Tax reform in Belgium 2015/2016

Latest news from tax reform in Belgium

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More details of the tax reform in the last 12 months in the tabs below.

Entities - Companies

Corporate income tax

Latest update: 2 September 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 and a major corporate tax reform has been announced

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 Act of 3 August 2016 providing urgent tax provisions, published in the Belgian Official Gazette on 11 August 2016, 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 Program Act II of 3 August 2016 (published in the Official Gazette on 16 August 2016) provides some changes to the tax provisions applicable to the Belgian Regulated Real Estate Company and introduces the new Real Estate Investment Fund. 

New measures announced

Corporate tax reform announced

In April 2016, the Federal government, in the framework of the agreement on additional budgetary and recovery measures following the 2016 budgetary control exercise,  announced a reform of the Belgian corporate income tax (see our news flash on 11 April 2016).

In July 2016, the ‘High Finance Council’ has published a report examining the different options to reform the corporate income tax in a post-BEPS environment.

In August 2016, various articles in the press were published confirming that the Belgian government is currently working on a major corporate tax reform.

 

What are the ‘positive’ measures on the table?

Here are some measures that are currently under review, but still being discussed and hence subject to changes:

  • Progressive reduction of the Belgian corporate tax rate from 33.99% to 20% by 2020
  • Full exemption of capital gains on shares (currently taxable at 0.412% for non SMEs)
  • Decrease in the capital gains tax rate on shares realised within 12 months of the acquisition from 25 % to 20 % by 2018
  • Increase in the Dividend Received Deduction (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

 

What are the ‘compensatory’ measures being discussed (again still in discussion phase)?

  • Abolition of various deductions, such as:
    • notional interest deduction
    • investment deduction

However, the innovation income deduction (replacing the patent income deduction) and the tax shelter in the audio-visual sector would be maintained.

  • Limitation of the use of tax losses carried forward and dividend received deduction (e.g. limited to MEUR 1 + 60% above MEUR 1)
  • Less favourable depreciation regime
  • Limitation of the deduction of certain business expenses (reception costs, restaurant expenses or business gifts) up to 5% of the gross revenue
  • In the absence of corporate tax return, the minimum taxable lump-sum would amount to 40.000 € (instead of currently 19.000 €) from 2017
  • Fight against the use of companies only for tax purposes

This reform has not yet been drafted and is still subject to further changes.

 

Draft bill providing miscellaneous provisions will be shortly introduced at the Chamber

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:

  • 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.

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.

 

Other measures have been approved in first reading by the Council of Ministers:

  • 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.

 

  • Exit tax

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.

 

Measures introduced by the Act of 3 August providing urgent tax provisions (Official Gazette: 11 August 2016)

  • 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 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 Act of 3 August 2016 also provides that this certificate needs to state the beneficiary’s contact details and that the beneficiary qualifies for the taxation condition. These measures apply to dividends paid or attributed as from the date the Act is published in the Belgian Official Gazette.

 

  • Patent income deduction

The Act of 3 August 2016 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.

 

Measures introduced by the Program Act II of 3 August 2016 (Official Gazette: 16 August 2016)

  • New real estate investment funds

The Program Act of 3 August 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 Program Act II 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 favourable exit tax rate also becomes applicable if a company contributes Belgian real estate assets to the RREC (previously they were taxable at the default tax rate);
  • The dividend withholding tax exemption on the part of income stemming from foreign real estate applies;
  • Effective taxation is limited to 1.7% on dividends distributed by the RREC to Belgian corporate investors to the extent that it relates to the part of income stemming from foreign real estate or from dividends for which the ‘tax liability’ condition is fulfilled.

 

The tax provisions are applicable as from assessment year 2016 on transactions and income attributed as from 1 July 2016.

 

New annual bank tax introduced by the Act of 3 August 2016 (Official Gazette: 11 August 2016)

  • New annual bank tax

The Act of 3 August 2016 establishing a new single annual bank tax has been published in the Belgian Official Gazette on 11 August 2016. This tax replaces 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 is inserted in the Code on Various Duties and Taxes; it is based on the debt to customers of a given year and it has to be paid by 1 July of the following year. For 2016, the tax is calculated based on the debt to customers as at 31 December 2015 and has 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 does not concern insurance companies or other types of institutional investors such as collective investment undertakings.

 

Measures introduced and enacted by the Program Act of 1 July 2016 (Official Gazette: 4 July 2016)

  • 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:

  • Operational and financial revenue of at least EUR 50 million; or
  • Balance sheet total of EUR 1 billion; or
  • Annual average number of employees of 100 full-time equivalents.

The CbC report should be filed by the Belgian ultimate parent entity of a multinational group that has a gross consolidated group revenue of at least EUR 750 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 Programme 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:

  • permanent establishments located in a State with a low or zero tax charge
  • bank accounts managed or held by one of these people or permanent establishments
  • bank accounts managed or held through credit institutions (or their permanent establishment) located in one of those States.

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).

 

Other new measures enacted at the end of 2015

  • 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:

  • the reduced rate of 1.6995% is only applicable to the extent that the Belgian withholding tax cannot be credited or is not refundable in the jurisdiction of the beneficiary;
  • the beneficiary must be a non-resident corporate shareholder having a holding interest in the capital of the distributing company of less than 10% but with an acquisition value of at least EUR 2.5 million;
  • the holding interest must be held for an uninterrupted period of at least one year (in full ownership);
  • the shareholder must be a company located in the European Economic Area or in a jurisdiction with which Belgium has concluded a double taxation avoidance agreement (“double tax treaty”);
  • the shareholder must have a legal form as mentioned in the EU Parent-Subsidiary Directive or a similar form.

An additional taxation condition is provided by the Act of 3 August 2016 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:

  • average number of personnel: 50;
  • turnover: EUR 9,000,000;
  • balance sheet total: EUR 4,500,000.

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.

Measures introduced and enacted by the Program Act of 10 August 2015 but changed by the Program Act of 26 December 2015 or by the Act of 26 December 2015

 

  • 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.

Individuals

Personal income tax

Latest update: 19 August 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.

The Act of 21 July, published in the Official Gazette on 29 July 2016, introduces a permanent fiscal and social amnesty.

Other measures are currently under review at the Chamber or pending before the State Council.

At regional level, the Walloon Decree of 20 July 2016 implementing measures regarding the ‘chèque-habitat’ (tax deduction for mortgage loans for the sole and own dwelling) has been published in the Official Gazette on 10 August 2016

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.

A. Federal tax measures

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

 

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.

 

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.

 

Speculation tax

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:

  • Taxpayers concerned: individuals subject to personal income tax (individuals considered as resident in Belgium for income tax purposes) or subject to non-resident personal income tax.
  • Financial instruments concerned: listed shares, options and warrants, and more generally any financial derivatives provided that (1) they are listed and (2) whose underlying asset is exclusively made up of one or several specified listed shares. Units in undertakings for collective investments (UCITS, including ETFs and AIFs) and Belgian regulated real estate companies are excluded from the scope of application of the capital gains tax. Specific definitions and references to regulatory definitions are provided (e.g. undertakings for collective investment, options and warrants). The leverage is not relevant. One should note that the exclusion of Belgian regulated real estate companies from the scope of the tax is not extended to similar foreign REITs, which may likely give rise to some concerns from an EU law point of view.
  • Triggering event: transfers for valuable consideration of financial instruments held in portfolio (‘long’) or not (‘short’), which are voluntary (i.e. excluding operations exclusively at the issuer’s initiative and for which the taxpayer has no opportunity to choose) and not falling within the scope of a business activity. The Belgian government is preparing specific updates of this legislation. A draft legislation was already published and it would specify that every transaction where a contract is ended early and a new contract is concluded, can trigger the speculation tax, as it concerns a transfer for valuable consideration. There is no formal agreement on the update.
  • 6-month holding period: the transfer for valuable consideration is only taxable if the holding period is less than 6 months (calculated as the number of months between the purchase date and the selling date). Gifts inter vivos are disregarded for calculating the holding period.
  • Taxation method: where a financial institution based in Belgium intervenes in the transaction, the tax charge is made through the levy of a Belgian withholding tax. In the absence of financial institution based in Belgium (typically, a securities account held with a foreign credit institution or broker), the individual taxpayer will have to report the income in his annual personal income tax return.
  • Taxable basis: [(sale price – Belgian tax on stock exchange transactions supported by the seller) – (acquisition price + Belgian tax on stock exchange transactions supported by the buyer, subject to the disclosure of appropriate supporting documents)]
  • Calculation of the standard tax base: to determine the holding period (and capital gain, probably), a ‘last in, first out’ (LIFO) method is applied (for either long or short positions). In case bunches of identical securities have been purchased successively and are sold on a given date, the amount of realised income (capital gain or loss) is first determined separately per bunch of securities, and then added up together (with a minimum net result of zero, which enables to some extent offsetting gains against losses for a given sale).
  • Tax rate: 33%

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.

 

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.

 

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.

 

Tax measures enacted by the Program Act of 10 August 2015 (Official Gazette of 18 August 2015

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.

Please find the other measures of the Program Act of 10 August 2015 on our website: Tax reform 2014-2015.

 

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:

  • petrol, LPG or natural gas cars: 107 g CO2/km (instead of 110 g C02/km for income year 2015);
  • diesel cars: 89 g CO2/km (instead of 91 g C02/km for income year 2015).

B. 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.

 

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. 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%.

 

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.

 

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.
 

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.

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.

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).

 

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.