Adjustment factor for withholding tax exemptions: what will change starting in 2027?
June 2026 - Exemptions from withholding tax payments are an important financial support measure for many SMEs. However, starting in 2027, you will need to take an adjustment factor into account. The federal government plans to introduce a general adjustment factor that will limit the ultimate benefit for your SME.
Why is the government intervening?
Payroll tax exemptions have existed for years as a tool to reduce labor costs and stimulate economic activity. Exemptions for research and development (R&D), shift and night work, and start-up companies are particularly widely used.
Due to rising wages, automatic indexations, and the expansion of certain schemes, the cost to the government has risen sharply in recent years. By 2024, the total cost of these exemptions had reached 4.36 billion euros.
With the new measure, the government aims to prevent these costs from spiraling further out of control, without completely abolishing the system. The basic principle therefore remains in place: as a business, you can still retain a portion of the withholding tax. However, starting in 2027, the final benefit will be slightly reduced through a correction factor.
How does this adjustment factor work?
The existing exemption rates remain unchanged. For example, if you are currently entitled to an 80% exemption for research and development, that rate will continue to apply.
What is new, however, is that the final amount of the exemption is multiplied by an adjustment factor. As a result, the effective benefit is lower.
The government has provisionally set the following correction factors:
· 97% for the 2027 tax year
· 93.35% for the 2028 tax year
· 95.9% starting with the 2029 tax year
In practical terms, this means that starting in 2027, your company will have to remit slightly more withholding tax to the Treasury.
An example
Suppose your company is currently entitled to a withholding tax exemption of 10,000 euros. In 2027, that exemption will theoretically remain in place, but it will be multiplied by a correction factor of 97%.
The effective benefit will then amount to 9,700 euros instead of 10,000 euros.
In 2028, due to the lower factor of 93.35%, the same benefit would drop to 9,335 euros.
What impact does this have on your SME?
Labor-intensive companies and innovative businesses will feel the impact most acutely. Think of manufacturing companies with shift work, technology firms investing in research and development, or businesses that frequently rely on overtime.
At first glance, the measure seems limited, but on an annual basis it can still have a noticeable impact on cash flow and labor costs.
In addition, there is a risk of increased administrative complexity. As an employer, you will have to report two amounts separately in the withholding tax return:
· the amount to which the correction factor was applied
· the remaining amount that still needs to be remitted to the tax authorities
Not everything has been finalized yet
The proposed scheme is currently set out in a draft program law. Furthermore, the government is keeping open the option of adjusting the correction factor annually via a royal decree.
This may occur if actual inflation or wage indexation deviates significantly from the current forecasts on which the percentages are based.
Companies that rely heavily on withholding tax exemptions would be wise to review their future wage costs and tax planning in a timely manner.
