type and duration of the loan and is published annually in the Belgian Official Gazette.
On January 25, the Belgian government announced changes to the official rates of interest, which affect the valuation of the benefit in kind from an employer-provided loan. The changes are as follows:
- The rates have been updated to take into account market interest rates, which have significantly increased in recent times;
- For mortgage loans with a fixed rate of interest, the historical difference in rates depending on whether the loan is guaranteed by a mixed life insurance policy has been abolished; and
- The formula used to determine the benefit in kind for non-mortgage loans with a fixed term was found to be actuarially incorrect and has been modified.
Although published recently, the new rates of interest apply retroactively to benefits in kind provided from 1 January 2023. Therefore, employers and employees should be aware of these changes and adjust their payroll tax and social security obligations accordingly.
For more information on the taxation of benefits in kind from employer-provided loans, please consult your regular BDO contact or the author of this article.