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Belgium uses a progressive tax system for personal income tax beginning on January 1 and ending December 31. For the assessment year of 2010 the lowest rate is 25% and the top tax rate is 50% for all income over 34,330 euros. Monthly withholding is mandatory in Belgium even for self employed individuals. Belgium allows for many common tax deductions, such as dependent deductions for children. Municipal taxes are also added to personal income taxes. Municipal taxes are range for 0 to 9.5% of the tax payer's income tax payable (www.taxrates.cc, 2010). Belgium's personal income tax is one of the highest in the European Union Including social security an individual can end up paying 57.5% of their income to the Belgium government. The average income tax in Europe is 44.5% (expatica, 2009). Individuals who are not Belgium citizens but are living in Belgium are only taxed on income earned from a Belgium source. This is in an effort to avoid double taxation and not punish people for living in Belgium (www.taxrates.cc, 2010).
The corporate tax rate in Belgium is 33.99%. However, World Bank estimates that a 57% tax of profits actually applies when all taxes, such as property and fuel taxes are added together (World Bank, 2010). Smaller companies can take advantage of a progressive rate structure that starts at 24.98 %. There are several requirements a business must meet to qualify for this progressive rate structure. The two major requirements are that taxable income cannot exceed 322,500 euros and no more than 50% of the company can be owned by another company (www.taxrates.cc, 2010). For the most part the tax base of corporations is calculated using accrual methods. This is the accrual of worldwide income, but typically income from a foreign subsidiary is exempt from taxes. This is because of double taxation treaties that Belgium has signed with many countries to encourage other countries to do business with them (PWC).
Belgium refers to their sales tax as a value added tax (VAT). The value added tax is 21% on the majority of items. Lower rates of 12%, 6%, and 0% apply to a certain items (www.taxrates.cc, 2010). Food and transportation are examples of items that are taxed at a lower rate. It is a business's responsibility to collect the value added tax (expatica, 2009).
In 2005 Belgium made the transition from Belgian GAAP to the International Financial Reporting Standards (IFRS). The European Union requires all companies' consolidated financial statements listed in the market to be in convergence with IFRS as adopted by the EU, effective January 2005. In addition to this countries of the EU must allow the use of IFRS for unlisted companies and for unconsolidated financial statements of parent companies. Other companies were permitted to put off the adoption of IFRS until 2007, such as a company who is listed in the United States and uses US GAAP (Deloitte, 2010).
The IFRS are a set of standards created by the International Accounting Standards Board (IASB). The IASB's goal was to create a set of standards that would unify financial accounting across the world. The EU's decision to switch to implement IFRS was a large step in aligning capital markets across the world. This means that 7,000 European companies are now in compliance with IFRS. The implementation of IFRS is supposed to make capital cheaper to EU companies because it will now be easier to compare financial statements across borders. The use of common standards should make the EU market more globally transparent and competitive. By adopting IFRS instead of US GAAP the EU has put the United States now in a position to also lean towards convergence with IFRS.
Even with the EU's attempt to converge to IFRS there have been some obstacles. The EU has only adopted the EU's version of IFRS. The EU has not converged with IFRS completely as the IASB devised the standards. This version only mandates the IFRS standards that the EU has approved. A lot of the controversy over IFRS came because of the increased use of fair values instead of historical values. This caused the EU to remove parts of IAS 39 which focused on fair valuing financial instruments on the balance sheet. This will probably slow the convergence between US GAAP and IFRS, ultimately slowing down a true global set of accounting standards (Larson, 2009). Also, the EU member companies still rely heavily on their national GAAP for items other then consolidated financial statements. Some sort of national GAAP is usually still used by companies in areas where IFRS is not mandatory, such as for unconsolidated financial statements or unlisted companies. Also, National GAAP's, such as the Belgian GAAP are still used as a tax base for EU listed companies because they are historical in nature (Peyret, 2010). The EU is dedicated to the transition towards IFRS and away from national GAAP's but the convergence is still in process.