More details of the tax reform in the last 12 months in the tabs below.
Latest update: 13 July 2016
From a corporate income tax point of view, a range of measures has recently been approved. Other measures are currently under review at the Chamber or pending before the State Council.
The Program Act of 1 July 2016 has been published in the Belgian Official Gazette on 4 July 2016. It introduces among others transfer pricing documentation requirements and extended reporting obligations for payments to tax havens. It also extends the tax assessment deadline.
The draft Act providing urgent tax provisions contains measures related to the reduced withholding tax for dividends distributed to non-resident minority shareholders and repeals the current patent income deduction system. Some draft measures concern the implementation of European Directives. The draft Program Act II provides some changes to the tax provisions applicable to the Belgian Regulated Real Estate Company and introduces the new Real Estate Investment Fund.
Reduced withholding tax for dividend payments to non-resident minority shareholders (Tate & Lyle)
According to the Act of 18 December 2015, dividends distributed by a Belgian company to non-resident minority corporate shareholders are subject to a reduced withholding tax rate of 1.6995% (instead of 27%) if certain conditions are met. But no taxation condition was required in the hands of the non-resident beneficiary of the dividend. The draft Act providing urgent tax provisions introduces a taxation condition in the hands of both the Belgian company distributing the dividend and the non-resident company. It also requires that the beneficiary company is not a Belgian resident company. The draft law also provides that this certificate needs to state the beneficiary’s contact details and that the beneficiary qualifies for the taxation condition. These measures would apply to dividends paid or attributed as from the date the Act is published in the Belgian Official Gazette.
Patent income deduction
The draft Act providing urgent tax provisions abolishes the current patent income deduction system as of 1 July 2016. The transitional regime allows taxpayers to still apply the patent income deduction system on patent income obtained until 30 June 2021. However, the transitional regime is only applicable to patents requested or acquired before 1 July 2016. Further, the current regime would be replaced by a new innovation system. ‘The future regime’, announced for the year-end, which would be in line with the nexus approach and would be applicable as of 1 July 2016.
New real estate investment funds
The draft Program Act of 28 June 2016 contains several tax rules applicable to the existing Belgian Regulated Real Estate Company (‘RREC’) and the new Belgian Real Estate Investment Fund (‘FIIS’).
The FIIS is a Belgian special real estate fund system dedicated to institutional investors. The fund is not listed on a stock exchange and proves to be attractive from a tax perspective, in particular for non-Belgian investors and/or for investing in non-Belgian real estate. From a regulatory perspective, this system is highly flexible as it benefits from a light registration procedure and a minimal number of restrictions.
A FIIS is subject to Belgian corporate income tax but with a minimal taxable basis, excluding rental income, capital gains, dividends or interest received by the FIIS in relation to Belgian and non-Belgian real estate (similar as is the case for existing RRECs).
An ‘exit tax’ is triggered on Belgian real estate assets entering the FIIS system via conversion of an existing company, (de)merger or contribution. The tax is due on unrealised capital gains at a favourable tax rate of 16.995% and can be offset against available tax attributes.
The draft Program Act also brings some major changes to the current tax system applicable to the RREC (these proposed changes will be equally applicable to the FIIS):
The tax provisions will be applicable as from assessment year 2016 on transactions and income attributed as from 1 July 2016.
New annual bank tax
A bill of law establishing a new single annual bank tax has been recently approved by the Chamber. This tax would replace four different existing taxes (including the newly-introduced Financial Sector Contribution), with a view to a better distribution of the tax burden between small and large banks.
In practice, the tax would be inserted in the Code on Various Duties and Taxes; it would be based on the debt to customers of a given year and it would have to be paid by 1 July of the following year. For 2016, the tax would be calculated based on the debt to customers as at 31 December 2015 and would have to be paid by 16 November 2016. As from 2017, to avoid ‘data manipulation by year-end’, the tax will be computed based on the annual average of the debt to customers.
At this stage, the contemplated change would not concern insurance companies or other types of institutional investors such as collective investment undertakings.
Transposing the Parent-Subsidiary Directive
The Belgian Government has announced the implementation of amendments to the EU Parent-Subsidiary Directive (‘PSD’) in Belgium. The draft act contains two measures: (i) a so-called anti-hybrid measure and (ii) the introduction of a general anti-abuse rule (‘GAAR’), which would apply to income granted or made payable as from 1 January 2016 (meaning that it will apply retroactively).
The Belgian Government has proposed to introduce the anti-hybrid rule into the Belgian Income Tax Code (‘BITC’), providing for an exclusion of the use of the Dividends Received Deduction (‘DRD’) if and to the extent that the dividend paying entity (also including the PE of the distributing entity) can deduct the dividend distributions from its taxable basis.
In addition to the already existing GAAR captured in section 344, §1 BITC, the Belgian Government has also announced the introduction of a new (PSD) GAAR which claims that the benefits of the EU PSD as implemented in Belgian law (i.e. use of the DRD and the withholding tax exemptions) will not be granted in case of a legal act or series of legal acts, having been carried out for the main purpose (or one of the main purposes) of obtaining a tax advantage which defeats the object or purpose of the PSD and which is (are) not genuine, having regard to all relevant facts and circumstances. A legal act or series of legal acts will be regarded as not genuine to the extent that it/they are not carried out for valid business reasons, which reflect economic reality.
The Belgian Government has announced the introduction of changes to the Belgian exit taxation system. These changes include the option for the taxpayer to choose between an immediate tax charge and a spread tax charge in case exit tax would be due, such as for international restructuring activities.
The so-called ‘catch-all clause’
Belgian companies in principle are required to levy a wage withholding tax on qualifying fees attributed or made payable as from 1 March 2013 to certain types of non-residents. These payments may be subject to an effective wage withholding tax of 16,5% – which needs to be levied at source by the Belgian company – unless the applicable double tax treaty provides for a reduced rate. As of 1 July 2016, the scope of the clause would be limited and would only apply if:
This change would apply as of 1 July 2016.
A 15% withholding tax rate would apply to dividends paid by SICAFI/Vastgoedbevak or RREC investing for more than 60% in real estate solely or mainly affected to health care. This rate would apply to dividends paid or attributed on or after 1 January 2017
Transfer pricing documentation
The Program Act of 1 July 2016 introduces formal transfer pricing documentation requirements, compelling multinational groups with operations in Belgium – subject to certain conditions – to submit a Master file, a Local file and a Country-by-Country (‘CbC’) report.
The obligation to file a Master file and Local file documentation will be imposed upon every Belgian entity of a multinational group that, on the basis of the Belgian annual financial statements related to the accounting period immediately preceding the last accounting period, exceeds one of the following criteria:
The CbC report should be filed by the Belgian ultimate parent entity of a multinational group that has a cross consolidated group revenue of at least EUR 740 million, as reflected in the consolidated financial statements during the year preceding the reporting year. Under certain conditions, the Belgian entity that is not the ultimate parent entity of the multinational group may be required to file the CbC report directly with the Belgian tax authorities.
The Master file and CbC report should be filed no later than 12 months after the last day of the multinational group’s reporting period concerned. The Local file should be filed with the tax return concerned.
The Program Act also introduces specific transfer pricing documentation penalties, ranging from EUR 1,250 to EUR 25,000.
The transfer pricing documentation requirements will apply to accounting years that started on or after 1 January 2016.
Extended reporting obligations for payments to tax havens
Belgian taxpayers are obliged to report direct or indirect payments to tax havens, under certain conditions.
The Program Act of 1 July 2016 extends the scope of this reporting obligation. As of 14 July 2016, the scope is extended to payments to:
The definitions of ‘non-compliant State’, ‘State’ and ‘State with low or zero tax charge’ are also enlarged.
Specific reporting obligation for financial institutions
Financial institutions will also have to report automatically and periodically to the CTIF/CFI their operations (including payments to) with the tax havens referred to in the lists of States with a low or zero tax charge (entry into force on 14 July 2016).
When the tax authorities receive information coming from abroad, the Program Act also extends the assessment period to 7 years instead of 5 (in case of fraud).
Exemption for Belgian withholding tax on interest income paid to foreign investment companies
Following an infringement procedure initiated by the European Commission several years ago, Belgium has amended its regulation regarding the collection of withholding tax on Belgian-source interest on debt claims and debt securities made or allocated to investment companies established abroad in another member state of the European Economic Area.
Belgian and foreign investment companies receiving Belgian-source interest on debt claims and debt securities are treated differently from a tax perspective. Whilst a withholding tax exemption applies to such income received by Belgian investment companies (resulting in no taxation for such companies due to the specific income tax regime that is available for Belgian investment companies), foreign investment companies are generally not exempted on that income (the Belgian withholding tax levied being a final tax for them).
Belgium has removed this difference in treatment. In a nutshell, foreign investment companies established in a member state of the European Economic Area will henceforth benefit from the same withholding tax exemption for interest payments as Belgian investment companies.
The Royal Decree is applicable as from 1 December 2015.
Reduced withholding tax for dividend payments to non-resident minority corporate shareholders
In 2012, the European Court of Justice ruled that the Belgian dividend withholding tax regime was incompatible with EU law (the “Tate & Lyle case”). The regime stated that dividends distributed by Belgian companies to foreign corporate shareholders having a holding interest in the capital of a company of less than 10% but with an acquisition value of at least EUR 1.2 million (currently EUR 2.5 million) are in principle subject to full withholding at 25% (27% as from 1 January 2016).
According to the Act of 18 December 2015, dividends distributed by a Belgian company to non-resident minority corporate shareholders are now subject to a reduced withholding tax rate of 1.6995% (instead of 27%) if certain conditions are met, among which the following:
An additional taxation condition is provided by the Act providing urgent tax provisions (see above).
Note that the distributing company should have a certificate in which it is confirmed that the various conditions are met, including confirmation to what extent the beneficiary can claim a tax credit or refund of the withholding tax on 31 December of the year preceding the dividend distribution.
This measure is applicable to dividends attributed or made payable as from 28 December 2015.
Administrative guidance (dating from 2013) has already provided the procedure to claim back withholding tax for previous years.
Meal vouchers and non-recurring result related benefits
As from 1 January 2016, the maximum contribution of the employer for meal vouchers increases to EUR 6.91 per voucher, and the tax deductible amount for the employer increases to EUR 2 per voucher (Act of 6 December 2015).
Automatic exchange of information / FATCA
The Act of 16 December 2015 introduces the exchange of information regulation and the FATCA requirements.
The purpose of the Act of 16 December 2015 “on the communication of information relating to financial accounts, by Belgian financial institutions and the Federal Public Authority of Finance, within the framework of an automatic exchange of information at international level for tax purposes” is (amongst other things) to implement Directive 2014/107/EU (amending Directive 2011/16/EU as regards automatic exchange of information in the field of taxation), the US-Belgium Intergovernmental Agreement of 23 April 2014 (on FATCA) and the multilateral agreement signed on 29 October 2014 within the framework of the Common Reporting Standard (“CRS”).
The measures enter into force 10 days after publication of the Act (31 December 2015) with respect to the United States and EU Member States. For other States, the entry into force will be determined by Royal Decree.
Particular attention should be paid to the short deadline imposed on Financial Institutions as regards the first FATCA reporting (relating to the period between 1 July and 31 December 2014) that will be due within 10 days from the date the Act is published in the Belgian Official Gazette (publication date: 31 December 2015).
Moreover, before the first reporting, Financial Institutions will have to inform the individuals concerned (amongst other things) that personal data will be reported. The contents and timing of such communication are specified in article 14. Individuals can request communication of the specific data reported in relation to an account and have a right of correction of personal data.
On 18 January 2016, the Belgian Federal Public Authority of Finance (“Finance”) announced that, following consultation with the financial sector, it will apply an administrative tolerance as regards the introduction of the FATCA files relating to income year 2014. This information has to be communicated to Finance on 15 April 2016 at the latest. The deadline for the reporting in respect of income year 2015 remains unchanged (30 June 2016).
Sanctions are provided for in the event of non-compliance. A EUR 1,000 penalty can be imposed per account not reported consistently with the Act. A penalty of EUR 2,500 is applicable with respect to other breaches (except for breaches of article 14 that can be punished under the Belgian Privacy Protection Act of 8 December 1992). These penalties are doubled in the case of fraudulent intent. Criminal sanctions provided for by the Belgian Income Tax Code may be applicable in the case of fraud.
European Accounting Directive
The Act of 18 December 2015 implemented the European Accounting Directive concerning accounting principles for SMEs (and other matters).
One of the goals is to reduce the administrative burden for small enterprises. The measures enacted in this respect include (but are not limited to) the following:
The threshold for small enterprises is adjusted in line with the European Accounting Directive. In general, a company is considered as small if maximum one of the following criteria is exceeded:
The thresholds are calculated differently (i.e. on an individual basis instead of a consolidated basis).
A new sub-category will be implemented for micro enterprises, for which less stringent accounting measures apply.
Entry into force: 1 January 2016.
Financial Sector Contribution (“FSC”)
As part of the Belgian Government Agreement, it was decided that banks and insurance companies should pay an additional contribution to the State Revenue, via an amendment to the notional interest deduction regime (“NID”), taking into account Basel III and Solvency II agreements.
The draft bill aimed at considering specific own funds of credit institutions and insurance companies as representing the part of prudential capital on which a reduction of the NID would be charged.
The final Program Act, however, introduces a limitation to the NID itself, the dividends-received deduction and the deduction of tax losses carried forward. Finally, no limitation of the basis for calculating the NID is provided.
Entry into force: tax year 2016.
The Program Act of 26 December 2015 introduced some changes to the Financial Sector Contribution (“FSC”). For tax year 2017, the rate increases from 3.39% to 4.88% for credit institutions, and from 2.69% to 3.88% for insurance undertakings. However, as the NID rate decreases for tax year 2017, the combined rate is deemed, so far, to remain stable. The FSC rate would be increased, for tax year 2016, from 2.37% to 3.39% for credit institutions, and from 1.88% to 2.69% for insurance undertakings.
Investment deduction: ordinary rate for SMEs
The rate for the ordinary investment deduction for SMEs increases from 4% to 8%. The ordinary investment deduction cannot be combined with the use of notional interest deduction.
Entry into force: the new rate is applicable for investments made as from 1 January 2016.
Investment deduction: increased spread investment deduction for high-tech products
An increased spread investment deduction of 20.5% for companies has been introduced for investments in production means for high-tech products. The production must be new and the products directly or indirectly should lead to increased expenses for research and development as from the first mass production.
Entry into force: the measure is applicable for investments made as from 1 January 2016 and is subject to the European Commission deciding that this measure is not considered as illegal state aid.
Currently, SMEs can benefit from a reduced tax charge of 10% (instead of generally 25% or 15%) on distributions by creating a ‘liquidation reserve’. The Program Act of 10 August 2015 introduces a similar regime for (after-tax) profits realised for tax year 2013 (financial years ending between 31 December 2012 and 30 December 2013, both dates included) and tax year 2014 (financial years ending between 31 December 2013 and 30 December 2014, both dates included).
These profits can – under certain conditions – also be converted into a liquidation reserve, by paying a corporate income tax of 10% (payable on 30 November 2015 at the latest and on 30 November 2016 at the latest). No additional withholding tax is due in the case where this liquidation reserve is distributed to the shareholder upon liquidation. In the case where the liquidation reserve is distributed via a dividend distribution within 5 years of its creation, (an additional) 15% withholding tax is due. In the case where it is distributed via a dividend distribution after 5 years, a withholding tax of 5% is due.
Entry into force: 18 August 2015 (date of publication in the Belgian Official Gazette).
The Program Act introduces the so-called ‘diamond regime’ for registered companies (incl. Belgian permanent establishments of foreign companies) active in the diamond sector. The taxable result of these companies is determined on a lump-sum basis, being 0.55% of the turnover from the diamond activities. Companies subject to the diamond regime cannot benefit from the notional interest deduction and cannot deduct losses carried forward. For certain registered traders of rough diamonds, the diamond regime is optional.
Entry into force: tax year 2016 (financial years ending on 31 December 2015 at the earliest), subject to confirmation by the European Commission that this measure cannot be considered as illegal state aid.
Investment deduction for digital investments
The Program Act provides for an increased investment deduction for SMEs and individuals investing in digital investments as of assessment year 2016. As of 8 December 2015, a Royal Decree has been implemented which confirms the investments that effectively qualify for the investment deduction for digital investments, more specifically it concerns investments in information security, communication technologies and digital payment and billing systems.
Currently, certain inter-municipal entities, collaborations, and project associations are no longer, by default, exempt by law from corporate income tax (“CIT”) and, hence, are no longer, by default, subject to legal entities tax. As of tax year 2015, the entities at hand could be subject to CIT or legal entities tax, depending on certain criteria (e.g. whether or not they perform activities with a profitable nature, the way they do business). The Program Act of 10 August 2015 introduces an exception for hospitals and institutions assisting the disabled, elderly people, protected minors, etc. They remain subject to legal entities income tax. Furthermore, the Program Act provides for less stringent consequences upon the conversion from legal entity income tax to corporate income tax. For example, retained earnings are now deemed to be taxed reserves.
The measure is applicable as of tax year 2015 (i.e. accounting years ending between 31 December 2014 and 30 December 2015, both dates inclusive) and is applicable as of financial years that are closed, at the earliest, on 1 July 2015.
Joint and several liability of the ‘maître de l’ouvrage’ / ‘opdrachtgever’
The Program Act extends the joint and several liability for social and tax debts of the contractor (or sub-contractors) to the ‘maître de l’ouvrage’/’opdrachtgever’.
Entry into force: 18 August 2015 (date of publication in the Belgian Official Gazette).
Latest update: 13 July 2016
The Program Act of 1 July 2016 has been published in the Belgian Official Gazette on 4 July 2016. It introduces among others the fiscal treatment of the ‘sharing economy’ and extends the tax assessment deadline.
Other measures are currently under review at the Chamber or pending before the State Council.
At regional level, the Walloon Region recently introduced a draft Decree implementing measures regarding the ‘chèque-habitat’ (tax deduction for mortgage loans for the sole and own dwelling).
Under the Decree of 28 April 2016 (Official Gazette of 10 May 2016), the Walloon Parliament also introduced a tax credit with respect to loans granted by private individuals to small and medium-sized enterprises (i.e. SMEs) and self-employed with registered office located in the Walloon Region, after 1 January 2016.
Fiscal treatment of the ‘sharing economy’
The Program Act of 1 July 2016 introduces specific fiscal provisions regarding income received by a private individual (outside a business activity) from services provided to another private individual using an electronic platform, which is recognised or organised by the Government. This income will constitute a separate category of ‘miscellaneous income’ in the Belgian Income Tax Code. If certain well-defined conditions are strictly met and if the income does not exceed a certain threshold (i.e. EUR 5,000, which is the indexed basic amount of EUR 3,255 on an annual basis), a flat tax rate of 20% will be applicable, after application of a 50% lump-sum cost deduction. Consequently, the effective tax rate will be 10%. The tax provisions on the sharing economy are applicable as of 1 July 2016. As a result, for income year 2016 (tax year 2017) the above-mentioned threshold is reduced by half (i.e. EUR 2.500, which is the indexed amount of EUR 1.627,50). If the threshold is exceeded, the full income will be deemed to be earned income (however, it is possible to provide evidence to the contrary).
Extension of the investigation period when tax information is received from abroad
Belgian legislation provides an extension of the period to issue an assessment notice with 24 months in the case where the Belgian tax authorities receive information from another State, which has concluded a double tax treaty with Belgium, provided this information is based on a tax audit or investigation (conducted by the competent authorities of that State), showing that taxable income was not declared in Belgium within a 5-year period preceding the year during which the tax authorities receive the relevant information from abroad.
Under the Program Act of 1 July 2016, the Belgian Government brings the term of the investigation period in line with the special assessment period of 24 months. Furthermore, the scope of application is extended to ‘any information received by the competent authority of another State’. This means that it is no longer required that the information results from a foreign tax audit or investigation. Information can also be received spontaneously or via automatic exchange of information. Finally, legal grounds (on which information can be received and used in Belgium) are extended from classical ‘double tax treaties’ to ‘other instruments on the exchange of information’ (such as multilateral treaties, Tax Information Exchange Agreements, EU Directives, FATCA, etc.).
Please also note that, in case of tax fraud, the above period of 5 years is extended to 7 years.
The Program Act of 10 August 2015 implemented the so-called ‘Cayman tax’. Under this regime, private individuals subject to Belgian personal income tax (or Belgian entities subject to legal entities income tax) are taxable in respect of certain income generated by legal constructions of which they are the founder or beneficiary. Legal constructions are thus treated as tax transparent.
The legal constructions in scope include:
Under application of the Cayman tax, income obtained by legal constructions as from 1 January 2015 is taxable in the hands of the Belgian founder or, if it has been distributed, the beneficiary of the distribution. The income is treated in the hands of the founder or the beneficiary as if it was obtained directly and may be taxed as real estate income, movable income (interest, dividends and royalties), and miscellaneous income or, possibly, earned income. If legal constructions do not distribute income in the year it has been obtained, the founder may be taxed on income that could later be received by another person. This is criticised by legal authors.
In August 2015, two lists of qualifying entities of the second category were published:
As from tax year 2014, taxpayers have to report the existence of a legal construction of which they (or their spouse or children) are the founder or beneficiary, in their annual income tax return. The Act of 26 December 2015 has extended this obligation as from tax year 2016:
Under the Program Act of 1 July 2016, the Belgian government has introduced a specific administrative fine for taxpayers who have omitted to state the existence of such a legal construction in their annual income tax return. The fine amounts to EUR 6,250.00 per year and per legal construction that is not mentioned.
The Program Act of 10 August 2015 provides for a general anti-abuse rule under which a legal action of a legal construction (of the second category) cannot be made binding towards the tax authorities if it is aimed at avoiding the Cayman tax. The Act of 26 December 2015 adds a specific anti-abuse rule relating to the exclusion of collective investment entities, pension funds and listed companies. The Cayman tax still remains applicable where the entity is held by one person or by persons that are connected, i.e.:
The heir of a founder of a legal construction (of category 1 or 2) may be excluded from the Cayman tax if he can prove that he or his heirs will never and in no way receive any benefit from the legal construction.
Entry into force: The Program Act of 10 August 2015 is applicable to income that is obtained, attributed or paid by a legal construction as from 1 January 2015. As for withholding taxes (incl. wage withholding tax), the measures are applicable to income attributed or paid as from 1 September 2015. The Act of 26 December 2015 on the reinforcement of job creation and purchasing power is applicable as from tax year 2016.
In the framework of the Tax Shift Agreement, the Belgian Government announced the introduction of a new tax, notably a ‘speculative tax’. The Act on measures aimed at enhancing job creation and purchasing power dated 26 December 2015 provides further details in this respect:
Entry into force: 1 January 2016
Withholding taxes on income from investment
The withholding tax on income from investment, such as interest and dividends, has been increased from 25% to 27%, except for interest derived from savings accounts, from Leterme State bonds and from cash contributions under the VVPR-bis treatment. This new rate is applicable to investment income paid or attributed on or after 1 January 2016.
Lump-sum amount of business expenses for employees
In 2014, it was announced that the lump-sum amount of business expenses would be increased. This would result in a higher net income for employees and boost their purchasing power. The increase in lump-sum business expenses (as included in the Program Act of 19 December 2014) was already partially implemented in the tax scales applicable as from January 2015 (and thus processed via the monthly payroll). Full implementation of this measure will be achieved as from January 2016. Additionally, it has been decided by the Federal Government and approved by the federal legislator to further increase the lump-sum amount for business expenses as from January 2016 (Act of 26 December 2015 enhancing job creation and purchasing power). As from January 2018 (within certain limits), a single percentage will be applied for calculating the lump-sum amount of business expenses for employees, which should further increase the level of these deductible expenses.
Individual income tax brackets and tax-exempt amount
One of the tax measures that were announced by Prime Minister Charles Michel during a press conference on 10 October 2015 was the abolition of the 30% rate and the increase in the tax bracket of the 45% rate.
According to the Act of 26 December 2015, the progressive abolition of the 30% rate and expansion of the tax bracket of the 40% rate will be achieved in 2 steps, the first changes being implemented as from income year 2016 and full implementation being achieved as from income year 2018. The first step (i.e. expansion of the 25% tax bracket) is implemented and comes into force as from assessment year 2017. The second step (i.e. abolition of the 30% rate and expansion of the tax bracket of the 40% rate by increasing the lower limit of the 45% rate) comes into force as from assessment year 2019.
Additionally, the Act of 26 December 2015 implements new tax brackets for calculating the tax-exempt amount. These new brackets will be different from the actual income tax brackets (used to determine the basic progressive income tax amount due on the taxable income). This measure will result in a higher income tax exemption and is in force as from assessment year 2017. Furthermore, the tax-exempt amount is expected to be further increased as from assessment year 2019.
Exemption of the business allowance ('bedrijfstoeslag'/'complément versé par l’employeur')
When a former employee who entered the system of unemployment with business allowance takes up new employment with another employer (or becomes self-employed), he continues in principle to be entitled to receive the business allowance. This allowance (and additional allowances) can give rise to a tax reduction for pensions and replacement income (a reduction that is not impacted by the newly-received earned income).
In order to stimulate taxpayers even more to ‘resume work’, the Program Act of 26 December 2015 introduces a ‘tax exemption’ for the business allowance (and additional allowances) granted for the period or periods in which work is resumed. Consequently, the existing tax reduction will be abolished for these amounts (but will remain applicable to certain amounts that do not fall under the new tax exemption).
This new tax exemption is applicable to business allowances (and additional allowances) granted or paid as from 1 January 2016 provided that they are not related to periods prior to this date.
In our ‘Tax Reform in Belgium 2015/2016’ communication, it was first announced that a new measure regarding fiscal amnesty would be introduced. This measure was initially included in the draft Program Act of 26 December 2015 but was subsequently removed. Please note that the Belgian Government is still in the process of preparing a new piece of legislation on the anticipated tax regularisation procedure.
Wage withholding tax
The amount of wage withholding taxes to be withheld by the employer is based on the withholding tax scales published in a Royal Decree. The Belgian Income Tax Code provides for several exemptions (overtime, R&D, night and shift work, etc.) with respect to the remittance of Belgian withholding taxes to the Treasury.
In May 2014, the Belgian Government decided to gradually increase the exemption for night and shift work from 15.6% to 22.8% during a 3-year period. With the Act of 26 December 2015, the Belgian Government immediately (instead of gradually) increased the exemption with respect to the remittance of Belgian withholding taxes to 22.8%.
Furthermore, as regards night and shift work in companies producing ‘highly technological products’, this exemption is additionally increased by 2.2% to reach a total exemption of 25%.
Both increases are applicable as from income year 2016.
Reduction for pension savings
In 2014, the EU Court of Justice ruled that, as the Belgian tax reduction for pension savings was only possible for payments made to Belgian institutions and funds, Belgium did not meet its obligations with respect to the free movement of capital.
As a reaction to this European case law, Belgium extended the tax reduction for pension savings to payments in another Member State of the European Economic Area (EEA). Consequently, taxpayers who make payments to a foreign institution located in another EEA Member State can equally benefit from the Belgian tax reduction for pension savings. In order to be able to evidence that foreign institutions meet the qualifying conditions for the tax reduction, foreign entities need to comply with a new information obligation.
Tax incentives for investments in starting SMEs
The Program Act of 10 August 2015 introduces a new tax deduction for individual taxpayers (both residents and non-residents) who purchase new shares in a starting SME even when the investment is made via a recognised crowdfunding platform or via a recognised starters’ fund. This tax deduction will amount to 30% (45% for micro-companies) of the qualifying amount (which is limited to EUR 100,000.00 per taxable period) and will only be granted if several conditions are met regarding shares, time of acquisition of these shares and enterprise in which the taxpayer invests. The tax deduction can be cancelled retroactively in the case where the taxpayer does not meet a 4-year holding period. This is applicable to shares issued as from 1 July 2015. The Royal Decree of 1 April 2016 determines further formalities in this respect, notably with respect to the documentation that the companies involved must provide to individual taxpayers on an annual basis.
New SMEs or SMEs which already exist for a period of maximum 4 years will be able to benefit from a new partial exemption of remittance of withholding taxes. If certain conditions are met, 10% (or 20% for a micro-company) of the withholding taxes levied on salaries that were paid as from 1 August 2015 to their employees, does not have to be remitted by these SMEs to the Belgian tax authorities. The Program Act of 10 August 2015 introduces a new tax exemption, notably with respect to the annual interest income received by individual taxpayers (private investors) and resulting from newly-issued loans within the framework of a recognised crowdfunding platform to new SMEs or to SMEs which already exist for a period of maximum 4 years. The tax exemption relates to interest received in relation to the first portion of EUR 15,000 of the loan amount. Certain conditions must be met in order to benefit from this tax exemption. These conditions concern among others the loan itself (amount, term, etc.) and the companies which are financed via this method. This tax exemption applies to interest income from loans concluded as from 1 August 2015.
Fiscal work bonus
The Program Act of 10 August 2015 includes a gradual increase in the fiscal work bonus from 14.40% calculated on the amount of the social work bonus to 17.81% (for wages paid as from 1 August 2015) with a maximum of EUR 235, from 17.81% calculated on the amount of the social work bonus to 28.03% (for wages paid as from 1 January 2016) with a maximum of EUR 420, and from 28.03% calculated on the amount of the social work bonus to 33.14% (for wages paid as from 1 January 2019) with a maximum of EUR 500.
Additional tax reduction for pensions and replacement income
Additional tax reduction for pensions and replacement income is increased for taxpayers who only receive pensions or replacement income. This provision is applicable as from tax year 2016.
Investment deduction for digital investment
The Program Act provides for an increased investment deduction for SMEs and individuals investing in digital investments as of assessment year 2016. As of 8 December 2015, a Royal Decree has been implemented which confirms the investments that effectively qualify for the investment deduction for digital investments, more specifically it concerns investments in information security, communication technologies, digital payment and billing systems.
At a certain point in time, it seemed that employers would no longer be able to grant an innovation premium, as this ‘instrument’ would expire on 1 January 2015. However, via the Program Act of 10 August 2015, the Belgian Government has (retroactively) extended the application of the favourable tax regime applicable to innovation premiums with a 2-year period (i.e. until 1 January 2017), which may be further extended in the future.
Update of the company car benefit in kind under the Royal Decree of 9 December 2015
For income year 2016, the formula for calculating the taxable benefit in kind for the private use of a company car in the hands of company directors and employees remains unchanged. However, the reference CO2 emission to be used for this calculation has been updated under the Royal Decree dated 9 December 2015 as follows:
The Decree of 18 December 2015 contains several changes to the tax relief for mortgage loans that apply to mortgage loans concluded as from 2016:
For loans contracted before 2016, the current tax relief continues to exist. Consequently, three differentiating tax systems for the 'housing bonus' ('woonbonus'/'bonus-logement') co-exist in the Flemish Region: (1) the ‘former’ system for loans signed between 1 January 2005 up to and including 31 December 2014, (2) the ‘first-generation’ regional system for loans contracted as from 1 January 2015 and, finally, (3) the ‘second-generation’ regional system for loans contracted as from 1 January 2016. A combination of the first-generation tax relief (i.e. mortgage loans prior to 2016) and the second-generation tax relief (i.e. mortgage loans as from 2016) for the own dwelling is not possible.
Flemish Ruling Office
It sets up a Flemish Ruling Office for regional registration duties and inheritance taxes. This office is competent to deliver advance decisions on requests concerning exclusively the application of (the provisions of) the Flemish Tax Code. With respect to mixed situations or operations (issues including federal and regional provisions), it will deliver a binding opinion on the advance decision to the Ruling Office (which will issue the advance decision). Entry into force: 14 August 2015 (publication date), except for the provision related to the binding opinion on the advance decision (date to be determined by the Flemish Government).
Exemption or reduced rates are applicable to gifts and legacies of family-owned companies if certain conditions are fulfilled, notably a minimum shareholding by the donor with his close family members. The terms ‘close family members’ now include lineal relatives and their partners and relatives up to the second degree and their partners. According to the Flemish Tax Administration website, this provision is immediately applicable.
With respect to inheritance and gift taxes, a child adopted by his/her father-in-law or mother-in-law also benefits from reduced rates in case of inheritance or gift in direct line. According to the Flemish Tax Administration website, this provision is immediately applicable.
Registration duties and inheritance taxes
Regarding registration duties and inheritance taxes, the Decree amends or complements a series of provisions introduced by the Decree of 19 December 2014: it broadens the definition of ‘building plots’, of ‘family dwelling’ (it includes now ‘outbuildings’) and also the concept of ‘close family members’ (regarding reduced rates applicable to gifts and legacies of family-owned companies); conditions to take advantage of the compensation and refund regimes are amended; there are also changes to the property traders system and the rules applicable to the charge of debts incurred to acquire specific assets.
The Flemish Region reformed and lowered the donation tax rates on donations of immovable property (except for building plots). There are no longer four tables but only two, using the same rates and brackets: one between descendants and ascendants and between married people/partners and a second one, between other persons. For immovable property situated in the Flemish Region, the Program Decree provides for a limited refund if the beneficiary carries out renovation works in the building for an amount of at least EUR 10,000 excl. VAT within 5 years after the donation. Such refund is also possible if the beneficiary produces a conformity certificate, a 9-year registered rental agreement within 3 years after the donation, and provided the building has been rented out for an effective period of 9 years. An additional reduction is applicable for disabled beneficiaries. Entry into force: 1July 2015.
Currently, donations of building plots to individuals are subject to a reduced rate. This reduction will be applicable until 31 December 2019. Therefore, it has been defined in the explanatory statement that the taxpayer may choose between the current special system and the new one. Entry into force: 1 July 2015.
The Decree also introduces a tax on gambling (horses races, dog races) and sports betting, submits the ‘maison mortuaire’ clause (attribution of the matrimonial property to one of the spouses, whether surviving or not) to inheritance tax and brings amendments to the ecological fee.
In 2015, when the Brussels Capital Region presented its budget for 2016, amongst other things a tax reform was announced, to be implemented partly in 2016 and partly in 2017.
In 2016, the lump-sum regional tax of EUR 89 and the additional levy of 1% on federal personal income taxes no longer apply. Property taxes, however, increase by 12%, but residents of the Brussels Region are entitled to a EUR 120 reduction in this respect. Also in 2016, registration duties on donations of real estate properties are lower.
In 2017, the tax relief for the sole and own dwelling will be abolished. Instead, when purchasing their own dwelling in the Brussels Region, buyers will be entitled to a reduction in registration duties of up to EUR 22,500.00 subject to certain limits. Regional surcharges on personal income taxes will also be lowered by half a percentage.
The purchase price of service vouchers (i.e. EUR 9 per voucher) will be maintained until 2020, and the tax relief will be limited to 15%.
In 2015, the Walloon Government reached an agreement on the reform of the regional tax reduction for mortgage loans for the sole and own dwelling; a so-called system of ‘chèque-habitat’ would be introduced.
The tax relief would be maintained but be less generous. It would become an incentive for the first acquisition also calculated in relation to the taxpayer’s personal situation (income, number of dependent children). On 6 June 2016 a Draft Decree was introduced:
Service vouchers and PWA cheques
As from income year 2015, the tax reduction for service vouchers is a regional competence. In December 2014 the Walloon Region used its competence to adapt the calculation method of this tax reduction and one year later (on 17 December 2015) published a guideline in this respect.
Based on the new legislation and guidelines, the tax reduction for service vouchers has significantly been reduced compared to previous years and the other Regions. In short the qualifying amount will be limited to 450 EUR maximum per taxpayer resulting in a maximum tax reduction of 135 EUR (30% of 450 EUR) per year per taxpayer (excluding municipal taxes).
Tax credit related to loans for small and medium-sized enterprises and independents
Under the Decree of 28 April 2016 (Official Gazette of 10 May 2016), the Walloon Parliament introduced a tax credit with respect to loans granted by private individuals to small and medium-sized enterprises (i.e. SMEs) and self-employed with registered office located in the Walloon Region, after 1 January 2016.
Taxpayers will be entitled to a tax credit provided that several conditions with respect to the debtor, creditor and loan are fulfilled. The loans should be granted by individuals (not companies or independents) to either SMEs or self-employed for a period of four, six or eight years. Furthermore, the loans should be used solely by SMEs or self-employed in the scope of their business activities. Employees of the SMEs cannot benefit from the tax credit in the case where they grant a loan to the company employing them.
For the first 4 years, the tax credit will amount to 4% of the entire loan amount granted per taxable period per taxpayer. For the following years, it is reduced to 2.5% of this amount. The qualifying loan amount will be capped at EUR 100,000.00 for the debtor and EUR 50,000.00 for the creditor.
On 1 July 2016, a new Program Act has been adopted introducing some further changes to the VAT legislation.
In the framework of the Belgian Government Agreement and Tax Shift Agreement or following case law of the Court of Justice of the European Union (‘CJEU’), new measures have been enacted at the end of the year 2015 (Acts of 6, 18 and 26 December 2015 and Royal Decrees of 14 December 2015 and 26 January 2016).
New measures enacted by the Program Act of 1 July 2016 (Official Gazette of 4 July 2016)
Measures enacted by the Acts of 6, 18 and 26 December 2015 and Royal Decrees of 14 December and 26 January 2016
The applicable VAT rate for the supply of electricity to private individuals has increased from 6% to 21% as from 1 September 2015.
As from 1 January 2016, the following changes are also to be noted:
The reduced VAT rate applicable to the renovation of private dwellings increases from 5 to 10 years (the VAT authorities published a transitional scheme until the end of 2015) as from 12 February 2016.
As from 1 January 2015, the temporary increase of taxes on certain stock exchange transactions has become permanent. In addition, the tax rate of both secondary market transactions in shares and transactions in capitalisation funds is increased (for secondary market transactions in shares: increase to 0.27% with a maximum of EUR 800, for transactions in capitalisation funds: increase to 1.32% with a maximum of EUR 2,000).
The current fight against tax and social fraud would continue. Additional tax inspectors will be hired and trained by the Government.
In the framework of the budgetary control exercise in March 2015, the following measures in this regard were announced: ‘fiscal amnesty’ (for previously undeclared income), fight against abuse of corporate structures and online fraud, extension of data-mining projects, and better use of information concerning the 183 days rule.
The Belgian Minister of Finance also launched the ‘Plan to Combat Tax Fraud’ in December 2015, sharing new insights on how Belgium will be addressing the outcome of the OECD/G20 project in relation to Base Erosion and Profit Shifting (“BEPS”). A plea for coordinated actions in sync with global, OECD and EU initiatives as opposed to unilateral measures is a recurring theme that glimmers through the entire policy document.