Notional interest deduction (NID)
Belgium has had an attractive tax measure that gives equal treatment to equity and debt financing since 2007 (i.e. for financial years ending on 31/12/2006 or later).
Companies/branches can claim a tax deduction for their cost of capital by deducting notional (deemed) interest on their net equity.
Key features
There are some limitations to avoid multi-stage deductions and “artificial” inflation of the equity base.
There is no need to apply for a Belgian tax ruling to benefit from the NID.
Benefits include:
- The more thickly capitalised the company is, the greater its NID
- Easy to implement and administer, and applicable generally to all Belgian companies and branches of non-resident companies
- If implemented appropriately, it is CFC compliant in the majority of countries with CFC legislation
- Results in substantial tax savings, e.g. for treasury, shared service centre and IP activities
- Attractive alternative in a Europe-wide M&A project, instead using Belgium as a leverage vehicle
How NID might apply
Finance company (simplified) – “thickly” capitalised.
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