Stay up to date with tax reform in Belgium

Entities - Companies - Corporate income tax

Latest update: 22 February 2017

In the framework of the 2017 budget, the Government has reached an agreement on several new tax measures. The Program Act of 25 December 2016 implementing the measures has been published in the Official Gazette on 29 December 2016. It introduces changes to the tax charge on company cars, the tax treatment of internal gains realised in case of contribution of shares by an individual, the increase in the withholding tax on investment income and on certain liquidation reserves and provides changes to the tax on stock exchange transactions.

The Act also implements a recovery procedure for state aid derived from excess profit rulings granted.

The Act introducing the new innovation income deduction has been finally enacted and published in the Belgian Official Gazette on 20 February 2017 (see below).

The Act of 1 December 2016, transposing the Parent-Subsidiary Directive, has been published in the Official Gazette on 8 December 2016 (see below).

 

The corporate tax reform announced last August has been confirmed by the Government in the general policy note. However, no agreement has been reached so far.

In a nutshell, what are the ‘positive’ and compensatory measures on the table? The measures are still under review, being discussed and hence subject to changes:

  • progressive reduction in the Belgian corporate tax rate from 33.99% to 23, 24 or 25 % by 2020
  • exemption of capital gains on shares would be aligned with the conditions of the Dividends Received Deduction (DRD), also implying that the current tax charge at 0.412% for non SMEs and at 25,75% for short-term capital gains would be abolished
  • increase in the DRD up to 100 % (instead of 95% as is the case now)
  • abolition of the fairness tax (?)
  • tax exemption for starting small businesses during the first five years under certain conditions
  • decrease in the notional interest deduction rate to 0%
  • no excess profit ruling anymore
  • limited use of tax losses carried forward and DRD (e.g. limited to MEUR 1 + 65% above MEUR 1)
  • in the absence of a corporate tax return, the minimum taxable lump-sum would amount to 40.000 € (instead of currently 19.000 €) from 2017
  • interest deduction limitation (30 % of the EBITDA)
  • less favourable depreciation treatment
  • limitation of the deduction of other provisions for risks and charges
  • reinforced taxation conditions to benefit from the DRD treatment and limitation to the deductibility of costs related to the management of shareholdings
  • abolition of the investment deduction for high-tech production. However, the innovation income deduction (replacing the patent income deduction), the investment deduction and the tax shelter in the audio-visual sector would be maintained.
  • implementation of ATAD measures
  • limitation of the deduction of certain business expenses (reception costs, restaurant expenses or business gifts) up to 5% of the gross revenue
  • fight against the use of companies only for tax purposes

 

Act of 9 February 2017 introducing the Innovation Income Deduction (Official Gazette 20 February 2017)

Qualifying intellectual property

As from now, qualifying intellectual property (IP) income is called ‘innovation income’, which reflects the broader scope of the qualifying income. The Innovation Income Deduction (IID) can apply to income derived from the following intellectual property (IP) of which the company or branch has the full ownership, co-ownership, usufruct or license or rights to use on:

  • patents and supplementary protection certificates;
  • breeders’ rights requested or acquired as from 1 July 2016;
  • orphan drugs, i.e. a drug to treat rare diseases, (limited to first 10 years) requested or acquired as from 1 July 2016;
  • data and market exclusivity granted by the competent authorities (e.g. market exclusivity for orphan drugs or data exclusivity for reports with respect to pesticides, clinical studies of generic or animal drugs);

IP of copyrighted software resulting from a research or development project as defined for the purposes of the partial exemption of wage withholding tax for research and development and which has not yet generated income before 1 July 2016.

Under the PID system, the benefit was only available as from the year the patent was actually granted.

The benefit under the IID will also be available by way of a temporary exemption (which will lead to a permanent exemption once the qualifying IP right has been granted) as from the date the qualifying IP right has been applied for. As the copyright of software automatically exists without request (provided conditions are met), there is no temporary exemption in this respect.

All marketing related intangibles such as trademarks will not qualify for tax benefits under the IID system.

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Innovation income

Without making any restrictions to SMEs, the following income will be considered as derived from the above qualifying IP in so far as the remuneration is included in the Belgian taxable result of the Belgian company or branch concerned:

  • licence fees;
  • IP income embedded in the sales price of own manufactured products for which a third party would be willing to pay a license (so-called ‘embedded’ royalties);
  • IP income derived from process innovation;
  • indemnities on the basis of a court/arbitral decision, an amicable settlement or an insurance settlement.

Furthermore, also the proceeds from a transfer of qualifying IP are in the scope of the deduction, subject to a reinvestment condition to be met within 5 years.

For the first taxable period during which the IID will be applied, the (net) innovation income should be decreased with the overall expenditure incurred during (preceding) taxable periods ending after 30 June 2016. Alternatively, one can opt to spread this recapture on a straight line basis during a period of maximum 7 years. In the case that the qualifying IP right terminates or is alienated before the end of this 7-year period, a correction will apply in order to limit the IID actually applied to the amount that would have been applied if no spread recapture had been opted for.

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Modified nexus approach

In consideration of avoiding that the Belgian IID regime would appear to constitute a harmful tax practice, the modified nexus approach has to be taken into account. The nexus approach intends to ensure that, in order for a significant proportion of innovation income to qualify for benefits, a significant proportion of the actual research and development (R&D) activities must have been undertaken by the taxpayer itself.

As a matter of business practice, unlimited outsourcing to related parties or acquisition of IP from related parties should not provide many opportunities for taxpayers to receive benefits without themselves engaging in substantial activities.

Given the above, the IID will be determined by multiplying the innovation income with the below ratio. The fraction represents the ratio between the own R&D activities and the outsourced R&D activities/acquired IP (towards/from related parties). As such, the taxable result of a Belgian company or branch will be reduced by 85% of the total net innovation income after this fraction has been applied.

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Qualifying expenditure + uplift

------------------------------------------     Net innovation income  85%  =  Innovation Income Deduction

         Overall expenditure

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Important to note is that the ratio will be calculated on a net basis implying that (contrary to the PID regime) current-year deducted overall expenditure should be deducted from the current-year qualifying innovation income.

It is thereby also provided that any excess deduction that cannot be used due to insufficient taxable basis can be carried forward (without any limitation in amount or time) to be compensated with future taxable profits (contrary to the PID system).

Furthermore, the law provides for continuity of the IID in the case of tax neutral reorganisations (e.g. contribution, merger or (partial) demerger). This continuity is also foreseen now for the PID.

Qualifying expenditure

The qualifying expenditure is the expenditure incurred by the company itself or the compensation for expenses of non-related companies in relation to outsourced R&D activities.

Qualifying expenditure must be directly connected with the qualifying IP. The expenditure does not include interest payments, costs related to immovable assets or any costs that could not be directly linked to a specific intangible. If R&D activities are outsourced to a non-related company via a related company, the related costs will qualify as qualifying expenditure on the condition that the compensation is charged without mark-up (i.e. as a disbursement). Based on the OECD Report on Action Point 5, the total acquisition cost related to qualifying intangible property should not be taken into account as qualifying expenditure but should be included in the overall expenditure.

 

Uplift of the qualifying expenditure

The qualifying expenditure may be uplifted by 30%, with a maximum of the overall expenditure. This means that the uplift may increase the qualifying expenditure but only to the extent that the taxpayer has non-qualifying expenditure. The purpose of this uplift is to ensure that the nexus approach does not penalise taxpayers excessively for acquiring IP or outsourcing R&D activities to related parties.

In exceptional circumstances, it can occur that although an uplift of 30% is added, the nexus ratio does not represent reality. As such, the modified nexus ratio can be rebutted by the taxpayer if the ratio as set out above (excluding the uplift) equals or exceeds 25%. A higher ratio may be applied in case the taxpayer proves that the outcome of the ratio between self-performed activities for R&D and the total R&D activities does not reflect reality. A ruling should be obtained in this respect.

 

Overall expenditure

The overall expenditure in the denominator of the ratio includes the qualifying expenditure increased with the acquisition costs related to qualifying intangible property and the expenditure for related-party outsourcing.

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Tracking and tracing

Since the nexus approach depends on there being a nexus between expenditure and income, taxpayers will have to carefully track and trace the expenditure, qualifying IP and income. In this respect it is provided that supporting documentation will have to be kept available for the tax authorities (such as the gross amount of the income, the actual value of IP acquired from a related company, the overall expenditure of the current year and the qualifying and overall expenditures over the life time of the IP).

In practice, it can be predicted that this will not be that easy to manage and may imply a cumbersome administrative burden for Belgian taxpayers. A transitional period is provided up to and including tax year 2019 (financials years ending as of 31 December 2018 until 30 December 2019, both dates inclusive). More detailed information with respect to this tracking and tracing and the timing thereof will be further determined by Royal Decree.

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Grandfathering and entry into force

The new system enters into force as of 1 July 2016, so a taxpayer may apply the PID in the first 6 months of 2016 and the IID in the last 6 months. Taxpayers benefitting from the PID regime or taxpayers that requested or acquired a patent prior to 1 July 2016, will be able to choose for the PID or the IID regime and will be able to receive the benefits under the PID for another five years (grandfathering until 30 June 2021).

The choice for the PID is irrevocable and must (in principle) be made per IP right.

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Program Act of 25 December 2016 (Official Gazette of 29 December 2016) 

Taxation of company cars

Basically, the company that provides a company car to its employees is taxed on 17% of the taxable benefit in kind. In this respect, the Program Act entails two changes as from 1 January 2017:

  • an increased taxable basis: the benefit in kind  is no longer reduced by the beneficiary’s contribution to calculate disallowed expenses;
  • an increase in the non-deductible amount to 40% of the taxable benefit in kind (excluding the beneficiary’s contribution) if the company covers the fuel costs (relating to private use).

This also applies to legal entities and companies subject to non-resident income tax.

The Program Act of 25 December 2016 does not yet include any provisions regarding the introduction of the so-called ‘mobility budget’, which would allow employees to convert their current company car into a ‘budget’ or to receive an ‘additional net salary’.

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Internal capital gains

As previously announced, in the case of a contribution of shares by an individual in a holding company, there is no longer tax-free step-up: the difference between the fair market value of the shares and their acquisition value is considered as a taxed reserve (and no longer as fiscally paid-up capital). As such, in the case where the reserves are distributed to the shareholder, a withholding tax will apply.

This also applies in the case of gifts or inheritance. However, a sale of shares remains outside of the scope because they can be taxable on the basis of other Income Tax Code provisions. Contributions of shares to non-resident companies also fall within the scope of this measure.  This change applies to the capital gains realised as from 1 January 2017.

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Increase in withholding tax

  • increase in the withholding tax rate from 27 to 30 % on investment income as of 1 January 2017;
  • increase in the withholding tax rate from 17 % to 20% on the liquidation reserves created as of 2017 and distributed in the first 5 years.

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Speculation tax

Abolition of the speculation tax for individuals on the transfer of quoted shares as of 1 January 2017;

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Recovery procedure for state aid

Recovery procedure for state aid derived from excess profit rulings granted (more details in our news flash of 23 December 2016);

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Tax on stock exchange transactions

  • the maximum tax amount due are doubled and the tax is extended to include transactions realised by Belgian residents through non-resident intermediaries;
  • the Belgian resident giving the order is liable for the payment of the tax, except if he can prove that the tax has been paid;
  • the delay for the payment is extended and penalties are changed (reduced penalties are provided between 1 January 2017 and 31 December 2017);
  • before any transactions, the non-resident professional intermediary may appoint a responsible representative;
  • these changes apply to the transactions carried out as from 1 January 2017.

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Act of 18 December 2016 organising the recognition and legal framework of crowdfunding and containing miscellaneous finance provisions (Official Gazette 20 December 2016)  

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 is limited and it only applies if:

  • there are links of interdependence between the supplier and its Belgian client;
  • the income received for the services rendered qualifies as a profit in the hands of the beneficiary; 
  • the services are provided to an individual tax resident in Belgium in the framework of his business activity, a corporation, a taxpayer subject to the legal entities tax or Belgian establishment;
  • and if and to the extent income is taxable in Belgium under a tax treaty or, in the absence of any tax treaty, if the taxpayer does not provide evidence that income is actually taxed in the State where he is resident.

A 15% withholding tax rate applies 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 applies to dividends paid or attributed on or after 1 January 2017.

 

 Act of 1 December 2016 providing tax provisions (Official Gazette 8 December 2016) 

Transposing the Parent-Subsidiary Directive

The  Act implements the amendments to the EU Parent-Subsidiary Directive (‘PSD’) ; it 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 anti-hybrid rule introduced into the Belgian Income Tax Code (‘BITC’), provides 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 Act of 1 December 2016 also introduces 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 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.

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Exit tax

The Act of 1 December 2016 introduces 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.

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Individuals - Personal income tax

Latest update: 13 January 2017

In the framework of the 2017 Budget, the Government has reached an agreement on several new tax measures. The Program Act of 25 December 2016 implementing these measures has been published in the Official Gazette on 29 December 2016 (see below).

The Act abolishes the speculation tax. It also introduces a taxation of internal gains realised upon a contribution of shares by an individual and an increase in the withholding tax on investment income and on certain liquidation reserves, and it provides for changes in the tax on stock exchange transactions.

 


Federal tax measures

Program Act of 25 December 2016 (Official Gazette 29 December 2016) 

Company cars

The Program Act of 25 December 2016 does not yet include any provisions regarding the introduction of the so-called ‘mobility budget’, which would allow employees to convert their current company car into a ‘budget’ or to receive an ‘additional net salary’.

From a corporate income tax perspective, the Program Act now provides that disallowed expenses relating to (the private use of) company cars for which the company also covers fuel costs, equals 40% of the benefit in kind (not reduced by the beneficiaries’ own contribution). For cars provided by companies without fuel costs covered, the non-deductible amount equals 17% of the benefit in kind (not reduced by the beneficiary’s own contribution).

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Internal capital gains

As previously announced, in the case of a contribution of shares by an individual in a holding company, there is no longer a tax-free step-up: the difference between the fair market value of the shares and their acquisition value is considered as a taxed reserve (and no longer as fiscally paid-up capital). As such, in the case where the reserves are distributed to the shareholder, a withholding tax will apply.

This also applies in the case of gifts or inheritance. However, a sale of shares remain outside of the scope because they can be taxable on the basis of other Income Tax Code provisions. Contributions of shares to non-resident companies also fall within the scope of this measure.  This change applies to the capital gains realised as from 1 January 2017.

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Increase in the withholding tax

  • increase in the withholding tax rate from 27 to 30 % on investment income as of 1 January 2017;
  • increase of the withholding tax rate from 17 % to 20% on the liquidation reserves created as of 2017 and distributed within the first 5 years.

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Speculation tax

abolition of the speculation tax for individuals on the transfer of quoted shares as of 1 January 2017;

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Tax on stock exchange transactions

  • the maximum tax amounts due are doubled and the tax is extended to also include transactions realised through non-resident intermediaries by natural persons having their usual residence in Belgium or legal persons on behalf of an office or establishment located in Belgium;
  • when, as mentioned above, non-resident intermediaries are involved, the individual giving the order must comply with specific tax reporting requirements and is liable for the payment of the tax, except if he can prove that the tax has been paid;
  • the delay for the payment is extended and the penalties are amended (reduced penalties are provided between 1.1.2017 and 31.12.2017);
  • the non-resident professional intermediary may appoint a responsible representative who will pay the tax on stock exchange transactions and comply with the tax reporting requirements;  
  • these changes apply to transactions executed as from 1 January 2017

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Act of 21 July 2016 introducing a permanent fiscal amnesty (Official Gazette 29  July 2016) 

The Act of 21 July 2016 introduced a permanent fiscal amnesty which provides taxpayers with a possibility – under certain conditions – to regularise income that has incorrectly not been subject to Belgian standard income taxes as well as evaded Belgian VAT. This income is taxable at standard tax rates, increased by 20%.

In addition to the federal fiscal amnesty system, the Act of 21 July 2016 also introduced a permanent system of social amnesty concerning the regularisation of social security contributions on professional income earned by a self-employed person. 

 

New tax measures enacted by the Program Act of 1 July 2016 (Official Gazette of 4 July 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). 

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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.

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Tax measures enacted by the Act of 26 December 2015 and the Program Act of 26 December 2015 (Official Gazette of 30 December 2015)

Cayman tax

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:

  • trusts without legal personality (category 1); and
  • foreign entities with legal personality that are subject to an effective tax rate of less than 15% (category 2).

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:

  • Outside the EEA: ‘Stichting Particulier Fonds’ (Aruba or Dutch Antilles), Foundation (Switzerland), Company or Foundation (Jersey), etc. This list is not exhaustive and is refutable. For instance a limited company of Curaçao benefitting (on the basis of a ruling) from an advantageous tax treatment could also fall within the scope of application.
  • Within the EEA: ‘Société de Gestion de Patrimoine familiale’ (Luxembourg), ‘Stiftung’ and ‘Anstalt’ (Liechtenstein). In December 2015, the Luxembourg ‘Fondation Patrimoniale’ was added, although this legal form does not yet exist. So-called ‘hybrid’ entities that are tax transparent under local law but not transparent for Belgian tax purposes have also been included. However, for such entities, the Cayman tax only applies in respect of Belgian-source income.

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:

  • Not only has the mere existence of a legal construction to be stated but also its full name, legal form, address and identification number. For a legal construction of the first category, the trustee’s name and address have to be declared.
  • Legal entities with a real economic activity and sufficient substance are excluded from the Cayman tax provided that the founder or the beneficiary puts forward this exception in the annual income tax return and can prove, upon request, that the legal construction has in fact a real economic activity and enough substance. Whereas, before the Act of 26 December 2015 came into force, this type of legal construction was not within the scope of the Cayman tax and the reporting obligation, taxpayers now have the obligation to report the existence of a legal construction with a real economic activity and sufficient substance in their personal income tax return, although Cayman tax will in that case not be applicable.

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.:

  • natural or legal persons that have control over one another; or
  • people who are related by blood or marriage, who live together, etc.

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.

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Speculation tax

The speculation tax (introduced by the Act on measures aimed at enhancing job creation and purchasing power of 26 December 2015) has been abolished as from 1 January 2017 by the Program Act of 25 December 2016.

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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 was applicable to investment income paid or attributed on or after 1 January 2016.

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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 would 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.

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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.  

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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.

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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.

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Tax measures enacted by the Act of 18 December 2015 (Official Gazette of 28 December 2015)

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.

Update of the company car benefit in kind under the Royal Decree of 24 November 2016 (Official Gazette 5 December 2016)

For income year 2017, 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 24 November 2016 as follows:

  • petrol, LPG or natural gas cars: 105 g CO2/km (instead of 107 g C02/km for income year 2016);
  • diesel cars: 87 g CO2/km (instead of 89 g C02/km for income year 2016).

Regional tax measures

Flemish Region

New tax measures enacted by the Decree of 18 December 2015 (Official Gazette of 29 December 2015)

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:

  • The condition of 'sole' dwelling is abolished. Consequently, taxpayers who contract a loan for their own dwelling but already own another house or flat are able to benefit from a tax reduction. However, the tax benefit will be lower compared to the case of taxpayers who take out a loan for the purpose of purchasing or building their first property. In fact, the tax reduction will apply to every house or flat that can be classified as a taxpayer's 'own dwelling', regardless of the number of properties owned.
  • The (maximum) amounts that qualify for the mortgage loan tax relief remain the same as the thresholds set for mortgage loans contracted in 2015, i.e. EUR 1,520 (base) + EUR 760 (increase during the first 10 taxable periods) + EUR 80 (during the first 10 taxable periods if there are 3 or more dependent children on 1 January of the year following the year when the loan is signed).
  • As in the past, the increased amounts of EUR 760 and EUR 80 in principle – there are certain exceptions – are not available for taxpayers who are or become owner of other properties (i.e. houses and/or flats).
  • The tax relief percentage also remains 40% (calculated on the above qualifying amounts).
  • Following the above, the Flemish tax relief for long-term savings (capital repayments) and the Flemish tax relief for 'ordinary interest' paid for the own dwelling are abolished for loans contracted 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.

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Brussels Region

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 (reduction introduced by the Order of 12 December 2016). Also in 2016, registration duties on donations of real estate properties are lower.
  • The second part of the tax reform has been implemented by the Order of 12 December 2016 (Official Gazette 29 December 2016). It abolishes the tax relief for the sole and own dwelling as from 29 December 2016. Instead, when purchasing their own dwelling in the Brussels Region, buyers are entitled to a reduction in registration duties of up to EUR 22,500.00 subject to certain limits. This reduction only applies to the purchase of immovable property up to 500.000 €. This change enters into force on 1 January 2017 and is not applicable to the deeds of sale made before this date. Regional surcharges on personal income taxes are 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%.

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Walloon Region

Chèque-habitat

The Walloon Decree of 20 July 2016 on the reform of the regional tax reduction for mortgage loans for the sole and own dwelling has been published in the Official Gazette on 10 August 2016. It introduces a so-called system of ‘chèque-habitat’.

The tax relief is maintained but is less generous. It becomes an incentive for the first acquisition also calculated in relation to the taxpayer’s personal situation (income, number of dependent children):

  • the ‘chèque-habitat’ is applicable to all mortgage loans concluded as from 1 January 2016;
  • the tax credit is granted for 20 years maximum for the first sole and own dwelling, calculated in relation to the net taxable income of the taxpayers involved, and is increased by EUR 125 per dependent child on 1 January of the assessment year;
  • the tax credit is equal to 100% for the first ten years and then reduced to 50 % from the eleventh year;
  • the maximum tax reduction is capped at EUR 1,520 per year per taxpayer for taxpayers having a net taxable income of up to EUR 21,000. If the taxable income exceeds EUR 21,000 per year, the tax benefit is reduced gradually;
  • the taxpayer whose taxable net income is higher than EUR 81,000 is not entitled to benefit from the tax credit;
  • the tax reduction for loans for one’s own dwelling contracted before 2016 is maintained, but the eligible (maximum) amounts for the tax reduction are no longer  subject to any indexation;
  • the tax reduction applies on the basis of certificates established by the financial institution (Implementation Decree of 24 November 2016 published in the Official Gazette of 5 December 2016)

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.

The implementation Decree of 22 September 2016 (Official Gazette of 6 October 2016) lays down the entry into force at the date of 30 September 2016 and the implementing rules of this regime.

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Indirect taxes

Latest update: 14 July 2016

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).

 


VAT

New measures enacted by the Program Act of 1 July 2016 (Official Gazette of 4 July 2016)

  • As from 1 August 2016, online betting and gambling activities will no longer be exempt from VAT. Lotteries however remain VAT exempt even if offered online.
  • As from 1 July 2016, taxable natural persons active in the sharing economy will fall within a specific VAT system if the turnover per calendar year does not exceed the amount of EUR 5,000 and provided certain other conditions are met.
  •  A new provision gives the VAT authorities access to invoices, books, and other documents archived in the ‘cloud’.
  • In view of recent Belgian case law, a provision will be added to the VAT Code to ‘clarify’ that in the context of applying the extended 7-year statute of limitation, the receipt of the information coming from foreign jurisdictions, legal actions or new convincing factors may take place both before and after the expiry of the standard limitation period of 3 calendar years. The text of the law is further amended so that all kinds of international exchange of information are covered, such as for instance multilateral treaties and Tax Information Exchange Agreements (TIEAs).
  • A simplified and standardised VAT procedure is introduced for the seizure of assets (i.e. seizure of a third party’s belongings).

 

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 VAT rate applicable to the (non-exempt) sale of, construction works related to and (non-exempt) leasing of school buildings decreases from 21% to 6%;
  • the annual turnover threshold for the exemption for small businesses has been raised to EUR 25.000;
  •  the invoice will be re-instated as tax point for VAT purposes. However, for the supply of certain services and the sale of movable goods to public entities, VAT becomes due at the time (partial) payment is received from the public entity;
  • following the decision in the CJEU case commonly referred to as “Skandia” (C-7/13), article 19bis of the Belgian VAT Code was considered redundant. Therefore this article, being an abuse provision against so-called ‘channelling’, is abolished.

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.

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Excise duties

 

  • The excise duties on coffee, wine, liquors and energy become subject to indexation.
  • Tobacco: the duties on tobacco increase.
  • Diesel: the duties on diesel increase.
  • Sodas: duties on sugared and light sodas are introduced.

 

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Other taxes or tax measures

Tax on stock exchange transactions

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).

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Fight against fraud

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. 

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Contact us

Patrick Boone
Managing Partner, Tax & Legal Services
Tel: +32 (0)2 710 4366
Email

Philippe Vanclooster
Partner
Tel: +32(0) 3 259 3288
Email

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