Tax reform in Belgium 2014/2015
New Belgian tax measures announced
The following new tax measures have been announced in the framework of the Belgian government formation and the budget for 2015, on which an agreement was reached in the second week of October 2014:
As a general remark, the government focuses on mutual trust between the tax authorities and taxpayers. Further, until now, the notional interest deduction regime remains in place (except in respect of banks and institutional companies there would be some changes).
The bill of 28 November 2014 contains a first wave of tax measures. It is expected that the bill will be approved and enacted by the end of December 2014.
Entities - companies - corporate income tax
The following measures are mentioned in the bill (i.e. draft law) of 28 November 2014:
- Secret commission taxation: the so-called secret commission tax of 309% (due on amounts which have not been properly filed on salary slips, and fee forms and due on hidden profits) would be limited to 103%. The rate would be further limited to 51,5% in case it can be demonstrated that the beneficiary of the income is a legal entity, or that the hidden profits are recorded in later financial accounts, to the extent the taxpayer has not been informed (in written) on the ongoing tax audit. Further, the secret commissions tax would only apply to the extent the hidden profits are not the result of a disallowance of professional expenses. The secret commissions tax would neither apply in case it can be demonstrated that the beneficiary properly has declared the income. Further, in case the income was not properly declared by the beneficiary, no secret commissions tax would be levied if the beneficiary is identified at the latest within 2 years and 6 months following 1 January of the tax year concerned.
Entry into force: This measure would be applicable as from the publication of the Act in the Belgian Official Gazette and would be applicable on all disputes that are not finally settled that date.
- The basis for notional interest deduction for regulated financial institutions would be reduced with the additional equity requirements as a result of the Basel III agreements. The basis would be reduced with a percentage of the current credit lines determined by Basel III and for which the financial institution should respect a solvency ratio by holding a minimum capital. The percentage would be 1% for assessment year 2016, 1,5% for assessment year 2017, 2% for assessment year 2018 and 2,5% for assessment year 2019. The measure would only be applicable to regulated financial institutions, and not to intra-group financing companies.
Entry into force: This measure would be applicable as from tax year 2016 (financial years ending between 31 December 2015 and 30 December 2016, both dates included).
- Currently, certain intermunicipal entities, collaborations and project associations are exempt by law from corporate income tax and subject to legal entities. The bill of 28 November 2014 stipulates that as from tax year 2015, the above-mentioned entities would no longer be exempt by law from corporate income tax. The entities at hand could be subject to corporate income tax or legal entities tax, depending on certain criteria (whether or not the perform activities with a profitable nature, the way they do business etc.)
Entry into force: The measure would be applicable as from tax year 2015 and would be applicable on financial years that are closed at the earliest on 1 July 2015.
- Taxes on dividends: SMEs would be allowed to form a so-called liquidation reserve. The liquidation reserve could be created via recording the whole or part of the account profit after tax to a separate account on the liabilities side of the balance sheet. The creation of this liquidation reserve would become subject to a 10% corporate income tax. In case the liquidation reserve would be distributed before liquidation of the company, an extra tax, being a withholding tax, of 15% would be due in case of distribution within 5 years after creation of the liquidation reserve. A withholding tax of 5% would be due in case of distribution of the liquidation reserve after 5 years of its creation.
Entry into force: The measure would be applicable as from tax year 2015 (financial years ending between 31 December 2014 and 30 December 2015, both dates included).
The following measures are announced in the framework of the Belgian government formation and the budget for 2015, but are not yet enacted or mentioned in a bill:
- General Belgian anti-abuse measure: confirmation that the Ruling Office can issue rulings on the general anti-abuse rule. In addition, an assessment (and if needed adaptation) would be implemented in respect of the general anti-abuse rule in order to increase legal certainty for the taxpayer.
- Disallowed expenses: simplification of disallowed expenses (divided into three categories: (i) penalties and taxes, (ii) liberalities and (iii) non-individualised benefits) and streamlining of the concepts of disallowed expenses in the framework of corporate income tax and VAT.
- The federal tax code would be simplified and coordinated.
- “Tax pact”: conclusion of a ‘tax pact” to eliminate the factor of uncertainty in the economic and fiscal environment for entrepreneurs.
- Catch all clause: Belgian companies are in principle required to levy a professional 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 professional withholding tax of 16,5% - which needs to be levied at source by the Belgian company - unless the applicable double tax treaty foresees in a reduced rate. In this context, the “perverse” side effect would be removed.
- Assessment (and possible expansion) of the Belgian patent income deduction regime with regard to software licenses.
Individuals - personal income tax
- "Look-through" tax (or "Cayman tax"): the shareholder or beneficiary (Belgian individual) of certain low-taxed entities or trusts would be taxed on the income of the low-taxed entity or trust, even if the income was not (yet) distributed to the individual.
- Lump-sum amount of professional expenses: the lump-sum amount would be raised.
- Tax reductions: various tax reductions, such as pension savings, exemption for savings deposits, gifts etc., would no longer be subject to indexation.
- Taxation of certain pension savings would be modified. Currently, the tax is set at 10%. The tax would be partly collected early, meaning that a 1% tax would be levied during each of the next 5 years and, when the beneficiary reaches the age of 60, the tax due would be limited to 3%.
- Continuation of the partial professional withholding tax exemption for qualifying researches.
- Harmonisation of the notion of remuneration both for social and tax law.
Procedure and penalties
- Increase of mutual trust between taxpayer and competent tax authorities in order to increase foreseeability. Focus on consultation and efficient settlement of disputes.
- Harmonisation of tax procedures in order to safeguard legal certainty for the taxpayer.
- Decrease of redundant high punishment in case taxpayer acted in good faith.
- Differences between tax penal law and common penal law will be examined in order to abolish anomalies.
- Reassessment of the VAT penalty system and interest for late payment.
- Decrease of secret commission taxation of 309% (supra).
Social security contributions would decrease from 33% to 27% and even to 25%.
- The excise duties on coffee, wine, liquors and energy would become subject to indexation.
- Tobacco: the duties on tobacco would increase.
- Diesel: the duties on diesel would increase.
- Cross-border B2C supplies of e-services to Belgian customers will be subject to Belgian VAT as from 1 January 2015 (mere transposition of the EU VAT Directive).
- Subjecting of plastic surgery (of a non-therapeutic nature) to a 21% VAT rate will be examined in a later phase.
- The increase of the age requirement for the renovations of private dwellings from 5 to 10 years will be examined in a later phase.
Tax on stock exchange transactions
The current temporary increases of taxes on certain stock exchange transactions would become permanent. In addition, the percentages would increase.
Fight against fraud
The current fight against fraud would continue.
The details of the above measures are not yet clear and are still subject to change.
For more information, you can contact your regular PwC contact.