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Belgian Tax Reform: New Belgian tax measures

Various new tax measures proposed at the end of November 2011 as part of the Belgian budget for 2012 have now enacted.

At the end of November 2011, various new Belgian tax measures were proposed under the 2012 budget agreement. Some have now been enacted, i.e. the Miscellaneous Provisions Act of 28 December 2011 (“the Act”), which contains new provisions inter alia in the fields of Belgian corporate income tax, personal tax, withholding tax and indirect taxes. (Some measures also apply to legal entities that do not qualify as companies and to Belgian permanent establishments.)

Note that other tax measures – which have not yet been set down in legislation – have been proposed in the framework of the budget agreement. However, it is expected that they will also take statutory form in the first quarter of 2012.

An overview of the most important new tax measures – both those set down in the Act and those yet to be enacted – is given below.

Belgian corporate income tax measures (wholly or partially enacted)

Notional interest deduction (“NID”)

• Rate (enacted)

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 a given tax year is in principle based on the ten-year government bond interest rate for the calendar year two years prior to the tax year (e.g. for tax year 2012, reference is made to 2010 government bonds). The current NID rate is 3.425% (3.925% for SMEs) for tax year 2012 (financial year 2011). The Act caps the rate of the NID at 3% and no longer allows the government to increase the cap in a royal decree.

Entry into force: the new rate is applicable as from tax year 2013 (accounting years ending between 31 December 2012 and 30 December 2013, both dates inclusives).

• Carry-forward of excess NID (not yet enacted)

Under the current rules, “excess NID” (i.e. NID that cannot be claimed owing to the taxpayer having insufficient taxable income) can be carried forward for seven years. Under the proposal, new excess NID could no longer be carried forward.

However, the “stock” of excess NID (stemming from previous years, i.e. tax years 2012 and before) could still be carried forward for seven years (as is currently the case), though the excess NID that could be applied in a given year would be limited to 60% of taxable profit (i.e. the profit remaining after setting off carried-forward tax losses and other tax deductions). The 60% limit would only be applicable to the part of taxable profit exceeding EUR 1 million. The portion of excess NID that could not be used due to the “60% rule” – i.e. 40% of taxable profit – could be carried forward for one extra year.

Entry into force: the above measures on carrying forward excess NID have not (yet) been enacted. However, it is expected that (once they become law), they will be applicable as from tax year 2013.

Company cars and disallowed expenses
The Act introduces an additional disallowed expense in relation to company cars.

The new disallowed expense is 17% of the new benefit in kind (i.e. 17% of 6/7 of the car’s list price multiplied by a percentage (between 4% and 18%) linked to the car’s CO₂ emissions). With regard to calculation of the ‘new benefit in kind’, see below under “Belgian personal income tax measures and the benefit in kind related to the private use of company cars”. This new disallowed expense cannot be offset against the notional interest deduction, tax losses or other tax deductions. Thus, the new disallowed expense results in a minimum tax base.

Entry into force: benefits in in kind attributed as from 1 January 2012.

Belgian corporate income tax measures (not yet enacted)

Capital gains on shares - one-year holding period required for exemption

Minimum holding period

Under the current tax legislation, (net) capital gains realised by a Belgian company (or Belgian branch) on shares are 100% tax exempt (if certain conditions are met), without any minimum holding-period requirement. A minimum holding period of one year is proposed.

Taxation at a rate of 25%

If shares are sold (or if a capital gain is realised on shares via another transaction, e.g. a capital contribution) before the minimum holding period of one year is reached, it is proposed taxing the realised capital gain at a rate of 25%. If the shares were to be realised after the one-year holding period, the capital gain would be tax exempt. Capital losses on shares would continue to be non-deductible unless certain conditions are met.

Thin-cap rules
Belgian tax law currently does not have a general thin cap rule. A specific thin cap rule exists for interest payments or attributions to (real) beneficiaries taxed at low rates on that interest. This is the so-called 7/1 debt-equity ratio.

Under the new rule, a general 5/1 debt-equity ratio would be introduced. This means that interest on debt in excess of the 5/1 ratio, would be considered a non-deductible expense. In addition, the thin-cap rule would only be applicable to intra-group financing (regardless of whether or not the (real) beneficiary of the interest is taxed at high or low rates) and would not be applicable to loans from third parties.

Anti-abuse rule: substance over form
Currently, according to section 344(1) of the Income Tax Code, the Belgian tax authorities can (under certain conditions) reclassify a legal deed (transaction) as a different form of legal deed (with a higher tax burden) provided both transactions have the same or similar legal consequences. Under the new rules, in order to be able to reclassify a transaction, the ‘new transaction’ would no longer have to have consequences the same as or similar to those of the ‘old’ transaction. Hence, it appears that a more substance-over-form approach would be introduced.

Pension schemes
According to the so-called ‘80%-rule’, premiums for pensions are only tax deductible if the pension does not exceed 80% of the last normal gross annual remuneration calculated on the basis of a normal full working lifetime. Under the proposed rules, the deductibility of pension premiums on the basis of the 80%-rule would be further limited: on top of the 80%-rule, the premiums would only be deductible if the pension does not exceed the highest civil service pension

Pension provisions
Companies can currently build up pensions via provisions for an individual pension scheme. It is proposed that this should no longer be allowed. Internal pension-scheme provisions would be subject to the general 4.4% group insurance tax. Existing provisions would have to be transferred to insurance companies within three years. For these existing provisions, a more favourable tax of 1.75% would apply.

Withholding taxes (enacted)

• The current general withholding tax rate of 25% does not change.
• The current 15% rate (applicable in certain cases) becomes 21%.
• The withholding tax rate applicable to liquidation surpluses remains at 10%.
• The withholding tax rate on redemptions of own shares increases from 10% to 21%.
• The numerous withholding tax exemptions (specifically for payments to companies) are not affected.

Entry into force: income attributed or made payable as from 1 January 2012.

Interest withholding tax 
The withholding tax on interest increases from (generally) 15% to 21%, except for:

• States bonds issued and subscribed during the period 24 November 2011–2 December 2011
• interest stemming from ordinary savings accounts (to the extent they exceed the first tax-free-band of EUR 1,770 per taxpayer for tax year 2012)

The numerous withholding tax exemptions (especially for payments to companies) are not affected.

Entry into force: income attributed or made payable as from 1 January 2012.

Royalty withholding tax
The standard 15% withholding tax rate on royalties does not change.
The numerous withholding tax exemptions (specifically for payments to companies) are also not affected.

Belgian personal income tax measures (enacted)

Private use of company cars
Under the current rules, the benefit in kind for use of a company car is based on the CO₂ emissions from the car, the fuel type and how much private use is made of the car (5,000 km or 7,500 km). The Act stipulates that the yearly benefit in kind on which an employee is taxed is computed as 6/7 of the list price of the car multiplied by a percentage linked to the car’s CO₂ emission rate (the “taxable percentage”). The list price is the invoiced amount, including options and VAT, but excluding any rebates. The percentage linked to the CO₂ emissions varies between 4% and 18%. The number of kilometres driven for private purposes is therefore no longer taken into account for computing the taxable benefit in kind. For further details, please visit http://www.hrservices.be/new-2012-company-car-benefit-in-kind/.

Entry into force: benefits in kind attributed as from 1 January 2012.

Extra tax on interest and dividend income exceeding EUR 20,000 a year
The Act stipulates that the net amount (the amount before deduction of certain costs but increased by the withholding taxes due) of interest and dividend income that exceeds EUR 13,675 (EUR 20,000 after indexation) per annum is subject to an additional tax of 4% (on top of the withholding taxes). Currently, there is no such surtax.

The following income should not be taken into account when calculating the EUR 20,000 cap: 

1. the exempt part of ordinary saving accounts,
2. liquidation surpluses
3. State bonds issued and subscribed in the period 24 November 2011–2 December 2011

The following interest and dividend income is not subject to the 4% surtax: 

1. income from ordinary saving accounts
2. liquidation surpluses
3. State bonds issued and subscribed in the period 24 November 2011–2 December 2011

Entry into force: income attributed or made payable as from 1 January 2012.

New reporting requirement for investment income
A new general reporting requirement is introduced with regard to investment income (interest, dividends and royalties): this income should be declared in the annual tax return (there is an exemption for income which has been subject to both 21% withholding tax and the additional tax of 4% at source). Currently, there is no general reporting requirement for such income.

Entry into force: income attributed or made payable as from 1 January 2012.

Stock options
The benefit in kind in the form of stock options is currently based on a lump-sum valuation of 15% of the value of the underlying shares. This rate is increased to 18%.

Entry into force: stock options offered as from 1 January 2012.

Belgian personal income tax measures (not yet enacted by royal decree)

Housing
Under the current rules, a taxpayer is only taxed on a fairly small lump-sum amount for housing he is allowed to occupy by his company. This lump-sum benefit in kind is set to increase (i.e. the multiplier in the formula would no longer be 2 but 3.8). In addition, the lump-sum taxable benefit in kind for free heating and electricity would also increase. This proposal could be made law just with a royal decree and does not require an act.

Other tax measures (enacted)

Tax on conversion of bearer securities 
The Act introduces a tax on the conversion of bearer securities into dematerialised securities or registered securities under the Act of 14 December 2005 introducing a gradual abolition of bearer securities. The taxable event is conversion (i.e. dematerialisation, as provided by a company’s articles, of bearer shares by their being deposited in a securities account with a financial institution or registration with the issuing company in respect of registered shares). The tax rate is 1% for conversions during 2012 and 2% for conversions in 2013.

The Act also provides that the tax is calculated at the time of deposit, as follows:

• for listed securities, the taxable basis is the most recent quoted value before the date of

deposit in a securities account or with the issuer;

• for unlisted securities, the taxable basis is (i) the face value for bonds and other debt securities, (ii) the most recent inventory value for shares in investment funds or (iii) the book value on the date of deposit (interest excluded) for any other securities.

The tax must be paid:

• for conversions into dematerialised securities, by the professional intermediary upon deposit of the bearer securities in a securities account;
• for conversions into registered securities, by the issuing company upon registration.

If conversion was done before the end of 2011 (31 December 2011 at the latest), no tax will be due. The Act of 14 December 2005 provides that, for bearer securities issued by listed companies, conversion into dematerialised securities is automatic when the bearer securities are deposited in a securities account. A similar regime applies to public debt securities. For bearer securities issued by unlisted companies, their deposit in a securities account does not automatically lead to their being converted into dematerialised securities, since they are only converted if the articles of association of the issuing company provide for that upon deposit (or are amended to that effect) and a date of conversion is stipulated. Hence, when bearer securities issued by an unlisted issuer whose articles of association make no provision for conversion before 31 December 2011 are held in a securities account, the law does not address how the tax will be paid upon conversion.

Tax on stock exchange transactions
The Act provides for new rates and new (higher) caps for calculating tax on stock exchange transactions as from 1 January 2012.

Notarial fees and bailiffs’ fees
Notarial and bailiffs’ fees are currently exempt from VAT but are subject to VAT as from 1 January 2012.

Tobacco
The excise duties on tobacco increase as from 1 February 2012.

Digital tv
Digital tv subscriptions and related services are subject to 21% VAT as from 1 January 2012 (instead of 12% as is currently the case).

Other tax measures (not yet enacted)

“Turbo” usufruct structures
So-called “turbo usufruct structures” (where a company acquires the usufruct of a building for a relatively short period and the individual acquires naked ownership of the building) are to be looked into by the Belgian tax authorities and a new measure to tax the benefit in kind may be introduced.

Spirits
The excise duties on spirits are set to increase.

Social security fraud
The budget agreement also contains various proposals to tackle social security fraud.

Entry into force

The date on which the measures which have already been enacted come into force is mentioned above. What the actual tax measures that have not yet been enacted will eventually look like is still unclear, since they are not yet law. The above summary is based on the information currently available.

New developments in this respect will be posted on the PwC website: www.pwc.be.

Any questions regarding this publication? Please contact your regular PwC tax consultant.