New tax exemption for severance pay

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Date:
28 Jun 2011

<p>The Belgian Official Gazette has published today the Act based on which the remuneration received by employees during their notice period will be exempt from tax up to an amount of 425 EUR (not indexed). As from 1 January 2014, the exempt amount will be doubled. The same exemption applies when the employee receives a severance pay.</p>

The Belgian Official Gazette has published today the Act based on which the remuneration received by employees during their notice period will be exempt from tax up to an amount of 425 EUR (not indexed). As from 1 January 2014, the exempt amount will be doubled. The same exemption applies when the employee receives a severance pay.

This exemption, however, involves some limitations. Thus, there is no exemption when the employment contract is being terminated:

  • by the employee; or
  • during the trial period; or
  • for serious cause; or
  • for the purpose of accessing a pension or bridging pension regime.

Neither does the exemption apply in case of termination of an employment contract for a definite period or for a specific work assignment.

Also, the tax exemption is limited per termination and per year. Additionally, the tax exemption has to be first deducted from the remuneration paid during one's notice period.

With this exemption, the distinction between a severance pay of more or less than 870 EUR, has instantly been brought to an end. Because the amount of the compensation under this cap will, from now on, almost be entirely exempt (or completely as from 1 January 2014), this distinction will be of no importance anymore.

This new regulation will enter into force on 1 January 2012 for notice periods that will be served as from that date. Consequently, there is no point in postponing the payment of the severance pay until a date later than 1 January 2012 in the event the dismissal will already be notified during 2011.