Arizona Tax Reform Clears First Reading in Committee

Arizona's proposed tax reform has cleared its first hurdle, passing a committee reading and now advancing towards a full plenary session. The legislation, championed by Finance Minister Jan Jambon, introduces significant changes to the country's tax system, with a cornerstone being the gradual increase of the tax-exempt income threshold.

This threshold, the amount of income below which no tax is due, will rise in stages. It is set to increase from the current 10,910 euros to 14,450 euros for the 2030 tax year and further to 15,600 euros for the 2031 tax year. However, the incoming government will retain the ability to adjust the latter figure. The minister also announced plans for a royal decree to modify the calculation of professional withholding tax, aiming to boost net monthly salaries rather than relying solely on annual tax assessments.

The reform package also addresses other key areas. The tax-exempt portion for the first two dependent children will be raised to 2,650 euros per child by 2029, though indexation for subsequent children will be frozen. A significant change involves the progressive phasing out of the spousal quotient, a mechanism that allows couples with a large income disparity to receive tax reductions. For non-retired couples, the maximum amount will be halved by 2029, while retired couples will have an extended 20-year transition period. The spousal quotient amounts will also cease to be indexed from the 2027 tax year onwards.

Further provisions include the principle of taxing integration income as a replacement income, increasing tax-exempt voluntary overtime hours to 360, extending copyright regimes to the IT sector, and raising the minimum remuneration for company directors from 45,000 to 50,000 euros. The reform also caps lump-sum benefits at 20% of gross salary and enhances the employment tax bonus, particularly for very low and low-wage earners. Additionally, starting from the 2028 income year, the Special Social Security Contribution will be calculated individually rather than per household.