Wage withholding tax exemption for night and shift labour

Companies that make use of night and shift work can reduce labor costs via a Belgian tax benefit by retaining part of the withholding taxes withheld on salaries paid to these employees. This provides a significant financial advantage to employers without negatively impacting the employees. However, the growing budgetary impact of this exemption has led to stricter and more frequent tax audits and case law. More than half of the audits conducted resulted in a (substantial) correction!

Magnitude of the shifts and the bis-variant: at least two consecutive shifts must perform the same work both in content and in magnitude. The Constitutional Court recently paved the way for the Belgian tax authorities to require shifts to be of more or less exactly equal size. In response, the lawmaker introduced the new "bis-variant" (applicable retroactively as from 2021) which legally removes the equal size from the conditions. Companies with differences in magnitude consequently still qualify for the exemption, but they need to reduce their total exemption by reducing it with a “bis factor” which grows as the size difference between shifts grows. The bigger the difference in size of shifts, the smaller the incentive. Unfortunately, legal uncertainty still prevails. Calculation methods are still uncertain, the threshold for applying this law (for any difference or only as from a certain point such as a 10% difference between shifts?) differs between tax inspectors, we are still waiting for a circular letter, etc. The company must therefore have the necessary systems in place to tell a coherent story in case of a tax inspection. 

The shift premium: as of April 2024, this must be laid down in the collective labor agreement (CLA), work regulations, or employment contracts. The premium must apply only to work performed within qualifying shifts. Tax inspectors generally argue that a shift premium which is also paid to employees who did not work in qualifying shifts, is not a shift premium. As this means that this condition is no longer fulfilled, the exemption can be rejected for all employees! This could for example be the case for shift workers following training during the day, for union representatives, for fixed monthly white collar shift premiums, etc.

In recent audits, we observe that inspectors apply the special investigation and audit period that allows them to go back up to five years on the basis of a correction related to an income year under investigation. This way, a significant additional risk arises beyond this correction.

Employment agencies: As from 1 January 2025, companies that engage employment agencies should sign a mutual contract stipulating that the exemption can only be applied for qualifying employees and that the company confirms this. The companies must also consent to provide all necessary information for the employment agency to apply the exemption in case of audit. Communication, liability and timing should all be “set in stone” in the form of a written consent agreement to avoid surprises. Where the bis variant is applied, matters quickly become even more complex as the bis quotient must be communicated to the agency on a monthly basis. It is therefore crucial that a company can perform these calculations continuously and efficiently.

In case of an audit and when collaborating with employment agencies, a lot of information must be compiled within a very short timespan. Thorough preparation of a true "defense file" and having thorough data analysis containing all required calculations and supporting documents is therefore essential. Companies should not rely solely on a “tick the box” application via the payroll office, with missing or incomplete data – this often means that the information is lost or cannot be gathered timely in case of audit, which in turn results in the loss of the exemptions. Therefore, do not hesitate to contact your KPMG team in this respect. Be prepared!