The formation Note of 4 July 2011 - used as a basis for the formation of the new Belgian government – contains various suggestions and proposals in the field of budgets, social and economic reforms, division of power etc. The Note also proposes various new tax measures, which are summarized below.
Elio Di Rupo, the Belgian Minister of State charged with forming a new Belgian government, presented his formation Note (“the Note”) on 4 July 2011. It is used as a basis for the formation of the new government and contains various suggestions and proposals in the field of budgets, social and economic reforms, division of power etc. The Note also proposes various new tax measures in the field of Belgian corporate income tax, personal tax, withholding tax etc.
The proposed tax measures in the Di Rupo Note are merely suggestions which are being discussed by the different political parties. It is hence yet unclear whether or not the proposed measures will eventually become law.
Hereafter you can find a brief summary of the proposed tax measures.
You can download a full copy of the Note, both in Dutch and in French.
Belgian corporate income taxpayers are allowed to claim a NID for tax purposes reflecting the economic cost of the use of capital, equal to the cost of long‑term, risk‑free financing. The current NID rate is 3.425% (3.925% for SME’s) for tax year 2012 (financial year 2011). It is proposed in the Note to reduce the rate to 3% (3.5% for SME’s).
Currently, excess NID can be carried forward for seven years. The Note proposes to abolish the possibility to carry forward excess NID.
The Note also proposes to exclude the legally required own funds (minimum capital and legal reserves) from the NID calculation base.
Dividends received by a Belgian company (or Belgian branch) can be deducted from the company’s tax base for 95% if certain conditions are met. One of the conditions is that the beneficiary of the dividends must have been holding the full legal ownership of at least 10% or an acquisition value of at least EUR 2,500,000 in the underlying shares for an uninterrupted period of at least one year prior to the dividend distribution or commit to hold it for an uninterrupted period of at least one year. The Note proposes to extend the minimum holding period from one year to two years.
Under the current tax legislation, capital gains realized by a Belgian company (or Belgian branch) on shares are 100% tax exempt (if certain conditions are met), without a minimum holding requirement or a minimum holding period requirement to be met. It is proposed in the Note to align the capital gain exemption rules with the Belgian DRD rules (see above). Hence, capital gains on shares would only be tax exempt provided that the minimum holding period of two years and the minimum holding requirement of 10% or EUR 2,500,000 acquisition value (see above) are met. It is yet unclear whether or not capital gains would – in line with the dividends received deduction regime - only be tax exempt for 95% or still would be 100% tax exempt.
The note proposes to grant the authority to the Regions (Flemish Region, Walloon Region and Brussels Region) to introduce a tax credit. The tax credit could be offset by companies against the federal corporate taxes payable and hence the effective tax rate would be reduced.
One of the suggestions in the Note is that withholding tax on dividends would be fixed at 25%. Current tax legislation also foresees a 25% withholding tax rate. However, if certain conditions are met, a withholding tax rate of 15% or 10% (in case of liquidation or purchase of own shares) can be applied under the current tax legislation. Note that the current Belgian tax legislation also provides for numerous withholding tax exemptions if certain conditions are met (a.o. withholding tax exemption for payments to jurisdictions with qualifying double tax treaty). Note that these exemptions are not affected in the Note.
Withholding tax on interest would be increased from 15% to 20%, which would be in line with the average withholding tax rate of OECD-countries. Note that the current tax legislation provides for numerous withholding tax exemptions if certain conditions are met (a.o. withholding tax exemption based on the Interest-Royalty directive implemented in Belgian tax law). Note that these exemptions are not affected in the Note.
The investment deduction is a deduction from the tax base in addition to the normal tax depreciation, applicable to both big companies and SME’s. Until financial year 2005 (tax year 2006), the investment deduction was applicable on new material and immaterial fixed assets. As from financial year 2006 (tax year 2007), the investment deduction was only applicable on, amongst others, qualifying patents, environmentally friendly R&D investments, and security and energy-saving investments. In the Note it is proposed to extend the scope of the investment deduction for SME’s.
Under the current Belgian tax legislation, capital gains on shares realized by a physical person are not taxable provided the capital gain is realized within the scope of the normal management of a private estate.
Now, the Note proposes to tax the capital gains on shares according to the holding period of those.
The capital gains would be taxed at the rate of:
The Note provides to establish a temporary net wealth tax (called temporary crisis contribution) at the rate of 0.5% on net wealth higher than 1.25 million EUR (private dwelling and professional assets would be excluded).
Actually, the benefit in kind for the use of a company car already takes into account the pollution level of the car, through the CO2 emission level.
It is intended to increase the taxable benefit in kind for the use of a company car considering not only the CO2 emission level of the car, but also the value of the car.
This measure would not impact small cars.
The Note provides for the abolishment of the tax reduction and the modulation of the price of the vouchers depending on the quantity of vouchers bought.
The annual exemption of interest income from qualifying savings accounts (EUR 1,770 per taxpayer for 2011) would have to be requested through the filing of an annual tax return where the withholding tax withheld could be credited.
The Note would increase the social protection of the self employed persons by aligning the employee and self employed schemes at the level of child allowances, the lowest legal pension and the creation of a protection scheme for unemployment.
In order to finance the additional protection for self-employed workers, the ceiling for the contribution base (i.e. the amount on which contributions are calculated) would be increased from EUR 75,000 to EUR 100,000.
Low and medium professional income will be less taxed by means of an increase of the tax free amount with 1,000 EUR.
The deductibility of pension premiums on the basis of the 80% limit (premiums only entitle to a deduction if the pension funded does not exceed 80% of the last normal gross salary) may be further reduced by setting a remuneration cap of EUR 82,500 to the calculation basis for the 80% limit.
To avoid early retirement, the tax rate on lump-sum pension capitals paid out before the legal age of retirement will be increased to
As mentioned above, the proposed tax measures in the Di Rupo Note are merely suggestions which are being discussed by the different political parties. It is hence yet unclear whether or not the proposed measures will eventually be approved and become law.
You can download a full copy of the Note, both in Dutch and in French.
Once there are further developments in this respect, we will keep you informed on this website.