Deducting royalties and interest

Paid royalties and interest are subject to the main principles governing the deductibility of expenses. Strictly speaking, there is no thin-capitalisation rule or “earnings-stripping rule” applied to paid interest or royalties.

However, Belgian anti-abuse measures may apply in the following cases:

  • interest or royalty payments between two related parties is applied at a rate that cannot be considered to be at arm’s length
  • interest or royalties are paid to a resident of a tax-haven country (with a tax regime significantly more favourable than the Belgian regime), unless it is demonstrated that the payment is at arm’s length and corresponds to genuine transactions
  • Interest payments in respect to loans are disallowed for Belgian tax purposes if the beneficiary of the interest is not subject to income tax or if the interest is subject to an advantageous income tax regime compared to the Belgian income tax regime for interest received and to the extent that the total amount of the loans, other than bonds and similar securities that are publicly issued, exceeds seven times the amount of the Belgian-resident company’s taxed reserves (at the beginning of its financial year) plus paid-up capital (at the year-end). 

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