European salary survey. Salary costs versus net wages and. net spendable income

27 

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Deloitte Belastingconsulenten / Conseils Fiscaux

Global Employer Services Kortrijksesteenweg 1146 9051 Gent Belgium Tel. + 32 9 393 74 60 Fax + 32 9 393 74 61 www.deloitte.be

Deloitte

European salary survey –

Salary costs versus ‘net wages’ and

‘net spendable income’

Written by:

Patrick Derthoo

– Partner

Els Wouters

– Manager

Delphine Vanassche

– Experienced Junior

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Table of content

1 – Salary survey

4

1.1 – Figures

4

1.2 – Graphics

4

1.3 – Analysis of the figures

4

1.3.1 – Blue collar workers

4

1.3.2 – White collar workers

6

2 – Salary survey – Net spendable income

10

2.1 – Figures

10

2.2 – Graphics

10

2.3 – Analysis of the figures

10

2.3.1 – Child allowance

10

2.3.2 – Housing costs and cost of living

11

2.3.3 – Net spendable income

11

3 – Tax friendly remuneration techniques

13

3.1 – Meal vouchers (not included in the computations previously discussed)

13

3.1.1 – Belgium

13

3.1.2 – Germany, Poland and the United Kingdom

13

3.1.3 – France

13

3.1.4 – Ireland

13

3.1.5 – Italy

13

3.1.6 – The Netherlands

13

3.1.7 – Spain

14

3.1.8 – The Czech Republic

14

3.1.9 – Sweden

14

3.2 – Representation allowance (not included in the computations previously discussed) 14

3.3 – Other tax friendly remuneration techniques

15

3.3.1 – Germany

15

3.3.2 – Ireland

15

3.4 – Company cars in the different countries

15

3.4.1 – Belgium

15

3.4.2 – Germany – France – Ireland – The Netherlands – Spain – The Czech Republic

15

3.4.3 – Italy

16

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3.4.5 – The United Kingdom

16

3.4.6 – Sweden

16

4 – Comparison in view of social security and building up legal pension rights

17

4.1 – Social security

17

4.1.1 – Belgium

17

4.1.2 – Germany

17

4.1.3 – France

17

4.1.4 – Ireland

17

4.1.5 – Italy

17

4.1.6 – The Netherlands

18

4.1.7 – Poland

18

4.1.8 – Spain

18

4.1.9 – The Czech Republic

18

4.1.10 – United Kingdom

18

4.1.11 – Sweden

18

4.2 – Building up legal pension pension rights

19

4.2.1 – Belgium

19

4.2.2 – Germany

19

4.2.3 – France

19

4.2.4 – Ireland

19

4.2.5 – Italy

19

4.2.6 – The Netherlands

19

4.2.7 – Poland

19

4.2.8 – Spain

19

4.2.9 – Czech Republic

20

4.2.10 – United Kingdom

20

4.2.11 – Sweden

20

4.3 – Minimum wages

20

5 – R&D Incentive

22

6 – Conclusion

26

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1 –

Salary survey

In this survey we have taken a number of gross remuneration packages against which we compared the related employer cost versus the respective net income applicable in different countries.

Below, you can find our related comments with particular focus on the following components: net income, employer cost and net/cost ratio.

Besides Belgium, we have considered another 10 European countries for the purpose of this survey, i.e. our direct neighboring countries Germany, France, The Netherlands and the United Kingdom and, furthermore, Italy and Spain as a selection for southern Europe, Ireland as it hosts many companies’ headquarters which makes it a direct competitor of Belgium in this respect, Sweden as a representative for Scandinavia, Poland as a low cost production country within Europe (in comparison with China and Asia) and finally the Czech Republic which is a key player in the automotive industry.

1.1 – Figures

Reference is made to our excel overviews.

1.2 – Graphics

Reference is made to our excel overviews.

1.3 – Analysis of the figures

The enclosed computations always envisage 2 different personal situations, i.e. the situation of a single tax payer versus the situation of a married tax payer having a non-working spouse and 2 dependent children at charge. Although currently an ‘average’ family rather has two working partners, we have opted for the above mentioned personal situations to clearly reflect the impact of the personal situation of the tax payer. As we will also further explain, the related tax impact is most significant in Belgium, Germany and France. All computations take into account the current applicable social security and income tax legislation and the 2010 tax brackets.

Furthermore, for the purpose of this study, we have assumed that no important legal changes are in the pipeline in the countries involved which could have a significant impact on the computations and/or our conclusion.

1.3.1 – Blue collar workers

As shown by the detailed computations, we can conclude the employer cost generally is the highest in Belgium, however closely followed by France. When the gross income increases from 21.958,90 EUR up to 31.940,22 EUR, the related employer cost significantly increases as well in Italy, the Czech Republic, Spain and Sweden.

The Belgian tax burden is significantly higher for a single blue collar worker compared to a blue collar worker who is married to a non-working spouse and has 2 children at charge. With respect to scenario 1 a similar trend can be observed in Germany, Italy, the Netherlands and the Czech Republic (the impact on the respective net income roughly varies from 1.600,00 EUR up to 2.000,00 EUR whereas the impact on the Belgian net income exceeds 4.000,00 EUR).

In scenario 2, the Belgian single blue collar worker even suffers an additional tax burden of approximately 4.770,00 EUR whereas the additional tax burden following from the different family situation in Germany, France, Ireland, Italy, Poland and the Czech Republic only range between 3.200,00 EUR and 1.600,00 EUR.

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In Sweden and in the United Kingdom no difference is made in view of the personal situation of the tax payer whatsoever; the tax burden only depends on the salary level.

Of all countries envisaged in this study, Belgium is the only country where a blue collar worker is subject to separate social security and labor law regulations (with respect to vacation pay, redundancy, etc.). The net income of the Belgian blue collar worker as reflected in the computations includes the net vacation payment which the blue collar worker typically receives from the government instead of receiving it via the employer. In this respect, we assumed the net vacation pay is based on 241 working days a year. As a result the Belgian blue collar worker scores high on the European list with respect to annual net income (see below).

1.3.1.1 – Married (non-working partner), 2 children at charge

When we look at the figures of a married person with 2 children at charge and a non-working partner, we see that an annual gross salary of 21.958,90 EUR results in the highest net income in Belgium (i.e. highest employer cost but also the highest net income), closely followed by Ireland (who has a better net/cost ratio). Increasing the gross income up to 31.940,22 EUR a year, the Irish worker earns the highest net income while the Belgian worker switches to second place.

When we look at the net/cost ratio for scenario 1 (annual gross salary package of 21.958,90 EUR), Belgium takes the 4th place with 67,72% and preceded by Ireland, the Netherlands and the United Kingdom. France takes the last place with a net/cost ratio of 55,27% (while its ends at the 9th place when focusing on net income). Germany has a net/cost ratio of 65,50% and takes the 5th place.

When the annual gross income increases up to 31.940,22 EUR, the Belgian net/cost ratio decreases to 55,87% which puts Belgium at the 10th place (i.e. second highest net income but almost lowest net/cost ratio; only the French net/cost ratio is lower as it amounts to 54,57% whereas the French net income gets the 6th place).

When we focus on the figures specifically related to Belgium and its direct neighboring countries, a Belgian blue collar worker appears to earn a higher net income than his colleagues in the Netherlands, the United Kingdom, France and Germany. Taking into account an increased annual gross salary (scenario 2) the Belgian blue collar worker still receives the highest annual net income, followed by his colleagues in France, the United Kingdom, the Netherlands and, finally, Germany where the net income always turns out to be the lowest.

However, when focusing on the net/cost ratio, the United Kingdom and the Netherlands do better than Belgium in both scenarios. In scenario 2 even Germany has a better net/cost ratio than Belgium; the French net/cost ratio remains the lowest in this situation.

1.3.1.2 – Single, no children at charge

When we compare the annual net income a blue collar worker earns in Belgium with the net income his European colleagues earn, we can conclude that Belgium takes the 3rd position with respect to the salary package envisaged in scenario 1 (i.e. annual gross income of 21.958,90 EUR). Only Ireland and the Netherlands do better. When the annual gross income increases up to 31.940,22 EUR, Belgium drops to the 9th place as a higher net income can be achieved in Sweden, the United Kingdom, Spain, France, the Czech Republic and Poland.

When we compare the net/cost ratio (55,18% and respectively 45,97%), Belgium’s position is significantly worse compared to the situation of a married individual having a non-working spouse and 2 dependent children. Considering an annual gross income of 21.958,90 EUR, the Belgian net/cost ratio ends at the 8th place (the Czech Republic, Italy and France do worse) and taking into account an annual gross income of 31.940,22 EUR, Belgium even tumbles to the last place.

If we only look at the figures for Belgium and its direct neighboring countries, the Belgian single worker earns a higher net income compared to his colleagues in the United Kingdom, France and Germany. When looking at the increased annual gross income of scenario 2, not only the Dutch but also the French and the English workers earn a higher net income compared to the Belgian worker. The annual net income remains the lowest in Germany.

When however focusing on the net/cost ratios, the UK, the Netherlands and Germany do better than Belgium in both scenarios. In scenario 2, even France precedes Belgium and, consequently, Belgium ends last with a net/cost ratio of 45,97%.

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1.3.2 – White collar workers

Also for white collar workers, the Belgian tax burden is considerably higher for a single tax payer than for a married tax payer with two children at charge and a non-working spouse. The impact of the personal situation ranges from 4.000,00 EUR up to 5.600,00 EUR. With the exception of Spain, the UK, and Sweden, we noticed a similar (but usually less significant) trend in the remainder of the European countries. However, it is remarkable that as of a pay level of 50.000,00 EUR the impact of the German tax burden exceeds the Belgian tax impact in this respect. Furthermore, as of such salary level, even the French and Irish tax impact exceeds 4.600,00 EUR. Looking at the higher wage categories, the impact of the family situation is huge in Germany and France as the tax difference almost amounts to 11.000,00 EUR in Germany while in France it even exceeds 12.500,00 EUR.

In Sweden and in the UK no tax differences occur based on the personal situation of the tax payer. In the Netherlands the related tax impact increases gradually but with a maximum of 1.859,00 EUR and in the Czech Republic the difference in this respect always amounts to 1.958,00 EUR. In Spain and Italy the related difference fully disappears as of an annual gross income of 125.000,00 EUR.

1.3.2.1 – Employee with an annual gross income of 27.000,00 EUR

In this scenario, the Belgian employer cost now reaches the 9th place followed by the Czech Republic and France. The related employer costs in Sweden, Italy and Spain are in line with the Belgian employer cost. When comparing the net income, Belgium comes in 3rd place considering a married tax payer having a non-working partner and 2 dependent children. However, when looking at a single employee, Belgium drops to the last place.

When comparing the net/cost ratios we see a similar evolution: the Belgian net/cost ratio gets the 7th place when looking at the situation of a married individual having a non-working spouse and 2 dependent children. In this scenario, Belgium is followed by Sweden, Italy, the Czech Republic and France. However, the Belgian ranking drops down to the last place with 49,14% when we consider the situation of a single tax payer having no dependent children.

1.3.2.2 –

Employee with an annual gross income of 50.000,00 EUR

As of scenario 4, the computations take into account the benefit of the personal use of a company car. Although this is a tax friendly remuneration item from a Belgian perspective, the introduction of the company car does not entail the expected substantial improvement of Belgium on the European rankings.

When we compare the employer costs, Belgium takes the 8th place. In Sweden, the Czech Republic and France only, the employer cost is higher than the Belgian one.

The Belgian employee having a non-working spouse and 2 dependent children earns a higher net income

compared to his Italian and Dutch colleagues.

Belgium drops from the 9th to the 10th place when a single employee is considered due to the increased tax burden following his single status. The Belgian tax burden increases by 5.155,14 EUR while the increase of the Dutch and Italian tax burden is limited to 1.858,90 EUR respectively 1.477, 16 EUR. The tax difference in Germany amounts to 5.346,35 EUR and thus exceeds the Belgian impact of the personal situation of the tax payer. As a result Germany tumbles from the 8th to the very last place when considering the change in the personal situation.

Looking at the net/cost ratio, Belgium is in last place in both scenarios with respectively 47,86% and 40,14%. Italy closely follows with 47,88% in the situation of a married employee.

Remark:

Note that the social security contributions (employee and employer) in the Netherlands and Spain have reached their maximum in this scenario. In the Netherlands, the employer contributions are calculated on a maximum income of 48.715,65 EUR and the employee contributions are to be levied on a maximum income of 33.189,00 EUR. In Spain the employer contributions are to be calculated on a maximum income of approximately EUR 40.384,00 and the employee contributions are to be calculated on a maximum of EUR

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38.376,00.

In Sweden the employer social security contributions are not capped, but the employee contributions are limited to 7% of the gross income with a maximum of 2.994,18 EUR (i.e. as from a gross income of approximately 42.774,00 EUR).

In this respect, we also refer to the brief overview reflected on page 8.

1.3.2.3 – Employee with a gross annual income of 75.000,00 EUR

When comparing the employer costs, Belgium is in 9th position. Only the Italian and French employer costs are more expensive in this scenario. In Sweden, the situation is comparable to Belgium. The Czech Republic, having an employer cost more expensive than in Belgium in the previous wage category, now precedes us as in this scenario, the Czech social security contributions reached their cap (the Czech employer social security contributions amount to 34% of the gross income, capped to EUR 23.651,00). In view of annual net income, Belgium is also in 9th position and precedes the Netherlands and Italy as long as it concerns a married tax payer having a non-working spouse and 2 children at charge. Belgium moves to the last place however if the situation of a single tax payer is considered.

The Belgian net/cost ratio amounts to 41,98% in case of a married tax payer with 2 children at charge which brings us in 10th place (only Italy does worse with 39,67%). In the event of a single tax payer, Belgium drops to the last place.

Remark:

The Czech and German social security contributions (employee and employer) have reached their maximum in this scenario. In Germany, the employer and employee contributions (39,55%) are calculated up until a maximum gross income of 66.000,00 EUR with regard to the contributions relating to retirement and unemployment and on a maximum gross income of 45.000,00 EUR with regard to the contributions relating to disease and disability. The Czech employer social security contributions amount to 34% of the gross income with a maximum of 23.651,00 EUR and the Czech employee social security contributions amount to 11% of the gross salary up to a maximum of 7.652,00 EUR.

In this respect, we also refer to the summary overview on page 8.

1.3.2.4 – Employee with a gross annual income of 125.000,00 EUR

In this scenario, the Belgian employer cost is in 10th place, only the French employer cost is more expensive. Also in this scenario the Swedish employer cost remains in line with the Belgian one.

As of this wage level, an employee in Belgium receives the lowest net income compared to the other European countries investigated. Their Dutch and Italian colleagues earn however a similar net income. In terms of net/cost ratio Belgium gets the last place both for a married tax payer with 2 dependent children as a single tax payer. Italy only just precedes Belgium in this respect.

1.3.2.5 – Independent director with a gross annual income of 125.000,00 EUR

Looking at the same gross income as in the previous scenario however taking into account the status of an independent director (who does not work with a private company or PSC), the computations show a remarkable difference in employer cost. Belgium then ranks first, together with Poland. This arises because only Belgium and Poland have a separate employment structure in place for an independent director entailing exemption of the in principle mandatory national employer social security contributions.

Notwithstanding the Belgian employer cost is now much more reasonable the corresponding net income is still the lowest in Belgium in this scenario.

Further to the Belgian net/cost ratio which amounts to 48,32% (for a married tax payer having a non-working spouse and 2 dependent children) or to 43,87% (for a single tax payer), Belgium takes the 9th place and thus precedes France (47,32% and respectively 40,25%) as well as Sweden (40,21%).

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1.3.2.6 – General remarks

1. We conclude the higher the gross income, the bigger the gap between Belgium and the other investigated European countries as far as the corresponding net income concerns. This can be explained by the fact that in Belgium the highest tax bracket is easily reached compared to the other countries as also reflected below.

Country Highest tax rate As of a gross income exceeding<

The Czech Republic 15% Entire income

Poland 32% 85.528,00 PLN (+/- 21.385,00 EUR)

Belgium 53,50% 34.330,00 EUR

Ireland 41% 36.400 EUR (S), 45.400 EUR (G)

Spain 43% 53.407,00 EUR

The Netherlands 52% 54.367,00 EUR

Sweden 54,65% 532.700 SEK (+/- 55.190,23 EUR)

France 40% 69.783,00 EUR

Italy 43% 75.000,00 EUR

The United Kingdom 50% £ 150.000,00 (+/- 182.120,61 EUR)

Germany 45% 250.730 EUR

2. Furthermore, we conclude the higher the gross income, the bigger also the gap between Belgium and the other investigated countries in view of the employer cost. This naturally follows from the fact that the Belgian employer and employee social security contributions are uncapped unlike the major part of the other countries involved. As also reflected in the below table, the highest and unlimited social security contributions are due in France.

15%

32%

40%

41%

43%

43%

45%

50%

52% 53,50%54,65%

0%

10%

20%

30%

40%

50%

60%

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Country Capped or uncapped social security contributions As of an income exceeding< Belgium Uncapped Employees: 13,07% Employers: approximately 35% Ireland Uncapped

Employees: approximately 10% but certain exemptions apply

Employers: approximately 10,75% and no exemptions apply

Spain Capped Employees: 6,35% up to a maximum

income of 38.376,00 EUR

Employers: approximately 29,7% up to a maximum income of 40.384,00 EUR The

Netherlands

Capped Employees: 31,15% up to a maximum

income of 32.738,00 EUR and with a maximum exemption of 3.185,00 EUR Employers: approximately 19,43% up to a maximum income of 48.715,65 EUR with a maximum of 7.669,25 EUR

Sweden Uncapped employer contributions (approximately 34%)

7% for the employees but only up to a maximum income of 42.774,00 EUR

France Uncapped Employees: approximately 21,7% Employers: approximately: 42,10 % Italy Uncapped Employees: approximately 10-12% Employers: approximately 30 to 38% Poland Uncapped Employees:

Health insurance uncapped 2,45%; Pension and invalidity max. 9.890,29 PLN Employers:

Pension max. 9.211,49 PLN; Invalidity: max. 4.247,10 PLN;

Accident insurance max. 1.803,60 PLN; Labor fund 2,45%; EGBF 0,1%.

The United Kingdom

Uncapped

Employees: approximately 11% but certain exemptions apply

Employers: approximately 12,8 and similar exemptions apply

Germany Capped Employees and employers together pay

(almost 50/50) approximately 39,55% up to a maximum income of 66.000,00 EUR for pension and unemployment and up to 45.000,00 EUR for sickness and invalidity).

The Czech Republic

Capped Employees: approximately 11% up to a

maximum income of 69.563,64 EUR Employers: approximately 34% up to a maximum income of 69.561,76 EUR.

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2 –

Salary survey –

Net spendable income

In this chapter we started from the same figures as discussed in the previous chapter, however, these figures are now looked at into further detail but from another perspective. We have additionally included legal child allowances, housing costs and cost of living and have also taken a deeper look at the local social security regimes as well as the national legal pension schemes. Following this approach, we determined the related “net spendable income”.

2.1 – Figures

Reference is made to our excel overviews.

2.2 – Graphics

Reference is made to our excel overviews.

2.3 – Analysis of the figures

2.3.1 – Child allowance

In the majority of the examined countries, parents receive an amount of child allowance which is generally lower than in Belgium (i.e. in Sweden, the Netherlands, the United Kingdom, France and Italy). In the Czech Republic and Poland, no child allowance whatsoever is granted. As also reflected in the below table, the amount of child allowance in Belgium ranks at 4th position, after Germany which generally grants the highest amount of child allowance however, it fades out as of a certain gross income level.

Country Average annual amount of child allowance

for 2 dependent children

Germany 4.416,00 EUR (fading out as of a certain income level)

Spain 3.876,00 EUR

Ireland 3.600,00 EUR

Belgium 3.198,48 EUR

Sweden 2.797,33 EUR

The Netherlands 2.061,28 EUR

United Kingdom 1.543,16 EUR

France 1.487,04 EUR

Italy Maximum 337,79 EUR (gradually decreasing in view of annual gross income)

Poland 0,00 EUR

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2.3.2 – Housing costs and cost of living

2.3.2.1 – Housing costs

The housing costs included in our computation overviews have been determined based on generally available data collected for capital cities (and which have been derived from public government statistics). These data reflect average housing costs for a certain salary level and taking into account the area of the related capital city. Details with respect to size and environment of the related housing accommodation are not available in this respect.

We cautiously conclude that current housing costs are generally more expensive in Paris, Milan/Rome, Amsterdam and London compared to Brussels.

2.3.2.2 – Cost of living

The amounts of cost of living as taken into account for our study have also been based on generally available data for capital cities as collected by service providers who also interpret the figures in view of their national market investigations of local prices of food, groceries, fruit, vegetables, cigarettes and alcoholic drinks, personal hygiene, furniture and household goods, clothes, recreational activities, car and fuel costs, public transportation, domestic support and meals at restaurants.

Based on these figures, Poland, the Czech Republic, Spain and Italy have the lowest national cost of living. The Brussels’ cost of living appears to be lower than in our neighboring countries (Amsterdam, London, Düsseldorf/Hamburg and Paris). Also Stockholm and Dublin would be more expensive in view of cost of living.

2.3.3 – Net spendable income

2.3.3.1 – Blue collar workers

Belgium was first in class with respect to the net income corresponding to a gross annual income of 21.958,00 EUR and taking into account a married person having a non-working spouse and 2 children at charge. When adding the child allowance, the cost of housing and the cost of living, Belgium drops to the 4th place, behind Poland, Spain and the Czech Republic. When focusing on the following wage category (gross annual income of 31.940,22 EUR) this trend continues; the Belgian net income came in 2nd place whereas the Belgian net spendable income only ranks 6th. The Belgian net spendable income still does better than our direct neighboring countries: Germany (7th place in both scenarios), the Netherlands (8th and 9th place), France (10th place in both scenarios) and the United Kingdom that closes the row in both situations. So despite the fact the Belgian’s net income was the highest, the net spendable income is higher in Poland, Spain and the Czech Republic when looking at the lowest wage category. When the gross annual income increases up to 31.940,22 EUR also Ireland and Sweden do better in view of net spendable income but none of our direct neighboring countries precede Belgium in this respect.

When we compare the new data of scenario 1 (gross annual income of EUR 21.958,90) for a single person without children at charge, Belgium drops on the European ranking from the 3rd place (net income) to the 6th place (net spendable income). However, in scenario 2 (gross annual income of 31.940,22 EUR), Belgium rises from the 9th place (net income) to the 6th place (net spendable income).

In terms of net spendable income, Belgium does for both wage categories better than the Netherlands, Italy, France, Germany as well as the United Kingdom.

2.3.3.2 – White collar workers

1) Annual gross income of 27.000,00 EUR

Looking at the data for a married sole earner with 2 dependent children, Belgium drops from 3rd to 6th place (in terms of net income only the Netherlands and Ireland did better). Consequently, the Belgian employee still has a higher net spendable income than his colleagues in Germany, the Netherlands, Italy, France and the United Kingdom.

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With reference to the situation of the single tax payer, the Belgian net income ranked last place in this scenario but Belgium ends on the 9th place when the net spendable income is envisaged, i.e. exceeding the French and the UK net spendable income.

2) Annual gross income of 50.000,00 EUR

The net income derived in this scenario by a Belgian married employee having a non-working partner and 2 dependent children ranked 9th place (only Italy and the Netherlands did worse). With respect to the net spendable income Belgium achieves a better ranking, i.e. 6th place and thus preceding its neighboring countries France, Germany, Italy, the Netherlands and the United Kingdom.

The net income of the Belgian employee with a single status came in 10th position (only Germany did worse) whereas the net spendable income at this salary level ranks 9th place and slightly also precedes the Netherlands.

3) Annual gross income of 75.000,00 EUR

The Belgian employee who is married and has 2 dependent children earns a net income exceeding that of his Dutch and Italian colleagues and thus ranking 9th place. Looking at the net spendable income in this scenario, the Belgian employee takes the place 8 on the European ranking as in this scenario he gets a higher net spendable income than his UK colleague as well.

The net income of the single Belgian employee who has no dependent children ranked last place but his net spendable income gets the 10th place, preceding the Netherlands.

4) Annual gross income of 125.000,00 EUR

A Belgian employee, married and having 2 dependent children, got the lowest net income out of a gross annual salary of 125.000,00 EUR. The corresponding net spendable income however takes Belgium up to the 8th place, suddenly preceding Italy, the United Kingdom and the Netherlands. The net income of a single Belgian employee was also the lowest on the European ranking while the net spendable income he derives from this gross salary also remains the lowest.

2.3.3.3 – Independent director – annual gross income of 125.000,00 EUR

The net income a Belgian independent director (not having a personal service company) in principle derives from an annual gross income of 125.000,00 EUR is the lowest compared to his other European colleagues (last place in both scenarios).

The net spendable income he however derives from such gross income ranks 9th place assuming he is married and has 2 dependent children. Consequently, he is better off than his UK and Dutch colleagues. Envisaging a Belgian independent director who has a single personal tax status, the net spendable income

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3 –

Tax friendly remuneration

techniques

In the 11 European countries we examined, we have encountered tax friendly remuneration techniques which can be used to optimize a salary package.

Please find below an overview of a number of such local tax friendly remuneration techniques (not exhaustive). In this respect, we could say Belgium does rather well.

3.1 – Meal vouchers (not included in the computations previously discussed)

3.1.1 – Belgium

Meal vouchers are frequently granted to employees in Belgium and mainly (but not only) to blue collar workers and employees earning ‘lower’ wages. In for example the scenarios 1 to 3, we can easily assume the employer would generally and most probably grant the worker or employee the benefit of a meal voucher per working day. The related employer cost amounts to approximately 1.183, 31 EUR per year (assuming each meal voucher has a net value of 6,00 EUR and the beneficiary contributes 1,09 EUR per voucher taking into account 241 working days per year => employer cost = 4,91 EUR * 241) which also equals the net advantage for the beneficiary (meal voucher of 6,00 EUR a day in which respect he contributes 262,69 EUR annually). As a standard, we can consider a net value of 6,00 EUR per meal voucher, however, depending on specific (company and/or industry related) regulations, the employer could grant meal vouchers having a net value slightly lower or higher than 6,00 EUR.

3.1.2 – Germany, Poland and the United Kingdom

In Germany, Poland and the United Kingdom, no system of tax friendly meal vouchers or similar benefits exist.

3.1.3 – France

French employees do generally receive similar benefits. The maximum cost born by the employer amounts to 5,21 EUR and 40 to 50% of the total cost should be borne by the employee. Consequently, the maximum value of such French `lunch ticket’ in principle ranges between 8,68 EUR and 10,42 EUR.

3.1.4 – Ireland

Ireland also has a system of tax friendly meal benefits but it is not fully exempted from social security and/or income taxes as it is in for example in Belgium, France and other countries as referred to below.

3.1.5 – Italy

It is standard practice in Italy to grant a meal voucher for each working day. The net value of the voucher is determined via a collective labor agreement and the benefit is exempted from social security and income taxes. The Italian voucher approximately amounts to 5,29 EUR per voucher.

3.1.6 – The Netherlands

The Netherlands do not have a system of tax free meal vouchers. They however have a system of tax friendly treatment of meal benefits. In this respect, the employer can reimburse the employee the full lunch cost in case the lunch has a business character for at least 10%. Such refund is not subject to Dutch individual income taxes. Furthermore, the employer can also reimburse the employee his/her private lunch

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sum evaluation of the related private lunch costs amounts to 4,20 EUR for hot meals and 2,20 EUR for other meals.

Finally, it is also possible the Dutch employer considers a fixed taxable benefit on behalf of the employee in case a reimbursement of lunch costs occurs regularly (as is common practice in the Netherlands).

3.1.7 – Spain

Depending on the stipulations of the collective bargaining agreement applicable in a certain

company/industry, Spain also applies a tax friendly system for meal vouchers. The position or function of the individual concerned as well as the industry and the size of the company affect the related regulations. On average, a Spanish meal voucher has a net value ranging between 6,00 EUR and 10,50 EUR and the related employee benefit is exempted from social security and individual income taxes.

3.1.8 – The Czech Republic

The Czech Republic applies a system similar to that of Belgium. In practice, the employer will deduct 2,08 EUR per voucher as a business expense. The non-deductible portion (i.e. 0,57 EUR) is in principle deducted from the employee’s net salary as a personal contribution. The average net value of the Czech meal voucher amounts to 2,65 EUR (i.e. an personal benefit of 2,08 EUR per voucher considering the deduction of the personal contribution). The related benefit is not subject to Czech social security and/or income taxes.

3.1.9 – Sweden

Sweden has no tax free system in place for meal vouchers. All benefits granted by the employer are in principle taxable on behalf of the employee at current market value.

However, in case the employer takes at charge the employee’s cost related to 3 meals a day, it is possible to report a taxable benefit of 20,00 EUR per day on behalf of the employee in this respect. This would in particular (but rather exceptional) circumstances be tax advantageous for the employee and the employer.

3.2 – Representation allowance (not included in the computations previously discussed)

In Belgium an employer can grant its employees a lump sum allowance which is not subject to Belgian social security and income taxes provided certain conditions are met. This favorable Belgian salary item could be additionally included In the detailed scenarios whereas the other European countries involved do not have a similar remuneration technique. In accordance with common Belgian practice (i.e. almost all employees in certain industries receive, as of a certain salary level, such fixed cash benefit which is not subject to social security and income taxes) we could additionally include a representation allowance in the computations reflected in scenarios 4 to 6.

In the wage category of scenario 4 we could as a standard consider a Belgian representation allowance of 100,00 EUR per month (i.e. 1.200,00 EUR on year base). The ranking of the married Belgian employee with 2 dependent children would improve from 9th to 8th place in terms of net income, i.e. preceding Germany. In terms of net spendable income the representation allowance does not immediately result in a changed ranking for Belgium in this scenario.

The net income of a single Belgian tax payer stays in 10th place whereas the ranking in view of net spendable income improves from 9th to 8th place and thus preceding the United Kingdom.

In the wage category reflected in scenario 5, a representation allowance of 175,00 EUR per month (i.e. 2.100,00 EUR per year) could be included as a fair market representative. Consequently, the Belgian’s net income would remain in 9th place but approaches the net income derived by a Swedish married tax payer with 2 dependent children. With respect to the net spendable income Belgium raises one place and ends 7th in the European ranking pushing Germany to the 8th position.

The net income of a single Belgian employee in this wage category remains the lowest in Europe even when taking into account the above mentioned representation allowance. However, it gets very close to the net income of a German single employee.

The ranking of the net spendable income of the single Belgian employee improves 1 place when considering the representation allowance and takes 9th position leaving Germany behind.

Looking at scenario 6 and adding a representation allowance of 250,00 EUR per month (i.e. 3.000,00 EUR on year base), the Belgian net income derived by a married tax payer with 2 dependent children ranks 9th instead of last. As such Belgium exceeds both Italy and the Netherlands. The Belgian net spendable income

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remains unchanged, i.e. 8th in row. However, the gap with the Dutch, UK and Italian net spendable incomes clearly enlarges (exceeding a difference of 5.000,00 EUR net).

In this scenario, the net income a single employee derives in Belgium remains the lowest within Europe whereas Belgium its ranking in view of net spendable income changes from last to 10th place which is better than the net spendable income derived by a Dutch single in this wage category.

3.3 – Other tax friendly remuneration techniques

3.3.1 – Germany

Germany has a variety of tax friendly remuneration techniques having however minor impact. For example the 'kindergarten' allowance, paid for by the employer, free from social security and income taxes provided certain conditions are met.

The employer can also grant the employee approximately 220,00 EUR per month to build up pension rights. Such allowance is also exempted from social security and income taxes if certain conditions are met.

3.3.2 – Ireland

According to the Irish ‘flat rate expense system’, an employee can deduct a fixed amount from his taxable income to decrease his tax burden. The actual amount to be deducted does not require any proof from the individual as it is determined by the Irish tax authorities based on the employee’s function and industry. For example a saleswoman can deduct a fixed amount of 121,00 EUR per year while an Irish doctor can deduct 695,00 EUR per year from his taxable income without further proof or supporting documents.

3.4 – Company cars in the different countries

As already mentioned above, our computations take into account the benefit of a company car as of scenario 4. Although this benefit in kind constitutes a tax friendly remuneration item in Belgium (see below), the introduction of the company car does not result in the expected substantial improvement of Belgium’s position on the European ranking.

3.4.1 – Belgium

The private use of a company car entails a benefit for the employee which is subject to Belgian personal income taxes. The amount of the taxable benefit in kind is determined based on a lump sum valuation method according to the formula below. It is a tax friendly valuation method especially compared to the other European countries. Only in Poland and Spain can the valuation of the benefit related to the use of a company car result in a lower taxable amount (see further details below).

Belgian formula as of income year 2010:

CO² emission (g/km) x 0,0023 (diesel engine) x 7500 (minimum amount of private km)

Next to the annual lease cost, which on average ranges between 6000,00 EUR to 10.000,00 EUR, the employer should pay an energy tax called ‘CO² tax’ which is calculated on the basis of the following formula:

[(CO² emission x 9) – 600] x 1,1016 Example

Company car with a CO² emission of 109 g/km

The taxable benefit on behalf of the employee amounts to 1.880,25 EUR on year base and the additional CO² tax the employer needs to pay amounts to 419,71 EUR.

3.4.2 – Germany – France – Ireland – The Netherlands – Spain – The Czech Republic

In these countries the taxable benefit related to the use of a company car is determined based on the purchase price in the country concerned.

Germany – The taxable benefit amounts to approximately 13,8% of the German catalogue value of the vehicle concerned. In our computations the related estimated catalogue value amounts to 30.000,00 EUR (scenario 4), 34.000,00 EUR (scenario 5) and 40.000,00 EUR (scenarios 6 and 7).

France – The French taxable benefit either equals approximately 20% of the local purchase price of the vehicle or 12% of the actual expenses incurred. The last option was applied in our computations and the

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total amount of actual expenses has been estimated at 22.000,00 EUR (scenario 4), 30.000,00 EUR (scenario 5) and 40.000,00 EUR (scenarios 6 and 7).

Ireland – The Irish employee is taxed on the related benefit in kind determined on the basis of 30% of the catalogue value of the vehicle concerned (assuming < 24.000 private km on year base). We have estimated the value of the respective cars to amount to 22.150,00 EUR (scenario 4), 34.620,00 EUR (scenario 5) and 41.750,00 EUR (scenarios 6 and 7).

The Netherlands – According to Dutch legislation, the taxable benefit related to a company car is determined based on 25% of the catalogue value. Our computations take into account a catalogue value of 26.322,80 EUR (scenario 4), 37.748,00 EUR (scenario 5) and 39.978,00 EUR (scenarios 6 and 7).

The Czech Republic – The Czech taxable benefit amounts to (on average) 12% of the catalogue value (with a minimum of EUR 432,00 per year). Our computations take into account a catalogue value of 16.000,00 EUR (scenario 4), 20.000,00 EUR (scenario 5) and 33.000,00 EUR (scenarios 6 and 7).

3.4.3 – Italy

The benefit taxable on behalf of the Italian employee in principle amounts to 30% of the average

consumption costs of the respective car. In this respect, the Italian government has published specific tables listing the average consumption costs of the vehicles to be taken into account by the employer for the determination of the taxable benefit.

3.4.4 – Poland

Polish employers should take into account the lease costs of similar cars for the determination of the taxable benefit. However, as no clear guidelines exist in this respect, the companies can almost determine the taxable amount at their discretion. In our computations, the taxable benefit has been estimated at 1.500,00 EUR per year in all scenarios concerned.

3.4.5 – The United Kingdom

In the United Kingdom the benefit related to a company car is determined on the basis of 15% of the catalogue value in the event of an emission up to 120 g CO²/km. In case of higher emissions, the benefit increases up to 35% of the catalogue value of the respective car. In our computations we considered an estimated catalogue value of 37.640,00 EUR (or £ 31.000,00 – scenario 4), 42.250,00 EUR (or £ 34.800,00 – scenario 5) and 50.315,00 EUR (or £ 41.440,00 – scenarios 6 and 7).

3.4.6 – Sweden

In Sweden the taxable benefit is determined on the basis of a formula that consists of 3 different components (the catalogue value is only taken into account for 9%).

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4 –

Comparison in view of social

security and building up legal

pension rights

4.1 – Social security

4.1.1 – Belgium

Belgian social security contributions cover sickness, unemployment, old age and death.

In Belgium, the personal medical expenses (i.e. costs related to doctor visits, medicines and, under certain conditions, also dental costs) are reimbursed by the government up to 70-75%. The annual price for an additional private health insurance (which offers nearly full coverage for all medical expenses) could be estimated at approximately 150,00 EUR on year base for a single individual and at approximately 400,00 EUR for a family with 2 dependent children. Prices for an additional health insurance can however considerably fluctuate according to the sickness fund opted for.

4.1.2 – Germany

German social security contributions also cover sickness, unemployment, old age and death. Any personal medical costs are largely taken at charge by the government. The cost for an additional German private health insurance (which offers nearly full coverage for all medical costs) can be estimated at 576,00 EUR per person per year.

4.1.3 – France

French social security contributions also cover sickness, unemployment, old age and death.

France currently has the best and most beneficial health system within Europe. The personal medical costs are largely taken at charge by the government, i.e. generally up to 70% but in case expensive treatment is required or when it concerns severe and long-term disorders the French government bears up to100% of the costs incurred. Solidarity is of vital importance: the sicker someone gets, the less the individual has to pay (in some cases the individual is even no longer required to pay any personal social security contributions). Almost 85% of the French population concluded an additional French private health insurance which offers nearly full coverage for sickness. The cost of such private health insurance can be estimated at

approximately € 486,00 per person per year.

4.1.4 – Ireland

An Irish individual is entitled to a tax reduction of 20% in case of illness entailing medical costs. With respect to costs related to medicines, a family has to pay a maximum amount of 120,00 EUR per month. Depending on the income level, the age and the disease, an Irish individual can obtain a medical card following which the family only has to pay a maximum amount of 10,00 EUR per month. A large variety of private health insurances exist in Ireland. The system is very complex and the related annual contributions range between 144,00 EUR per person for the cheapest insurance plan (which covers up to 480,00 EUR of the costs incurred during the year and excluding hospitalization costs) and 2.832,72 EUR per person for the most expensive health insurance plan (which offers extensive coverage, including for example the costs related to a very expensive hospitalization in a private hospital).

In case an individual has no private health insurance, he has to wait (much) longer to be able to visit a doctor and to receive proper treatment (and he cannot independently choose where and by which doctor he will be treated). Consequently, approximately 50% of the Irish population has concluded a private health insurance.

4.1.5 – Italy

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government. Note that the government developed a specific salary system for doctors following which repeated doctor visits, undue examinations and referrals are discouraged. Dental costs however are not included in the general system and are therefore handled privately. As a result, many Italian individuals conclude a private health insurance to provide coverage for treatment in a private hospital and to avoid or shorten the waiting time.

4.1.6 – The Netherlands

The Dutch system covers costs relating to emergency situations, hospitalization, costs of prescribed medicines etc. Dental costs for people older than 18 years are excluded. The average amount an individual has to pay to conclude a private health insurance amounts to approximately 1.312,00 EUR per year. This makes the Netherlands the most expensive country within Europe for private health insurances.

4.1.7 – Poland

The Polish social security system provides free medical care to each person insured. The employee health insurance contributions (which are paid through the employer!) amount to 9% of the employee’s gross income, reduced by the social security contributions the employee pays. Moreover, the cost the employee incurs for health insurance generates a certain tax deduction.

4.1.8 – Spain

Spanish social security contributions cover sickness, unemployment, old age, death and maternity. In principle, Spanish public health care foresees coverage of all medical expenses in full. A self-employed person however is obliged to affiliate in which respect an annual contribution of 29,8% of his income is due but with a minimum contribution of 250,00 EUR per month or 3.000,00 EUR per year.

If one is excluded from the public health system or in case private medical care is preferred (in order to e.g. avoid or shorten the normal waiting time), a private health insurance is required. The average annual cost for a private health insurance amounts to 800,00 EUR per year (with a minimum of 180,00 EUR per year).

4.1.9 – The Czech Republic

The Czech social security contributions cover illness, unemployment, old age, death and maternity. Following payment of voluntary contributions for a private health insurance, an individual only receives additional maternity benefits and an additional replacement income in case of sickness. In this respect, one can contribute 1,4% of his monthly taxable base with a minimum of approximately 30,00 EUR per year. Public health care costs are very low. Therefore, Czech private health insurances are mainly concluded by foreigners and self-employed individuals.

4.1.10 – United Kingdom

The UK social security contributions cover sickness, unemployment, old age, death and maternity. The public national health system provides free medical care. Only in a number of cases private fees are charged to the individual (amongst others in view of dental costs). Only approximately 13% of the UK population would have concluded a private health insurance. The related average cost amounts to 251,00 EUR per year.

4.1.11 – Sweden

The Swedish social security contributions cover illness, unemployment, old age, death and maternity and additionally provide certain youth benefits. A Swedish national is automatically and separately insured for dental expenses as of the age of 20 (under the age of 20 people receive free dental care in Sweden). In addition, the individual can obtain a dental allowance (ranging between 15,00 EUR and 30,00 EUR per year). Medical care is largely (+/-98%) financed by the State. The individual should by default contribute approximately 15,00 EUR per doctor visit but limited to approximately 85,00 EUR per year and to approximately 190,00 EUR per year for medical prescriptions. In principle, an individual covered by the Swedish social security scheme should never pay more than a total annual amount of 275,00 EUR. However, in view of 'unnecessary' medical expenses (for example plastic surgery in certain circumstances) or in case an individual prefers to receive private health care, the relevant costs are fully at charge of the patient. Only approximately 3% of the Swedish population would have concluded a private health insurance. The Swedish health care system is considered worldwide to be one of the best in class.

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4.2 – Building up legal pension pension rights

4.2.1 – Belgium

According to Belgian law, people in principle retire at the age of 65.

The minimum pension income for a single person who has performed professional activities during a full career of 45 years (including assimilated periods) amounts to 11.707,19 EUR net per year or 975,60 EUR per month. If it concerns a family, the net pension income amounts to minimum 14.634,00 EUR per year or 1.219,50 EUR per month (i.e. the pension income of a single times 1.25 if the partner has no separate pension). These amounts are adjusted each year in view of the index fluctuations to also take into account average life expectancy. The maximum pension income amounts to approximately 19.200,00 EUR net per year or 1.600,00 EUR net per month.

4.2.2 – Germany

The German legal retirement age recently increased from 65 up to 67 years old. 19,90% of the monthly German social security contributions goes into the personal pension insurance of the employee concerned. 50% of this amount is contributed by the employer whereas the other half is paid for by the employee. The maximum amount of monthly pension contributions is limited to 6.567,00 EUR.

It is currently not possible to determine the average pension income corresponding with these contributions as too many variables are involved, e.g. the total gross wages of all workers in a given year, the inflation rate, the different pension adjustments etc.

4.2.3 – France

The French legal retirement age is in principle 65. An employee who has contributed to the French system during a full career (i.e. 40-41 years) can receive an annual gross legal pension income of up to 50% of his average annual salary of the best 25 years of his career.

4.2.4 – Ireland

The Irish legal retirement age is 66. In principle no income tax is levied on the gross pension income unless one derives other income as well. In case of a full career, one receives 230,30 EUR gross pension income per week or 11.975,60 EUR on year base. If the employee concerned has a dependent spouse, the above mentioned amount is increased with 7.982,00 EUR per year (if the partner is younger than 66 years) or with 10.727,60 EUR (if the partner is older than 66 years). In addition, the individual can be entitled to an annual increase of 774,80 EUR up to1.549,60 EUR in view of dependent children.

4.2.5 – Italy

In Italy, men in principle retire at the legal pension age of 65 which is, since recently, the same for women. The minimum gross pension income amounts to 460,97 EUR per person per month or 5.531,40 EUR per year.

4.2.6 – The Netherlands

The legal retirement age in the Netherlands also equals 65 years. 2% of the annual Dutch social security contributions are wired into the pension fund (as from the age of 15 up to 65 years). A married person, who has worked a full career, receives about 735,00 EUR net pension income per month or 8.820,00 EUR net per year.

4.2.7 – Poland

Polish women legally retire at the age of 60 whereas Polish men legally retire at the age of 65. A total contribution of 19,52% (employer and employee each pay 9,76%) of the gross salary (with a certain limit) is wired into a pension fund. The corresponding pension income depends on the total contributions and life expectancy. Since it concerns a rather new system, no reliable figures are currently available on the actual pension income to be received.

4.2.8 – Spain

The legal retirement age in Spain is also set at 65 years old. In case one has contributed to the Spanish system during minimum 35 years (i.e. a full career in Spain), one receives minimum 557,50 EUR per month or 6.690,00 EUR per year and maximum 2.466,20 EUR per month or 29.594,40 EUR per year.

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4.2.9 – Czech Republic

Czech people in principle also retire at the age of 65 according to Czech legislation. However, women with children retire between 62 and 65 years old. The minimum gross pension income amounts to 141,81 EUR per month or 1.701,71 EUR per year. The average pension income however amounts to 408,84 EUR per month or 4.906,11 EUR per year. Only a portion of the pension income is considered as professional income subject to personal income taxes at a tax rate of 15%.

4.2.10 – United Kingdom

The legal retirement age in the UK is currently 65 for men and 60 for women. However, the UK government envisages a retirement age of 66 years old applicable to men and women, the latest as of the year 2020. The average pension income for a single individual amounts to minimum 5.077,80 EUR per year and maximum 8.372,02 EUR per year, whereas the average pension income for a married individual amounts to minimum 6.165,37 EUR and maximum 12.779,02 EUR. Unlike most other countries, the UK pension income is considered to be ordinary professional income, subject to personal income taxes (less the standard deductions).

4.2.11 – Sweden

In Sweden the retirement age is not legally determined but Swedish people usually retire at the age of 65. The employer and the employee together deposit a total of 18.5% of the gross annual income (capped to 37.204,45 EUR) in an individual pension fund. The minimum annual pension income corresponding to a full career in Sweden amounted to 8.760,92 EUR in 2006.

Overview legal pension age within Europe

Country Legal pension age

Belgium 65 years

Germany Recently increased from 65 up to 67 years

France 65 years

Ireland 66 years

Italy 65 years

The Netherlands 65 years

Poland 60 years for women and 65 years for men

Spain 65 years

The Czech Republic 65 years but <62 and 65 years> for women with children

The United Kingdom 60 years for women and 65 years for men (aim is 66 for both by 2020) Sweden No legal pension age, in practice +/- 65 years

4.3 – Minimum wages

In Belgium, the State provides in a legal minimum income to prevent and suppress poverty. This is not the case in all European countries examined. The related European amounts are briefly listed below. In case no statutory minimum income applies, the overview includes a relevant average salary based on public data. As you can see below, the Belgian statutory minimum wage is nearly the highest.

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Country Gross statutory minimum income per month Belgium As of 21 years old: 1.415,24 EUR per month

As of 21,5 years old + 6 months seniority: 1.452,80 EUR per month As of 22 years + 12 months seniority: 1.469,48 EUR per month Germany No legal minimum wage determined; average 1.386,67 EUR per month France 1.343,77 EUR per month (based on a statutory 35-hours week) Ierland 1.499,33 EUR per month

Italy No legal minimum wage determined; average 1.031,33 EUR per month The Netherlands As of 15 years old: 424,80 EUR per month

As of 16 years old: 488,50 EUR per month As of 17 years old: 559,30 EUR per month As of 18 years old: 644,30 EUR per month As of 19 years old: 743,40 EUR per month As of 20 years old: 870,85 EUR per month As of 21 years old: 1.026,60 EUR per month

As of 22 years old: 1.203,60 EUR per month

As of 23 years old and above: 1.416,00 EUR per month

Poland 1.317 Zlotys (+/- 329,25 EUR) per month (and 14 payments a year)

Spain 633,30 EUR per month

The Czech Republic 8.000 Koruna (+/- 325,00 EUR) per month The United Kingdom 1.005,33 GBP (+/- 1.141,15 EUR per month)

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5 –

R&D Incentive

In 2006 the Belgian Government introduced a salary cost measure creating a huge incentive for the Belgian R&D sector. Provided all legal conditions are met (e.g. it concerns a researcher performing R&D activities), the employer withholds the monthly withholding taxes on the employee’s salary but he only needs to pay 25% of these withholding taxes into the bank account of the Belgian Treasury. Consequently, 75% (as of income year 2008 as lower percentages applied in 2006 and 2007) of the withholding taxes which are in principle due on the employee’s salary, go directly into the hands of the employer. In case the company’s R&D activities are significant, this Belgian R&D Incentive can result in very interesting savings on salary costs. Furthermore, the measure is entirely neutral for the concerned employee/researcher.

The Netherlands also has a wage cost measure relating to R&D which is however very complex. Under very strict conditions, the employer is entitled to a reduction of the withholding taxes (loonheffing) due on the employee’s salary. This incentive is not purely aimed at lowering salary costs in view of R&D activities as it also can be applied in the event of education and transportation of goods. The Dutch incentive can be very beneficial to the employer if he meets all conditions and fulfills all formal requirements.

The Italian Government tries to boost R&D activities by granting a reduction of personal income taxes. As it is the employee who benefits from this measure and not the employer, the Italian R&D incentive has a limited impact on Italian R&D activities which almost always imply a huge investment for the employer. Other countries such as France, Ireland and The Czech Republic also try to encourage employers to perform R&D activities. In this respect they create incentives however solely having effect on corporate tax level. Such corporate tax measures also exist in Belgium in addition to the very beneficial wage cost measure mentioned above.

Numerical example

In relation to research and development, Belgium experiences a lot of competition, especially from our neighboring countries France, the Netherlands, Germany and the United Kingdom. Therefore, hereafter we reflected how the Belgian salary figures with respect to scenarios 3, 4 and 5 compare with the figures from our neighboring countries taking into account the Belgian R&D incentive.

As reflected below, the Belgian R&D incentive has a significant impact on the Belgian employer cost especially when focusing on the higher income levels.

Scenario 3 – Employee, annual gross salary of 27.000,00 EUR, married and 2 children at charge

Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 35.825,44 8.825,43 27.000,00 1.881,06 -1.410,80 34.414,64 Germany 32.217,75 5.217,75 27.000,00 1.124,00 0,00 32.217,75 France 38.969,32 11.969,32 27.000,00 107,63 0,00 38.969,32 The Netherlands 31.573,00 4.573,00 27.000,00 1.005,00 0,00 31.573,00 United Kingdom 29.625,70 2.625,70 27.000,00 3.929,14 0,00 29.625,70

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When we compare the Belgian employer cost with the employer cost in our neighboring countries, before and after application of the Belgian R&D incentive, Belgium remains in 4th place (only the French employer cost is higher) notwithstanding a decrease of roughly 1.400,00 EUR.

Scenario 3 – Employee, annual gross salary of 27.000,00 EUR, single

Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 35.825,43 8.825,43 27.000,00 5.885,40 -4.414,05 31.411,38 Germany 32.217,75 5.217,75 27.000,00 3.601,77 0,00 32.217,75 France 38.969,32 11.969,32 27.000,00 1.422,17 0,00 38.969,32 The Netherlands 31.573,00 4.573,00 27.000,00 1.128,00 0,00 31.573,00 United Kingdom 29.625,70 2.625,70 27.000,00 3.929,14 0,00 29.625,70

In this scenario, the Belgian employer cost decreases by roughly 4.400,00 EUR taking Belgium from the 4th place up to the 2nd place. Only the UK employer cost is still lower.

Scenario 4 – Employee, annual gross salary of 50.000,00 EUR, married and 2 children at charge

Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 66.763,10 16.763,10 50.000,00 11.542,59 -8.656,94 58.106,16 Germany 59.733,46 9.733,46 50.000,00 7.848,54 0,00 59.733,46 France 72.774,16 22.774,16 50.000,00 1.466,53 0,00 72.774,16 The Netherlands 57.669,25 7.669,25 50.000,00 11.995,62 0,00 57.669,25 United Kingdom 56.235,42 6.235,42 50.000,00 10.032,78 0,00 56.235,42

With a decrease of more than 8.500,00 EUR, the Belgian employer cost is 3rd in row. The Netherlands and the UK do slightly better still.

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Scenario 4 – Employee, annual gross salary of 50.000,00 EUR, single Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 66.763,10 16.763,10 50.000,00 16.697,73 -12.523,30 54.239,80 Germany 59.733,46 9.733,46 50.000,00 13.194,89 0,00 59.733,46 France 72.774,16 22.774,16 50.000,00 6.139,84 0,00 72.774,16 The Netherlands 57.669,25 7.669,25 50.000,00 13.854,52 0,00 57.669,25 United Kingdom 56.235,42 6.235,42 50.000,00 10.032,78 0,00 56.235,42

The Belgian employer cost significantly decreases in this scenario with an impressive cost saving of 12.500,00 EUR. Consequently, the Belgian employer cost becomes the lowest and most interesting compared to our neighboring countries.

Scenario 5 – Employee, annual gross salary of 75.000,00 EUR, married and 2 children at charge

Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 100.073,60 25.073,60 75.000,00 23.232,07 -17.424,05 82.649,55 Germany 86.079,75 11.079,75 75.000,00 15.972,47 0,00 86.079,75 France 108.716,42 33.716,42 75.000,00 4.183,03 0,00 108.716,42 The Netherlands 82.669,25 7.669,25 75.000,00 26.298,55 0,00 82.669,25 United Kingdom 84.523,85 9.523,85 75.000,00 20.309,62 0,00 84.523,85

The higher the amount of withholding taxes due, the higher the saving for the employer gets. In this scenario, a saving of more than 17.000,00 EUR is realized. This brings Belgium from the 4th to the 1st place.

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Scenario 5 – Employee, annual gross salary of 75.000,00 EUR, single Country (all figures in EUR) Estimated employer cost – no Belgian R&D incentive Employer Social Security Annual Gross income Personal Income taxes Exemption withholding taxes Estimated employer cost – incl. Belgian R&D incentive Belgium 100.073,60 25.073,60 75.000,00 28.481,48 -21.361,11 78.712,49 Germany 86.079,75 11.079,75 75.000,00 24.259,73 0,00 86.079,75 France 108.716,42 33.716,42 75.000,00 11.960,91 0,00 108.716,42 The Netherlands 82.669,25 7.669,25 75.000,00 28.157,90 0,00 82.669,25 United Kingdom 84.523,85 9.523,85 75.000,00 20.309,62 0,00 84.523,85

In this scenario, the Belgian salary cost impressively decreases with more than 21.000,00 EUR. If it concerns an employee who purely performs R&D activities and provided all legal conditions are met, Belgium is, from a cost perspective, clearly the most interesting country for R&D. Even the Netherlands are way behind (with a difference of almost 4.000,00 EUR).

Conclusion

Further to the above comparisons, the Belgian R&D incentive obviously impacts the Belgian fiscal climate and makes it a very attractive location for employers who are (partially) doing research and development activities. Note it is not required that all the activities of the company qualify as R&D activities. Certain departments or even a number of individuals could qualify enabling the employer to be eligible for this incentive, no prior recognition as R&D centre is required.

If a single tax payer derives an annual gross income of 27.000,00 EUR, the Belgian employer cost is lower than in the other countries, except for the UK. In the event of a married tax payer with 2 children at charge, a remarkable improvement of the Belgian employer cost can be observed as from an annual gross salary of 50.000,00 EUR. In this scenario, the Netherlands and the United Kingdom only do slightly better than Belgium.

When we compare the Belgian employer cost with the most significant competitors in the area of R&D, being Belgium’s neighboring countries, Belgium clearly outperforms the other countries as from an annual gross income of EUR 50.000,00 in the event of a single tax payer and as from 75.000,00 EUR in the event of a married tax payer with 2 children at charge.

All the above shows the major impact of the Belgian R&D incentive. It enables employers to achieve huge salary savings and results in the companies having significantly more resources to continue their

investments in the area of research and development.

Figure

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References

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