Latest Tax Management and Accounting Services (TMAS) Newsalert

Belgian Tax Reform: New Belgian tax measures

At the end of November 2011, various new Belgian tax measures were proposed under the 2012 budget agreement. Some have been enacted in the Miscellaneous Provisions Act of 28 December 2011, 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.)

Part of the other proposed measures have been enacted by the Program Act of 29 March 2012, which was published in the Official Gazette on 6 April 2012.

Other tax measures (a.o. amendment of thin-cap rule) have been set down in pre-draft legislation which has been approved by the Council of Ministers on 29 March 2012 and on 27 April 2012 (draft act following the pre-draft legislation not yet published).

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

Following budget negotiations finalized on 10 March 2012, the government also decided to increase taxes on a.o. the trade of shares, certain investment funds, cigarettes and tobacco. These measures would in principle entry into force as from 1 May 2012. However, they have not been enacted yet.

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

Belgian corporate income tax measures

Notional interest deduction ("NID")

• Rate (Act of 28 December 2011)

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 NID rate is 3.425% (3.925% for SMEs) for tax year 2012 (accounting years ending between 31 December 2011 and 30 December 2012, both dates inclusive). 

The act of 28 December 2011 caps the NID rate at maximum 3% and no longer allows the government to increase the cap in a royal decree. 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).

Entry into force: tax year 2013 (accounting years ending between 31 December 2012 and 30 December 2013, both dates inclusive).

• Carry-forward of excess NID ( included in pre-draft legislation)

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 pre-draft legislation (approved by the Council of Ministers on 29 March 2012), 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 the 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 minus EUR 1 million – could be carried forward indefinitely. However, the details could still be modified, since the measures are not yet enacted.

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 (Act of 28 December 2011)

The act of 28 December 2011 introduces an additional disallowed expense in relation to company cars. The new disallowed expense is 17% of the new benefit in kind. With regard to calculation of the 'new benefit in kind', see below under "Belgian personal income tax measures" - "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 kind attributed as from 1 January 2012.

Capital gains on shares – one-year holding period required for exemption (Act of 29 March 2012)

Old rule
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.

New rule (enacted)
Under the new rule, a minimum holding period of an uninterrupted period of one year in full ownership is introduced. If the capital gain is realised before the minimum holding period of one year is reached, the capital gain is taxed at a rate of 25% (3% surcharge = 25.75% + tax increase in case of insufficient prepayments ). (There are some exceptions e.g. for financial institutions).
Capital losses on shares would continue to be non-deductible.

Entry into force: i) As from tax year 2013 and ii) capital gains realised as from 28 November 2011 during a taxable period closing on or after 6 April 2012. Any change made as from 28 November 2011 to the closing date of the annual accounts will be disregarded.

Thin-cap rules (Act of 29 March 2012)

Current rule
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.

New rule (not yet enacted)
The new Program Act replaces the 7/1 rule by a new rule introducing a (general) 5/1 debt-equity ratio.

For the purposes of the thin-cap rule, equity is defined as the sum of the taxed reserves at the beginning of the taxable period and the paid-up capital at the end of the taxable period.  For the purposes of this new rule, certain non-taxed reserves are deemed to be taxed reserves. It regards a.o. certain tax-free reserves created upon a merger / demeger (a.o. as a result of merger goodwill).

For the purposes of the thin-cap rule, debt is defined as:

• All loans, whereby the beneficial owner is not subject to income taxes, or, with regard to the interest income, is subject to a tax regime which is substantially more advantageous than the Belgian tax regime
• All intra-group loans (whereby "group" should be interpreted in accordance with section 11 of the Companies Code)

Bonds and other publicly issued securities are excluded, as well as loans granted by financial institutions.
Interest payments or attributions in excess of the 5/1 ratio are not tax deductible. The new thin-cap rule is not applicable to loans contracted by (movable) leasing companies (as defined by article 2 of the Royale Decree n° 55 of 10 November 1967) and companies which main activity consists of factoring or immovable leasing and this within the financial sector and to the extent the funds effectively are effectively used for leasing and factoring activities.

An anti-abuse rule is introduced stating that in case the loans are guaranteed by a third party or in case loans are funded by a third party which partly or wholly bears the risk related to the loans, the third party is deemed to be the beneficial owner of the interest, if the guarantee or the funding has tax avoidance as main purpose.

The above text of the new Program Act was/is heavily criticised as it does not take into account the specific characteristics of coordination centres, cash-pooling and financing companies. According to a press communication dd 28 April 2012, the government would modify the proposed thin capitalisation rules in order to safeguard companies having a centralised treasury function in Belgium. The amendment would introduce a netting for thin cap purposes at the level of the interest payments and interest income related to the centralized financing function / cash pool function. However, the details are not yet clear.

Entry into force: the new Program Act states that the entry into force would be determined by a Royal Decree and in any case on 1 July 2012 at the latest.

Anti-abuse rule (Act of 29 March 2012)

Old rule
According to section 344(1) of the Income Tax Code, the Belgian tax authorities can (under certain conditions) reclassify a legal deed (transaction) into a different transaction (with generally a higher tax burden) provided both transactions have the same or similar legal consequences. A similar provision exists for registration duties and inheritance tax purposes.

Current rule (enacted)
 

Under the new rule, a legal deed (or a whole of legal deeds) is not opposable towards the tax authorities if the tax authorities could demonstrate that there is tax abuse. For the purposes of the anti-abuse rule, 'tax abuse' is defined as:

• A transaction in which the taxpayer places himself – in violation with the purposes of a provision of the income tax code (or the related Royal Decree) - outside the scope of this provision of the income tax code (or the related Royal Decree)
• A transaction that gives rise to a tax advantage provided by a provision of the income tax code (or the related Royal Decree) whereby getting this tax advantage would be in violation with the purposes of this provision of the income tax code (or the related Royal Decree) and whereby getting the tax advantage is the essential goal of the transaction.

In case the tax authorities uphold that a legal deed or a whole of legal deeds can be considered as tax abuse, it is up to the taxpayer to prove that the choice for the legal deed or the whole of legal deeds is motivated by other reasons than tax avoidance (reversal of burden of proof). In case the taxpayer could not prove this, the transaction will be subject to a taxation in line with the purposes of the income tax law, as if the tax abuse did not take place.

In the meantime, administrative guidance (Circular Letter of 4 May 2012) was published with regard to the new anti-abuse rule. However, the Circular Letter does not provide specific examples of cases that could fall within the scope of the new measure.

Entry into force: the new rule is applicable as from tax year 2013, and on legal deeds performed during a taxable period closing on or after 6 April 2012. Any change made as from 28 November 2011 to the closing date of the annual accounts will be disregarded. For inheritance and registration duties purposes, the new rule is applicable to legal deeds performed as from 1 June 2012.

Pension schemes (not yet enacted)

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, premiums exceeding the '80%-rule' would be subject to a special taxation.

Pension provisions (not yet enacted)

Companies can currently build up pensions via provisions for an individual pension scheme. It is proposed that this should no longer be allowed and that all pension schemes should be outsourced (via e.g. insurance companies). Internal pension-scheme provisions would be subject to the general 4.4% group insurance tax.

New provisions for pensions on the balance-sheet set up as from 1 January 2012 have to be outsourced and are hence liable to the 4.4% tax.  Provisions for pensions on the balance-sheet set up before 1 January 2012 do not have to be outsourced.  They will however be liable to a 1.75% tax (instead of 4.4%).  The payment of the tax can be spread over 3 years with 3 instalments of 0.6%.

 

Withholding taxes measures

Dividend withholding tax (Act of 28 December 2011)

• 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 (Act of 28 December 2011)

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

• State bonds issued and subscribed during the period 24 November 2011–2December 2011;
• Interest stemming from ordinary savings accounts (to the extent they exceed the first tax-free band of EUR 1,83 per taxpayer for tax year 2013).

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 (no change)

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

Private use of company cars (enacted)

Old rule
Under the old rule, 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).

Current rule (Act of 28 December 2011 - but already modified (see below))
The Act of 28 December 2011 states that the yearly benefit in kind on which an employee is taxed is computed as 6/7 of the list value of the car multiplied by a percentage linked to the car's CO2 emission rate (the "taxable percentage"). The list value 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 direct taxes. Entry into force: benefits attributed as from 1 January 2012

New rule (Act of 29 March 2012)
Two changes related to the calculation of the benefit in kind are introduced.

• The definition of the list value is defined as follows the list price for a sale to an individual of the vehicle (when it was new), including options and VAT (actually paid), but excluding any discounts and rebates.
• In addition, the benefit in kind takes into account the age of the car, by multiplying the list value with a percentage in function of the age of the car (based on the first registration of the car). The benefit in kind decreases 6% per annum, with a maximum of 30%.

Period elapsed since the first registration of the car	Percentage applied to the list value
0 to 12 months	100%
13 to 24 months	94%
25 to 36 months	88%
37 to 48 months	82%
49 to 60 months	76%
>61 months	70%

Entry into force: tax year 2013 and for professional withholding tax purposes, as from 1 May 2012.

Extra tax on interest and dividend income exceeding EUR 20,020 a year (Act of 28 December 2011)

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 20,020 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 20,020 cap: (i) the exempt part of ordinary saving accounts, (ii) liquidation surpluses and (iii) 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: (i) income from ordinary saving accounts, (ii) liquidation surpluses, (iii) interest and dividends subject to 25% withholding tax and (iv) 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 (Act of 28 December 2011)

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 (Act of 28 December 2011)

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.

Housing (Royal Decree of 23 February 2012)

Old rule
Under the old rules, a taxpayer (the beneficiary) is taxed on a (fairly small) lump-sum amount for a house which is put at the disposal by a company for free. The lump-sum amount is calculated based on a formula including a.o. the cadastral income multiplied by 2.

Also for heating and electricity put at the disposal by a company for free, the beneficiary is only taxed on a lump-sum amount. The lump-sum taxable benefits for free heating amount to EUR 1,640 per year (for executive staff and directors) and to EUR 820 per year (for all other beneficiaries).  The lump-sum taxable benefits for free electricity amount to EUR 820 per year (for executive staff and directors) and to EUR 410 per year (for all other beneficiaries).

New rule
Under the new rules (Royal Decree of 28 February 2012) the lump-sum benefit in kind for housing put at the disposal by a company for free has been increased: the multiplier in the formula is no longer 2 but 3.8.

For executive staff and directors, the lump-sum benefits in kind for free heating and free electricity have been increased.  The new benefits in kind amount to:

• EUR 1,820 (indexed amount) per year for free heating
• EUR 910 (indexed amount) per year for free electricity

The above lump-sum amounts are indexed amounts. The non-indexed amounts (EUR 1,245 for free heating and EUR 620 for free electricity) are subject to yearly indexation.

For all other beneficiaries the lump-sum benefits in kind remain unchanged for calendar year 2012. The benefits in kind remain at:

• EUR 820 (indexed amount) per year for free heating
• EUR 410 (indexed amount) per year for free electricity

The above lump-sum amounts are indexed amounts. The non-indexed amounts (EUR 560 for free heating and EUR 280 for free electricity) are subject to yearly indexation.

Entry into force: benefits granted as from 1 January 2012.

 

Other (pre-draft legislation)

Pre-draft legislation (approved by the Council of Ministers on 29 March 2012) announces amongst others measures regarding (i) changes in the way certain tax deductions would be applied, i.e. deduction from tax payable instead of deduction from taxable basis, (ii) the way tax deductions for investments made in fire prevention and protection would be calculated, etc.

 

Other tax measures

Tax on conversion of bearer securities (Act of 28 December 2011)

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.
  

 

Tax on stock exchange transactions (Act of 28 December 2011)

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

As mentioned above, during the new budget negotiations it was decided by the government to further increase these taxes. These increases would entry into force in principle as from 1 May 2012.

Notary fees and bailiffs' fees (Act of 28 December 2011)

Notary and bailiffs' fees are currently exempt from VAT but are subject to 21% VAT as from 1 January 2012.

Tobacco (enacted/not yet enacted)

The excise duties on tobacco increase as from January 2012 according to the act of 28 December 2011. During the new budget negotiations finalized on 10 March 2012, it was decided by the government to further increase excise duties on tobacco.

Cigarettes (not yet enacted)

As mentioned above, during the new budget negotiations it was decided by the government to increase excise duties on cigarettes.

Digital tv (enacted)

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

"Turbo" usufruct structures (not yet included in draft law)

So-called "turbo usufruct structures" (where a company acquires the usufruct of land and a building for a relatively short period and afterward the individual acquires the full ownership of both land and 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 (not yet included in draft law)

The excise duties on spirits are set to increase.

Social security fraud (will be handled in special legislation and regulation and circulars)

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

 

Transfer of investment deduction (pre-draft legislation)

The amount of investment deduction would be transferable to the new owner in case of a transfer of the underlying assets (provided that the new owner meets the conditions for applying investment deduction).

 

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.taxreform.be.

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

 

• TMAS Newsalert
• Archives