At the end of 2012 and during 2013, the Council of Ministers and the Belgian government have reached various agreements on the 2013-2014 budget. In this framework, new Belgian tax measures have been proposed. Besides these measures, also other new measures were introduced in order to comply with ECJ case law, for example on the notional interest deduction in order to comply with the Argenta case law of the European Court of Justice of 4 July 2013.
Some of these measures are already enacted in the Act of 13 December 2012 (Official Gazette (OG) of 20 December 2012), the Act and Royal Decree of 27 December 2012 (OG 31 December 2012), in the Royal Decree of 30 April 2013 (OG 8 May 2013), in the Act of 17 June 2013 (OG 28 June 2013) in the Act of 28 June 2013 (OG 1 July 2013), in the Act of 30 July 2013 (OG 1 August 2013), in the Act of 21 December 2013 (OG 31 December 2013) and in the Act of 26 December 2013 (OG 31 December 2013). However, note that not all of these proposed measures are enacted yet. Hence, the details can still be modified.
Belgian corporate income taxpayers can claim NID for tax purposes, reflecting the economic cost of the use of capital, equal to the cost of long‑term, risk‑free financing.
The NID rate for tax year 2013 (accounting years ending between 31 December 2012 and 30 December 2013, both dates inclusive) is 3% (3.5% for SMEs).
Act of 17 June 2013
By the Act of 17 June 2013, the NID rate is more closely aligned with the rate on the Belgian state bonds. The NID rate for tax year 2014 (accounting years ending between 31 December 2013 and 30 December 2014, both dates inclusive) is 2.742% (3.242% for SMEs), the rate which is based on the average rate of the Belgian state bonds (on 10 years) of July, August and September 2012. The NID rate for tax year 2015 is 2,630% (3,130% for SMEs).
Act of 28 June 2013
Shares qualifying as financial fixed assets according to Belgian GAAP should be deducted from the basis for calculating the NID. The Act of 28 June 2013 also exclude shares, which qualify as cash investments according to Belgian GAAP, from the NID calculation basis, provided that the shares can benefit from the Belgian dividends received deduction regime. This measure is applicable as from tax year 2014. Any change made to a company’s accounting reference date on or after 1 May 2013 will be disregarded.
Act of 21 December 2013
On July 4, 2013, the European Court of Justice (“ECJ”) rendered its judgment in the Argenta Spaarbank NV case (C-350/11). The ECJ ruled that the Notional Interest Deduction (NID) rules and in particular the refusal to apply the NID to a foreign permanent establishments' net assets violates the freedom of establishment.
The Act of 21 December 2013 provides an amendment to the NID legislation in such a way that as of assessment year 2014 (accounting years ending 31 December 2013 or later):
Confirmed by the Parliamentary draft documents, this would imply that a Belgian company with a loss making permanent establishment no longer loses the benefit of the NID calculated on the net asset value of the permanent establishment based in the EEA.
A Belgian company realises Belgian profits of 120, the NID related to the Belgian assets amounts to 25. There is a EEA permanent establishment with a profit of 50 and net assets resulting in NID of 40. In this case, the total NID would amount to 65. In a second step, the NID would be reduced with 40 resulting ultimately in a Belgian taxable basis of 120 and a NID of 25.
If the NID related to the permanent establishment’s net assets would amount to 60, the total NID would amount to 85, but would only be reduced with 50 (the branch result). In such a case, the Belgian taxable basis would amount to 120 and the NID to 35.
Entry into force
This proposed rule is applicable as from tax year 2014.
The fairness tax has been adopted by the Act of 30 July 2013 and is summarized hereafter.
As from tax year 2014 (accounting years ending between 31 December 2013 and 30 December 2014, both dates included), large companies are subject to a fairness tax on their distributed dividends. The fairness tax is a separate assessment at a rate of 5,15% (5% increased with 3% crisis surtax) borne by the company distributing the dividends. Hence, it is not a withholding tax borne by the beneficiary of the dividend.
Calculation of the taxable basis
The tax is only applicable if during a given taxable period, on the one hand dividends have been distributed by the company, and (part or all) of the taxable profit has been offset against (current year) notional interest deduction and / or carried forward tax losses. Hence, the fairness tax is not applicable if a company has distributed dividends in a certain year, without using notional interest deduction and / or carried forward tax losses in that year.
First step: The taxable basis of the fairness tax is determined by the positive difference between on the one hand, the gross dividends distributed during the taxable period and on the other hand, the taxable result that is effectively subject to the nominal corporate taxes of generally 33,99% (there are some exceptions). Liquidation boni – which are deemed to be dividends from a Belgian tax point of view - are not in scope of the fairness tax.
Second step: This positive difference as determined in the first step will be decreased with the part of the dividends that stems from formerly built tax taxed reserves, being taxable reserves built at the latest during tax year 2014. To identify the origin of the dividends, a LIFO (last-in-first-out) method is applied. Dividends distributed during tax year 2014 cannot be considered as stemming from taxed reserves of this tax year.
Third step: The outcome of the above calculation is limited by a percentage, being the result of the following fraction:
The fairness tax itself is not tax deductible. The fairness tax due can be offset against the prepayments made and the withholding tax paid.
The fairness tax has been notified with the European Commission.
|Taxable result (excl. disallowed expenses and Dividend distributions)||-1.000|
|Taxable result (incl. disallowed expenses and dividend distributions)||2.100|
|Participation exemption on dividends received||100|
|Notional interest deduction used||1.000|
|Carried forward tax losses used||1.000|
|Taxable result subject to nominal corporate taxes||0|
|First step: amount of dividends distributed minus taxable result subject to nominal corporate tax||3.000 (3.000 – 0)|
|Second step: origin of the dividends: 1.000 stem from formerly taxed reserves built at the latest during tax year 2014||2.000 (3.000 – 1.000)|
|Third step: application of percentage||95,23% (2.000 / 2.100 see below)|
|Numerator: carried forward tax losses and notional interest deduction used||2.000 (1.000 + 1.000)|
|Denominator: taxable result (incl. disallowed expenses and dividends distributed)||2.100|
|Fairness tax basis||1.904,76 (2.000 x 95,23%)|
|Fairness tax due||98,10 (1.904,76 x 5,15%)|
Taxpayers in scope
Large companies are in scope of the fairness tax. The fairness tax is not applicable to SME’s defined by article 15 of the Company Law Code.
Besides large companies, also Belgian branches are in scope of the fairness tax. For Belgian branches, “distributed dividends” are – for the purposes of the fairness tax – defined as the part of the gross dividends distributed by the head office, which proportionally corresponds with the positive part of the accounting result of the Belgian branch in the global accounting result of the head-office.
Entry into force: the fairness tax is applicable as from tax year 2014 (accounting years ending between 31 December 2013 and 30 December 2014, both dates included). Any change made to a company’s accounting reference date on or after 28 June 2013 will be disregarded for the purposes of the fairness tax.
Note that the fairness tax is heavily criticized by a.o. the Council of State. In addition, it is currently examined whether the text of the law is compatible with e.g. EU law and double tax treaties.
SME’s can benefit from a (exceptional) 4% (one-shot) investment deduction for (calendar) years 2014 and 2015 for assets that have been acquired or produced in these 2 (calendar) years. The 4% investment deduction cannot be combined with the notional interest deduction and the excess part (if any) can only be carried forward for one year.
Currently, Belgian companies can deduct 80% of their patent income from their taxable basis if certain conditions are met (“patent income deduction”). One of the conditions to benefit from the patent income deduction is that the patents should be developed or improved by the company within a research centre which forms a branch of activity as mentioned in section 46 § 1, 1, 2° of the Belgian Income Tax Code. The new rule now states that SME's can also benefit from the patent income deduction even if the patents are not developed or improved within a research centre which forms a branch of activity as mentioned in section 46 § 1, 1, 2° of the Belgian Income Tax Code.
In case a company does not duly report fringe benefits, fees and other qualifying payments on individual slips (summary statements), the secret commissions tax (309%) can be applied.
The separate assessment is not levied in the hands of the company granting the benefit in case these benefits were included in the recipient’s - timely filed - tax return (first escape from 309% separate assessment). In case this first escape route was applicable, the deductibility of the expenses was generally accepted by the Belgian tax authorities, although the deductibility was not explicitly mentioned in Belgian tax law.
As regards the first escape method, the deductibility of the underlying expenses by the company is now explicitly implemented in the text of the law.
The new rule introduces a second escape method from the 309% separate assessment: if the amount of the benefit was not included in the tax return of the beneficiary, the 309% assessment will not be applicable in case the amount of the benefit is included in a tax assessment of the beneficiary and with the agreement of the beneficiary within the normal assessment period of 3 years. However, unlike the first escape method, the expenses concerned will not be tax deductible in the hands for the company granting the benefit.
Entry into force
This new rule will be applicable as from tax year 2014.
Certain modifications to the tax shelter regime were introduced by the Act of 17 June 2013.
Under the former tax legislation, (net) capital gains realised by a Belgian company (or Belgian branch) on shares were 100% tax exempt (if certain conditions are met), with a minimum uninterrupted holding period of one year in full ownership. There were some exceptions e.g. for financial institutions. If the one year holding period was not reached, the capital gain was taxed at the rate of 25.75%.
Capital gains on shares are subject to a 0.412% tax, i.e. 0.4% to increase with 3% additional crisis surcharge if the one year holding period is reached. The rules for the calculation of the capital gain will remain unchanged. Carried forward tax losses (and other tax assets) and capital losses on shares can not be offset against this 0.412% taxation. This rule is only applicable to large companies (and not to SMEs). If the one year holding period is not reached, the capital gain will be taxed at the rate of 25.75%.
Entry into force
The rule is applicable as from tax year 2014. Any change made to a company’s accounting reference date on or after 21 November 2012 will be disregarded.
Liquidation Bonus (Act of 28 June 2013 and practice notes of 1 October and 13 November 2013)
The withholding tax rate on dividend distributions resulting from the liquidation of a company (liquidation bonus) increases from 10% to 25% as from 1 October 2014.
Until then, companies are encouraged to strengthen their capital by converting their reserves into capital before or during the accounting year ending at the latest on 30th September 2014 at a rate of 10%. Qualifying reserves are those approved by the general shareholders meeting no later than 31 March 2013. By doing so, the withholding tax upon the distribution of these reserves in capital (both for ordinary reductions of reserves in capital and reductions of reserves in capital in the framework of a liquidation) of 25% can be limited to the 10% withholding tax due upon conversion and:
Reduced periods apply for small or medium-sized companies.
In addition to the Act, the Belgian tax administration released a practice note on 1 October 2013 and a supplementary practice note on 13 November 2013. These provide more practical guidance. Among other guidance, the pratice note provides that companies whose accounting period ends between 1 October 2013 and 30 March 2014 (both dates inclusive), in order to benefit from the conversion regime, should have formalised the capital increase (i.e. before a notary) on 31 March 2014 at te latest.
As from tax year 2014, the tax regime of Belgian regulated investment companies has changed:
As regards pension funds, it is expected that a withholding tax exemption will be provided by a Royal Decree in a later stage.
As from 1 July 2013, the 25% withholding tax on capital gains realised by Belgian private individuals upon sale, acquisition of own units or (partial) liquidation of certain accumulating funds has been extended to undertakings for collective investment in transferable securities (“UCITS”) without the European passport.
Those funds newly in scope would have to proceed to a retrospective computation of their “taxable income per share” – so-called “Belgian TIS” – as from 1 July 2008. Lacking such information, the Belgian TIS would be computed on a lump sum basis (application of 3% interest rate on the debt instruments held by the funds, for the period running from 1 July 2008 to 1 July 2013). It would nevertheless be reduced by the interest in the meantime distributed by the funds (the “TID”).
If the funds or their representatives would not be in a position to provide the necessary information to compute that taxable basis, a tax base “by default” is foreseen, with effect as from 1 July 2008.
For small and medium-sized companies (SMEs), a reduced withholding tax rate on dividends of 20% or 15% (instead of the general withholding tax rate of 25%) has been introduced. The 20% or 15% withholding tax is only applicable on dividend distributions for new ordinary shares originating from cash contributions made as from 1 July 2013. The exceptions to the general withholding tax rule are the following:
Various transitional measures apply, as well as specific anti-abuse measures.
As from 1 January 2013, a general withholding tax exemption applies on dividends distributed to non-resident investors by Belgian regulated investment companies (public or institutional), including real estate investment companies (SICAFIs/Vastgoed BEVAK), insofar those dividends do not stem from Belgian source dividends. This exemption has been confirmed in a recent practice note.
Previously, this exemption was only applicable to public investment companies with variable capital.
As from 1 January 2013, dividends distributed by a so-called residential SICAFI / Vastgoed BEVAK are subject to 15% withholding tax. Until 31 December 2012 those dividends were exempt from withholding tax. To benefit from the 15% reduced tax rate, various conditions should be met.
Interest was in principle subject to 21% withholding tax (there are some exceptions e.g. for savings accounts). Dividends are in principle subject to 25% withholding tax, but certain dividends were subject to 21% withholding tax (e.g. dividends stemming from companies incorporated as from 1 January 1994 of which the shares are nominative and represent capital created via cash contributions).
Royalties were subject to 15% withholding tax.
With regard to private individuals, the amount of interest and dividend income that exceeds EUR 13.675 (EUR 20,020 after indexation) per annum was subject to an additional tax of 4% (on top of the withholding tax).
Current rule: introduction of uniform 25% withholding tax rate for moveable income
As from January 2013 withholding tax on movable income has been increased to 25% for all types of income and is the final tax rate again (as this was traditionally the case in the past, for interest, dividend and royalty income received before 1 January 2012) (few exceptions).
Interest from ordinary savings accounts (to the extent the aggregate interest exceeds the tax-free threshold of EUR 1,880 per taxpayer for tax year 2014) and interest from the “Leterme State bonds” will remain taxable at (a withholding) tax rate of 15%. The (withholding) tax rate applicable to liquidation surpluses is increased from 10% to 25% - see separate chapter below). Finally, income from author’s income up to an amount of EUR 56,450 (tax year 2014) is regarded as moveable income and remains taxed at 15%.
Furthermore, the additional withholding tax rate of 4% for private individuals exceeding the EUR 13,675 threshold (not indexed) has been abolished.
As mentioned above, the withholding tax levied on interest and dividend income has again a liberating character, which means that it will become the final tax again. As a consequence, interest and dividend income that has already been subject to Belgian withholding tax, does not have to be declared in the Belgian resident (being a private individual) income tax return. However, income from royalties in principle does always have to be declared in the income tax return, irrespective of the fact that this income already has been subject to moveable withholding tax.
Entry into force: the above rule is applicable on movable income attributed or made payable as from 1 January 2013. Any change made to a company’s accounting reference date on or after 1 May 2013 will be disregarded.
As from tax year 2014, Belgian branches are in scope of the fairness tax of 5,15%. For more information we refer to the above part “Fairness tax” part under “Belgian corporate income tax measures” as mentioned above.
The Act of 13 December 2012 introduces new rules relating to the taxation of non-residents.
Belgian domestic definition of a Permanent Establishment (“PE”)
The Act has introduced two new paragraphs into the Belgian domestic definition of a PE:
Both new rules are applicable as of 1 January 2013.
Taxable income of non-residents
The Act of 13 December 2012 also includes various other modifications that may impact the taxation of non-resident taxpayers in Belgium.
As from 1 March 2013, certain income attributed by a Belgian tax resident to a non- resident is taxable in Belgium. Indeed, a new paragraph is added to the Belgian Income Tax Code which functions as a “catch all clause” to tax certain payments made to a non-resident of Belgium.
Which income is specifically taxed via this “catch all clause” will be published via administrative guidelines issued by the Belgian tax authorities. E.g. technical service fees would be in the scope.
The income in scope will be taxed via a withholding tax (which is to be withheld by the debtor of the income) at an effective tax rate of 16.5%, i.e. 33% of the gross income minus lump-sum cost of 50%. The tax rate could however be reduced to the maximum rate provided by the applicable tax treaty. In case there is no tax treaty applicable, no withholding tax is due provided that the non-resident beneficiary can proof that the income is effectively taxed or will be taxed in the residence state.
A Royal Decree of 3 April 2013 has changed the reference CO2 emission for petrol cars that is to be applied to determine the taxable benefit in kind for the private use of a company car by company directors and employees.
For income year 2013, this reference CO2 emission for petrol driven cars is now set at 116 g CO2/km (instead of the 115 g CO2/km basis for income year 2012). The reference CO2 emission for diesel cars has not been modified and remains at 95 g CO2/km.
Entry into force: The above modification is effective as of 1 January 2013. However, for practical considerations, the wage withholding tax will only be adapted as from 1 April 2013.
For the calculation of the benefit in kind as from 1 January 2014, the Act of 21 December 2013 determines that the reference CO2 emission will from now on be determined for a 12 month period ending on 30 September of the year preceeding the benefit in kind received.
The Act of 30 July 2013 has introduced a new reporting requirement for legal constructions set up by private persons.
This new reporting obligation aims at informing the administration of the existence of legal constructions (e.g. trusts, foundations, Partnerships, etc.) and the identity of those involved in it, in their capacity as founder or beneficiary.
This should enable the administration (1) to monitor transfers to-, income generated by- or benefits granted by legal constructions (even if the latter events are currently not taxable), (2) to duly tax such events (when taxable) and (3) to control their reporting in tax returns.
From tax year 2014 onwards, a reporting requirement would thus be established for this purpose, in a similar way as the reporting obligation in force for bank accounts or life insurance contracts abroad.
Entry into force: as from tax year 2014.
A final (one-off) tax amnesty procedure (limited in time) will be organised so as to give taxpayers a final opportunity to regularise undeclared income or untaxed assets with a single final tax return.
As from 1 January 2013, pension contributions are only deductible if the so-called “Sigedis-obligations” have been complied with.
Indeed, a few years ago, a pension database was set up which is administered by a body called Sigedis (www.sigedis.be). As from the 1st of July 2011, pension funds and insurers are required to start uploading information related to pension plans for employees. It concerns general data about the plan and individual data on pension rights for each participant. This year, data for company directors also need to be uploaded. This obligation to feed the database will soon become a condition for tax deductibility.
Typically, providing the required information to Sigedis does not pose any problems for an employer whose occupational pension plan is administered by a Belgian insurer or pension fund. The latter do the work. But, in some cases, the pensions for employees for whom the Belgian law on complementary pensions applies are administered in non-Belgian pension vehicles. Also in the case of internationally mobile employees, the tax deductibility can be at risk. In order to have the cost tax-deductible in Belgium, data about the pension that is administered abroad should be reported in the Sigedis database.
Companies were able to benefit from a 75% professional withholding tax exemption for qualifying researchers and provided that certain conditions are met.
Based on the Act of 17 June 2013 concerning the various fiscal and financial provisions:
Entry into force: The increased percentage (80%) is applicable as from 1 July 2013.
New research projects must comply with the aforementioned definition of scientific research and the reporting obligation as from January 1, 2014.
Existing research projects must only comply with the definition of scientific research also as from January 1, 2014 but need only to be reported as from 1 January 2015.
Services paid for assistance in the household via service vouchers gives rise to a tax deduction of 30% of the amounts paid. The tax deductible amount is however limited to EUR 1.810 (amount to be indexed) per year and per tax payers.
For payments done as from 1 july 2013, the maximum amount will be limited to EUR 920 (amount to be indexed) per year per tax payer.
The Royal Decree of 24 September 2013 on administrative fines introduces a new scale for administrative fines.
Each infringement of the requirements laid down in the Income Tax Code (e.g. incorrect or late filing of tax returns) will now give rise to an administrative fine, even if the infringement is not committed in bad faith or with the intention of evading taxes. The first infringement will give rise to a fine of EUR 50 and will increase per infringement up to maximum of EUR 1,250.
Only infringements due to circumstances beyond the free will of the taxpayer will not give rise to an administrative fine.
Even when an administrative fine is imposed, the authorities may still apply a tax increase in cases of incorrect or late filing.
Entry into force: This new approach for administrative fines is applicable as from 30 September 2013
Tax procedure (Act of 21 December 2013)
Adjustments to the income tax code have been made to amend certain aspects of the rules governing tax procedure, such as an enlargement of the powers and authority of tax inspectors in case of tax audits, the scope of the use of information received from the tax payers, notification requirements in case of information received from foreign tax authorities, etc.
Lawyers will become subject to VAT. Hence, lawyers' fees will be subject to 21% VAT, while these are currently not subject to VAT.
This new rule will be applicable as from 1 January 2014.
The recently increased rate of the Annual tax on credit institutions has been increased again.
The rates of 0,0965% (applicable for 2013) and 0,0925% (applicable as from 2014) enacted by the Act of 17 June 2013 are replaced by 0,1200% and 0,1929% respectively.
The excise duties on tobacco and alcohol have already been increased from 1 January 2013 ( Act of 27 December 2012) but during the budget negotiations of March and June 2013, the government has further increased excise duties as from 5 August 2013 (Act of 30 July 2013).
The government announced an increased combat against “severe” tax fraud and social fraud.
The Act of 17 June 2013 introduced sanctions in case of severe tax fraud. Whether the fraud qualifies as organised tax fraud or not, becomes irrelevant.
In addition, new measures to combat tax and social fraud are announced and would become law shortly.
As from tax year 2015, companies, legal entities and non-residents will in principle be obliged to file their tax return electronically.
The proportional registration duties rate increases from 0.2% to 2% for certain transactions, amongst others on the vesting and transfer of long lease and building rights, except for non-profit organisations where a rate of 0.5% is applicable.
The fixed registration duty rate increases from EUR 25 to EUR 50.
Entry into force: The new rule is applicable to all acts registered on or after 1 July 2013 (even if the act was signed before that date).
The tax on certain life insurance premiums (“Branch 21” life insurance contracts and “Branch 23” life insurance contracts) will increase from 1.1% to 2%.
There are some exceptions, e.g. for (i) creditor insurance (ii) group insurance and (iii) pension funds.
New developments in this respect will be posted on the PwC website: www.taxreform.be.
Any questions regarding this publication? Please get in touch with your regular PwC tax advisor.