Stay up to date with tax reform in Belgium

Entities - Companies

Latest update: 26 October 2017

 

On 26 July 2017, the federal government reached an agreement on an important tax, economic and social reform package. As key components of this package, the corporate income tax rate would be gradually reduced to 25% in 2020 and fiscal consolidation would be introduced. The notional interest deduction would be maintained.

The tax reform is built around three pillars: budget neutrality, simplification and fair taxation. On top of the tax reform, several additional measures will be taken to boost job creation, with corresponding investments in the Belgian economy.

 

Draft corporate income tax reform Act

Corporate income tax rate

The standard corporate income tax rate of 33% would be lowered to 29% in 2018 and to 25% as from 2020. SMEs would even see a decrease in the rate to 20% as from 2018 for the first bracket of EUR 100,000 profit. These rates are to be increased with the crisis tax, which would also be lowered for 2018 and abolished in 2020. 

 

 

2018

2020

Old corporate income tax rate

33%

33%

New corporate income tax rate

29%

25%

SMEs (first bracket of EUR 100.000)

20%

20%

Former crisis tax

3%

3%

New crisis tax

2%

0%

 

Measures announced for 2018

  • The 95% dividends received deduction (DRD) would be increased up to 100%.
  • The separate 0.412% capital gains tax on qualifying shares would be abolished, while the conditions to benefit from the capital gains exemption would be brought in line with the dividends received deduction. This implies the application of a minimum participation threshold of at least 10% or an acquisition value of at least EUR 2.5 million in the capital of the distributing company.  
  • Capital gains on shares whose dividends partly entitle to the DRD regime would also be partially exempted (DRD-SICAVs/BEVEKs, SIR/GVV etc.). Specific rules would apply to capital gains after a restructuring.

 

  • In a nutshell, as from 2018 till 2020, capital gains on shares would be:
    • exempt when all the conditions are met;
    • taxed at 25,5% if the holding period has not been met;
    • taxed at 29,58% if the participation or the taxation condition is not met.

 

  • As from 2021, capital gains on shares would be:
    • also exempted when all the conditions are met
    • taxed at the standard rate (25%) if one condition is not met.

 

  • At this stage, the status of the Fairness Tax remains unclear, the tax reform being silent on this topic. However, we may expect that the fairness tax in its current form will be abolished, taking into account the European Court of Justice ruling and the pending case before the Belgian Constitutional Court.
  • The wage withholding tax exemption for scientific research personnel would be extended to include holders of a bachelor’s degree. The exemption would be applicable up to 40% of this wage withholding tax as from 1 January 2018 and up to 80% as from 1 January 2020.
  • SMEs would benefit from an increase in the investment deduction from 8% to 20% for the next 2 years (FYs 2018 and 2019) for assets acquired or created between 1 January 2018 and 31 December 2019.
  • The maintained notional interest deduction would as from 2018 be calculated based on the incremental equity (over a period of five years) and no longer on the total amount of the company’s qualifying equity, with some transitional rules. Simplified, the incremental equity equals one fifth of the positive difference between the equity at the end of the taxable period and the fifth preceding taxable period. Current rules remain applicable to the equity formation and exclusions, as well as to the stock of carry-forward notional interest deduction. The applicable rate is the rate of the financial year to which the tax return relates.
  • To finance these new measures, a minimum tax charge would be imposed on companies making more than one million euros profits by limiting the number of corporate tax deductions. A new sequence of deductions would apply (see below). As from 2018 deductions would be fully deductible up to one million euros profits and according to the new sequence of deductions.  A basket of deductions could only be claimed on 70% of the profits exceeding the one million threshold. The remaining 30% would be fully taxable at the above-mentioned new rate. The deductions concerned are the deduction of tax losses carried forward (CF losses), the dividends received deduction carried forward (CF DRD), the innovation income deduction carried forward (CF IID) and the notional interest deduction (carried forward (CF NID) and new incremental NID). Deductions for investments (general and innovation) are excluded. 

 

 

With this measure, any company would always pay 7.5% tax on the amount of profits exceeding one million euros (with a corporate income tax rate of 25% as from 2020).

The new rules would not apply to losses incurred by SMEs starters.

          

  • Minimum company director fee: SMEs can benefit from the reduced corporate income tax rate on the first bracket of EUR 100,000 if certain conditions are met. In this regard, the company must grant to at least one company director (natural person) a minimum fee which would have to amount to EUR 45,000 (instead of EUR 36,000) or would have to be equal to the taxable income if it is lower than EUR 45,000. Exceptions would be provided for starters and affiliated companies with a single and common company director.

    In order to prevent any abuse, a distinct taxation of 10% would be due by each company (large or small) that does not grant the minimum fee of EUR 45,000 or a fee equal to the taxable income. The tax would be due on the difference between the highest compensation actually paid and the required amount and would be deductible. Exceptions would also be provided for SMEs starters companies.
  • Reimbursements of paid-up capital: the reimbursement of capital would be deemed to derive proportionally from paid-up capital and from taxed reserves (incorporated and non-incorporated into capital) and exempted reserves incorporated into the capital. The reduction of capital would be allocated to paid-up capital in the proportion of the paid-up capital in the total capital. The portion allocated to the reserves would be deemed to be a dividend and become subject to withholding tax (if applicable). Share premium distribution would be submitted to the same system. Exempted reserves not incorporated into the capital remain beyond of the scope of the rule. Some elements such as revaluations surplus, provisions for liabilities and charges, unavailable reserves, etc. have to be withdrawn from the reserves taken into account to calculate the coefficient. A settlement order has been provided if the amount of the paid-up capital and sums being treated as capital are insufficient. This change would be applicable to capital reduction decided by a general meeting as from 1 January 2018.
  • Pre-paid costs would have to be deductible in the year of payment in the proportion of the part of this charge which relates to this FY (application of the accounting matching principle). It would then no longer be possible to shift costs that will only be made in the future to the current year to reduce the tax charge on the current year’s profits.
  • Provisions for risks and charges would only be deductible for tax purposes if:

    • they correspond to an existing and known obligation at year-end closing (in addition to the other already existing conditions)
    • they result from any contractual, legal or regulatory obligation.

Any reversal of such provision would be taxed at the nominal rate applicable in the year in which the provision was booked. This is to avoid that taxpayers would book the reversal once the standard tax rate is decreased. This change would not apply to allocations to provisions created before FY 2019 (admitted amounts till FY 2018).

  • Other measures to apply as from 2018 include among others the removal of the investment reserve system and change regarding the capital gains tax for which spread taxation was requested but for which the re-investment did not take place within the legal deadline or according to the legal conditions: such capital gains would be taxed at the nominal rate applicable in the year in which the capital gain is realised.

  • Further to the 100% dividends received deduction, the special Tate & Lyle withholding tax rate would be replaced by a withholding tax exemption.

 

Measures announced for 2020

  • For the first time in Belgian income tax history, tax consolidation would be introduced as from 2020. This would imply that Belgian companies could offset their (new) profits against tax losses of another Belgian affiliated company. The aim is that the group companies compensate each other for the tax burden of the group contribution as a result of which the tax consolidation would be financially neutral. Transfers of assets are excluded. The scope of the measure is limited to certain qualifying companies:
    • a 90% shareholding between the companies during the whole tax year is required;
    • the measure is limited to group companies that are affiliated during at least five successive tax periods;
    • the scope is also limited to the parent, the subsidiary or the sister company of the taxpayer or the Belgian permanent establishment;
    • some companies such as investment companies and regulated real estate companies (SIR/GVV) are excluded. 

 

In order to benefit from this new system of consolidation, the group companies concerned would have to conclude an “intra-group transfer agreement” that meets the followings conditions (that have to be effectively executed): 

  • the agreement may relate to only one taxable period;
  • it would have to mention the amount of the intra-group transfer that may not cannot exceed the sum of the losses that would be incurred during the FY by the resident loss-making company or PE if the intragroup transfer had not been included in the profit;
  • the resident company or PE undertakes to report  the amount of the intragroup transfer in its tax return (corporate income tax or non-resident income tax) as included in the profits of the taxable year to which the agreement relates
  • the taxpayer undertakes to pay to the resident company or PE a compensation equal to the additional tax that would be due if the intra-group transfer had not been deducted from the profits of the taxable year.

The  intra-group transfer would be deductible from the taxpayer’s profits of the taxable year provided that the profit is effectively included in the tax return of the loss-making company and provided that the compensation has been actually paid (proof should be given if requested).

  • Permanent establishments (PE):
    • The PE definition in Belgian legislation is modified in line with the OECD/BEPS guidelines containing a more economic PE concept. Although the domestic PE definition is mainly relevant for non-treaty situations, this way national legislation also does not create an obstacle when the new PE concept will be introduced in Belgium’s double tax treaties.
    • The utilisation of foreign PE losses by a Belgian head office would be limited, unless they are final. PE losses are final when the activities of the PE have been halted and to the extent that these losses are not deducted from other income (e.g. income from other entities or in the framework of a tax consolidation). In absence of any PE, foreign losses are final in case they exist at the moment that the Belgian company no longer has any assets in the foreign State, to the extent that these losses did not give rise to any sort of deduction in that State. A recapture is foreseen for deducted final PE losses in the event that the Belgian company would restart activities in the foreign State within three years after the closure of the PE.
  • Discounts on long-term debts related to non-depreciable assets would no longer be deductible.
  • Company cars: the tax reform also aims – once more – at strengthening the rules on the tax charge applied to company cars for Belgian companies. In general, under the current system, the deductibility rate of car costs in the hands of Belgian companies and Belgian PEs varies in a range between 50% and 120% of the costs, depending on the type (fuel) and CO2 emission of the company car. The deduction for fuel costs is set at 75%.

    These rules would change as follows:

    • The deductibility rate of car costs would be linked to the actual CO2 emission level of the car, regardless of the fuel, and would range between 50 and 100%. For highly polluting cars, the deductibility would be limited to 40%, starting already in 2018. A highly polluting car is a car with a CO2 emission of 200 grams or more.
    • Under the current rules, car costs for so-called ‘fake’ hybrid cars (rechargeable hybrid cars) can easily be deductible at 90 or 100% because of the posted low CO2 emission level. Depending on the battery capacity of the car (in relation to the weight of the car), a rechargeable hybrid car would qualify as a ‘fake’ hybrid car or not. Under the new proposed rules, the deductibility and tax charge on the corresponding benefit in kind would be brought into line with the tax treatment of its non-hybrid counterpart. By lack of corresponding car, the CO2 emission value would be multiplied by 2,5. Transitional rules are provided. However, the current system would continue to apply to hybrid cars acquired before 1 January 2018.
    • The deduction for fuel costs would no longer be fixed (at 75%) but would also be linked to the CO2 emission of the car.
    • Costs in relation to electric cars would only be deductible up to 100%, instead of 120%.
    • Exceptions to the limited deductibility are provided for taxi services, rental cars with drivers, driving schools and vehicles leased only to third parties.

 

  • Limited deduction of other business expenses such as fines and taxes: all fines related to direct and indirect taxes imposed by a public authority would become disallowed expenses even if they do not qualify as a criminal penalty or if they are related to deductible taxes. The distinct tax charge on secret commissions would no longer be deductible. Hidden profits would no longer be reincorporated in the corporate accounting and the reduced rate applicable in this case would be abolished. Other costs deductible at a rate of 120% would be deductible up to 100%.
  • Other measures that would only become effective in 2020 relate notably to the possibility to convert exempted reserves (created before 2017) into taxed reserves at a favourable tax rate and to changes in the depreciation regime: the double-declining balance method would be abolished and, as with large enterprises, for the year of investment, SMEs would only be entitled to apply a pro rata deduction.

 

Compliance (as from 2018)

 

  • Tax supplements resulting from a tax audit would effectively become due, without the possibility to offset these supplements against e.g. current year losses. It should however remain possible to claim the dividends received deduction of the current financial year. They will constitute a minimum tax base. This measure would only apply if tax penalties equal to or higher than 10% are effectively applied. In other words, questions of principle would normally be out of scope of this new rule. 
  • Companies will be encouraged to make more tax prepayments. The basic interest rate would increase to 3% (instead of 1%). The increase would always be applied as from 2018. The rate of the tax increase in advance payments would be 6.75% in 2019.

  • In the absence of a corporate tax return, the minimum taxable lump-sum would amount to EUR 34,000 from 2018 and to 40,000 from 2020 (instead of currently EUR 19,000). It would be indexed on an annual basis. In the event of repeated infringements, the minimum taxable lump-sum would increase from 25% to 200% (from the fifth infringement). The taxpayer may always produce evidence to the contrary.
  • The default interest and late payment interest system would be reviewed. Late payment interest would amount to minimum 4% (and maximum 10%). The default interest rate would be 2% lower than late payment interest. These rates would be linked to the OLO interest rate and would then be adapted on an annual basis on this rate. The default interest rate would be due as from the first day of the month following the month of the formal notice and if the taxpayer has actually paid the tax.  

Implementation of ATAD

The corporate income tax reform act implements the European Anti-Tax Avoidance Directives I and II (Council Directive EU 2016/1164 of 12 July 2016 and Council Directive EU 2017/952 of 29 May 2017). This would lead to the introduction of an interest deduction limitation rule, rules on controlled foreign corporations (CFC legislation), exit taxation and hybrid mismatch rules, which would enter into force as from assessment year 2021 linked to a taxable period that starts at the earliest as from 1 January 2020.

  • In terms of interest deduction limitation rule, exceeding borrowing costs (after netting) would be deductible only up to 30% of the EBITDA for tax purposes. The EBITDA is calculated based on the result of the taxable period after the first operation, increased by deductible amortisation and depreciation and by the exceeding borrowing costs, and decreased by the current-year dividends received deduction, innovation deduction, patent income deduction, exempted treaty income and the profits from public-private co-operation projects. A grandfathering clause would exclude loans before 17 June 2016 for which the current 5:1 debt equity thin cap rules remain applicable. Loans in relation to public-private co-operation projects are also excluded. Stand-alone entities and financial undertakings are not in scope. Additionally, as safe harbour rule, a minimum threshold of MEUR 3 would remain unaffected, subject to the old thin cap rule for interest payments to tax havens. In case Belgian companies and/or Belgian PEs are part of a group the 30%-EBITDA rule, including the MEUR 3 threshold, would be applied on an ad hoc consolidated basis. However, there is no group ratio rule foreseen. The disallowed interest could be carried forward.
  • Based on the new CFC rules certain non-distributed income of a CFC would become taxable in Belgium in the hands of the Belgian controlling taxpayer. A CFC is a lowly taxed foreign company of which a Belgian taxpayer (alone or together with its associated enterprises) holds directly or indirectly more than 50% of the voting rights or the capital or is entitled to receive more than 50% of the profits of that entity. In addition, the CFC is either not subject to income tax under the applicable rules of its residence State or is subject to income tax which is less than 12,5% of the taxable income of the CFC computed based on Belgian rules.

Based on the so-called transactional approach, non-distributed income of the CFC arising from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage becomes taxable. This is the case to the extent that the CFC would not own the assets or would not have undertaken the risks which generate all or part of its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the CFC’s income. Income that is not generated by assets or risks linked to the significant people functions carried out by the controlling company is out of scope. Measures to avoid double taxation are foreseen via a 100% dividends received deduction for distributed income or a capital gains exemption when the CFC is transferred provided that the income has already been subject to tax based on the CFC rules.

  • The exit taxation rules are further completed by covering all transactions foreseen in the ATAD I Directive and by imposing a step-up in case of an inbound transfer from another Member State or – under certain conditions – from third countries.
  • A series of rules and definitions are inserted in Belgian tax legislation to tackle hybrid mismatches, tax residency mismatches and imported mismatches in line with the ATAD II Directive.

 

Draft mobility budget Act

Under the draft Act on the mobility budget, the mobility allowance would be treated as a company car from a tax point of view. Therefore, 17% or 40% of the benefit in kind related to the mobility allowance would be included in the disallowed expenses. The mobility allowance would be deductible at a rate of 75%. Transitional rules would be provided for the two first years during which the car is replaced by the mobility allowance.

 

Draft Program Act

  • Belgian tax on savings income (art. 19bis ITC): currently, capital gains realised on shares or units of capitalising collective investment funds investing more than 25% of their assets in debt claims are subject to a withholding tax of 30%. Under the proposed rules, the 25% threshold would be reduced to 10% and the investment funds in scope would be extended to alternative funds not only investing in securities. These changes would be applicable to income paid in relation to fund shares/units acquired as from 1 January 2018.
  • Contractual investment funds (FCPs/GBFs): the application of the Belgian tax on savings income (art. 19bis ITC) on contractual investment funds investing in investment companies which fall themselves within the scope of this tax, would be aligned to the tax treatment of a direct investment in such investment company. This measure would come into force as from the publication in the Belgian Official Gazette.
  • Annual tax on securities accounts: holders of one or more securities accounts in Belgium or abroad with total assets equal to or exceeding EUR 500,000 would be subject to tax at a rate of 0.15% of the average value of the total amount of taxable assets. The taxable assets would be the followings: funds, quoted or unquoted bonds, “kasbons”/”bons de caisse”, warrants, shares and bonds certificates, quoted shares and unquoted shares registered in securities accounts. Registered shares registered in the share register, pension savings accounts and life insurance would be excluded. The average value would be calculated on the basis of a reference period (30 September to 1 October). In case of ownership in common, the securities account would be deemed to be held equally between the holders. Corrections can be made based on supporting documents. The tax in principle would be collected by the financial institution who would also determine the value of the accounts concerned. The withholding is automatic when the holder has a securities account equal to or exceeding EUR 500,000 with a financial institution and when the holder which has securities accounts with several financial institutions has opted for the withholding tax since he could reach the taxable threshold. In the other cases, the holder has to file the tax return, determine the tax amount and make the payment. The securities accounts would also have to be reported in the personal income tax return. Penalties would be provided if the compliance obligations regarding the tax return are not complied with, in case of late payment of the tax or if the holder does not provide the information requested by the tax authorities. Specific anti-abuse measures would be introduced in respect of this new tax to avoid tax evasion. The draft provisions regarding this measure have been submitted to a new advice of the Council of State.  
  • The threshold for the traditional withholding tax exemption on interest received on savings deposits would be decreased from EUR 1,880 to 940.
  • To stimulate investment in shares, the government provides a new withholding tax exemption for Belgian and foreign dividends up to a threshold of EUR 627, the so-called Michel-De Croo measure; most dividends can benefit from the measure. Dividends distributed by undertakings for collective investment, through investment funds and legal structures are excluded. The taxpayer can choose the dividends on which the exemption applies and the exemption has to be requested via the tax return. 
  • Tax on stock exchange transactions: as from 2018, the rates would increase from 0.09% to 0.12% and from 0.27% to 0.35%.
  • The Cayman tax would be amended at various levels so as to increase its effectiveness and close some existing loopholes. Changes are provided to target intermediate structures. Distributions made by legal structures without legal personality (e.g. trusts) would become taxable except if they have been already taxed. This measure would apply as from 17 September 2017. Some exclusions would be better outlined, notably the substance exclusion. ‘Fonds dédiés’ and private undertakings for collective investment as well as ‘de facto’ associations (labour unions) having foreign investment income would fall within the scope of the tax.

    The changes would apply to income received, granted or paid as from 1 January 2018.
     

Draft Act providing miscellaneous provisions on economic recovery, social cohesion, fight against tax fraud and modernization of recovery proceedings

  • Promotion of growth companies: the tax shelter for start-up companies providing for a tax credit would be extended to growth companies under similar conditions. A growth company is a non-quoted small company in the meaning of article 15 of the Companies Code with an age between 5 and 10 years and with at least 10 employees. To be in scope of the new measure the turnover or the workforce of the growth company should have increased by 10% in the last 2 years before the investment. The investment is limited to EUR 100,000 by taxable period and by person, leading to a tax credit of 25%. Growth companies can only receive maximum EUR 500,000 based on this measure (or EUR 250,000 if they already received EUR 250,000 as start-up). These thresholds are maximum amounts applicable for the tax shelter for growth companies and for start-ups combined. Under certain conditions, also non-residents could benefit from this measure.
  • The regulatory framework of the private PRICAF would be reviewed and made more attractive by relaxing the limited duration the control rules, the management activity and the notion of temporary investment. Also the minimum investment threshold of EUR 100,000 would be decreased to EUR 25,000. Also in the income tax code some provisions in relation to private PRICAFs are relaxed or clarified. For instance, to apply the capital gains exemption on private PRICAF shares the condition regarding ‘additional or temporary investments’ is aligned with the concept in the regulatory legislation. It is also clarified that the annuality principle applies for the special corporate income tax regime of private PRICAFs.
    In addition, for private investors a new tax credit of 25% is introduced to partly cover the capital loss realised upon liquidation of private PRICAFs constituted as from 1 January 2018. The eligible capital loss is limited to EUR 25,000 by taxable period.
    Furthermore, the reduced dividend withholding tax rates of 20% or 15% are made applicable to dividend distributions by private PRICAFs to the extent that the underlying shares comply with the conditions of the VVPR regime.
  • Pension savings are further encouraged by adding a second option to the tax reduction system: the existing system of pension savings provides a tax reduction of 30% calculated on a maximum amount of EUR 940 per year (tax reduction of up to EUR 282). Going forward, a second system would be introduced which will allow taxpayers to get a tax reduction of 25% (instead of the current 30%) on a maximum savings amount of EUR 1,130 (instead of the current EUR 940) (tax reduction of up to 282.50 EUR). Taxpayers will have to choose between both systems. If the taxpayer pays an amount equal to or lower than the maximum amount, he gets the tax reduction related to this amount. If the taxpayer makes an additional contribution higher than EUR 940 or EUR 1,130, the bank reimburses the difference between his contribution and the maximum amount depending on the option he has chosen.

 

Remark: The above announced measures will have to be formalised in draft legislation and will be subject to change. 


 

Act of 9 February 2017 introducing the Innovation Income Deduction (Official Gazette 20 February 2017)

Qualifying intellectual property

As from now, qualifying intellectual property (IP) income is called ‘innovation income’, which reflects the broader scope of the qualifying income. The Innovation Income Deduction (IID) can apply to income derived from the following intellectual property (IP) of which the company or branch has the full ownership, co-ownership, usufruct or license or rights to use on:

  • patents and supplementary protection certificates;
  • breeders’ rights requested or acquired as from 1 July 2016;
  • orphan drugs, i.e. a drug to treat rare diseases, (limited to first 10 years) requested or acquired as from 1 July 2016;
  • data and market exclusivity granted by the competent authorities (e.g. market exclusivity for orphan drugs or data exclusivity for reports with respect to pesticides, clinical studies of generic or animal drugs);

IP of copyrighted software resulting from a research or development project as defined for the purposes of the partial exemption of wage withholding tax for research and development and which has not yet generated income before 1 July 2016.

Under the PID system, the benefit was only available as from the year the patent was actually granted.

The benefit under the IID will also be available by way of a temporary exemption (which will lead to a permanent exemption once the qualifying IP right has been granted) as from the date the qualifying IP right has been applied for. As the copyright of software automatically exists without request (provided conditions are met), there is no temporary exemption in this respect.

All marketing related intangibles such as trademarks will not qualify for tax benefits under the IID system.

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Innovation income

Without making any restrictions to SMEs, the following income will be considered as derived from the above qualifying IP in so far as the remuneration is included in the Belgian taxable result of the Belgian company or branch concerned:

  • licence fees;
  • IP income embedded in the sales price of own manufactured products for which a third party would be willing to pay a license (so-called ‘embedded’ royalties);
  • IP income derived from process innovation;
  • indemnities on the basis of a court/arbitral decision, an amicable settlement or an insurance settlement.

Furthermore, also the proceeds from a transfer of qualifying IP are in the scope of the deduction, subject to a reinvestment condition to be met within 5 years.

For the first taxable period during which the IID will be applied, the (net) innovation income should be decreased with the overall expenditure incurred during (preceding) taxable periods ending after 30 June 2016. Alternatively, one can opt to spread this recapture on a straight line basis during a period of maximum 7 years. In the case that the qualifying IP right terminates or is alienated before the end of this 7-year period, a correction will apply in order to limit the IID actually applied to the amount that would have been applied if no spread recapture had been opted for.

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Modified nexus approach

In consideration of avoiding that the Belgian IID regime would appear to constitute a harmful tax practice, the modified nexus approach has to be taken into account. The nexus approach intends to ensure that, in order for a significant proportion of innovation income to qualify for benefits, a significant proportion of the actual research and development (R&D) activities must have been undertaken by the taxpayer itself.

As a matter of business practice, unlimited outsourcing to related parties or acquisition of IP from related parties should not provide many opportunities for taxpayers to receive benefits without themselves engaging in substantial activities.

Given the above, the IID will be determined by multiplying the innovation income with the below ratio. The fraction represents the ratio between the own R&D activities and the outsourced R&D activities/acquired IP (towards/from related parties). As such, the taxable result of a Belgian company or branch will be reduced by 85% of the total net innovation income after this fraction has been applied.

 

 

Important to note is that the ratio will be calculated on a net basis implying that (contrary to the PID regime) current-year deducted overall expenditure should be deducted from the current-year qualifying innovation income.

It is thereby also provided that any excess deduction that cannot be used due to insufficient taxable basis can be carried forward (without any limitation in amount or time) to be compensated with future taxable profits (contrary to the PID system).

Furthermore, the law provides for continuity of the IID in the case of tax neutral reorganisations (e.g. contribution, merger or (partial) demerger). This continuity is also foreseen now for the PID.

Qualifying expenditure

The qualifying expenditure is the expenditure incurred by the company itself or the compensation for expenses of non-related companies in relation to outsourced R&D activities.

Qualifying expenditure must be directly connected with the qualifying IP. The expenditure does not include interest payments, costs related to immovable assets or any costs that could not be directly linked to a specific intangible. If R&D activities are outsourced to a non-related company via a related company, the related costs will qualify as qualifying expenditure on the condition that the compensation is charged without mark-up (i.e. as a disbursement). Based on the OECD Report on Action Point 5, the total acquisition cost related to qualifying intangible property should not be taken into account as qualifying expenditure but should be included in the overall expenditure.

 

Uplift of the qualifying expenditure

The qualifying expenditure may be uplifted by 30%, with a maximum of the overall expenditure. This means that the uplift may increase the qualifying expenditure but only to the extent that the taxpayer has non-qualifying expenditure. The purpose of this uplift is to ensure that the nexus approach does not penalise taxpayers excessively for acquiring IP or outsourcing R&D activities to related parties.

In exceptional circumstances, it can occur that although an uplift of 30% is added, the nexus ratio does not represent reality. As such, the modified nexus ratio can be rebutted by the taxpayer if the ratio as set out above (excluding the uplift) equals or exceeds 25%. A higher ratio may be applied in case the taxpayer proves that the outcome of the ratio between self-performed activities for R&D and the total R&D activities does not reflect reality. A ruling should be obtained in this respect.

 

Overall expenditure

The overall expenditure in the denominator of the ratio includes the qualifying expenditure increased with the acquisition costs related to qualifying intangible property and the expenditure for related-party outsourcing.

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Tracking and tracing

Since the nexus approach depends on there being a nexus between expenditure and income, taxpayers will have to carefully track and trace the expenditure, qualifying IP and income. In this respect it is provided that supporting documentation will have to be kept available for the tax authorities (such as the gross amount of the income, the actual value of IP acquired from a related company, the overall expenditure of the current year and the qualifying and overall expenditures over the life time of the IP).

In practice, it can be predicted that this will not be that easy to manage and may imply a cumbersome administrative burden for Belgian taxpayers. A transitional period is provided up to and including tax year 2019 (financials years ending as of 31 December 2018 until 30 December 2019, both dates inclusive). More detailed information with respect to this tracking and tracing and the timing thereof will be further determined by Royal Decree.

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Grandfathering and entry into force

The new system enters into force as of 1 July 2016, so a taxpayer may apply the PID in the first 6 months of 2016 and the IID in the last 6 months. Taxpayers benefitting from the PID regime or taxpayers that requested or acquired a patent prior to 1 July 2016, will be able to choose for the PID or the IID regime and will be able to receive the benefits under the PID for another five years (grandfathering until 30 June 2021).

The choice for the PID is irrevocable and must (in principle) be made per IP right.

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Program Act of 25 December 2016 (Official Gazette of 29 December 2016) 

Taxation of company cars

Basically, the company that provides a company car to its employees is taxed on 17% of the taxable benefit in kind. In this respect, the Program Act entails two changes as from 1 January 2017:

  • an increased taxable basis: the benefit in kind  is no longer reduced by the beneficiary’s contribution to calculate disallowed expenses;
  • an increase in the non-deductible amount to 40% of the taxable benefit in kind (excluding the beneficiary’s contribution) if the company covers the fuel costs (relating to private use).

This also applies to legal entities and companies subject to non-resident income tax.

The Program Act of 25 December 2016 does not yet include any provisions regarding the introduction of the so-called ‘mobility budget’, which would allow employees to convert their current company car into a ‘budget’ or to receive an ‘additional net salary’.

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Internal capital gains

As previously announced, in the case of a contribution of shares by an individual in a holding company, there is no longer tax-free step-up: the difference between the fair market value of the shares and their acquisition value is considered as a taxed reserve (and no longer as fiscally paid-up capital). As such, in the case where the reserves are distributed to the shareholder, a withholding tax will apply.

This also applies in the case of gifts or inheritance. However, a sale of shares remains outside of the scope because they can be taxable on the basis of other Income Tax Code provisions. Contributions of shares to non-resident companies also fall within the scope of this measure.  This change applies to the capital gains realised as from 1 January 2017.

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Increase in withholding tax

  • increase in the withholding tax rate from 27 to 30 % on investment income as of 1 January 2017;
  • increase in the withholding tax rate from 17 % to 20% on the liquidation reserves created as of 2017 and distributed in the first 5 years

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Speculation tax

abolition of the speculation tax for individuals on the transfer of quoted shares as of 1 January 2017;

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Recovery procedure for state aid

Recovery procedure for state aid derived from excess profit rulings granted (more details in our newsflash of 23 December 2016);

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Tax on stock exchange transactions

  • the maximum tax amount due are doubled and the tax is extended to include transactions realised by Belgian residents through non-resident intermediaries;
  • the Belgian resident giving the order is liable for the payment of the tax, except if he can prove that the tax has been paid;
  • the delay for the payment is extended and penalties are changed (reduced penalties are provided between 1 January 2017 and 31 December 2017);
  • before any transactions, the non-resident professional intermediary may appoint a responsible representative;
  • these changes apply to the transactions carried out as from 1 January 2017.

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Act of 18 December 2016 organising the recognition and legal framework of crowdfunding and containing miscellaneous finance provisions (Official Gazette 20 December 2016) 

 

The so-called ‘catch-all clause’ 

Belgian companies in principle are required to levy a wage 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 wage withholding tax of 16.5% – which needs to be levied at source by the Belgian company – unless the applicable double tax treaty provides for a reduced rate. As of 1 July 2016, the scope of the clause is limited and it only applies if:

  • there are links of interdependence between the supplier and its Belgian client;
  • the income received for the services rendered qualifies as a profit in the hands of the beneficiary; 
  • the services are provided to an individual tax resident in Belgium in the framework of his business activity, a corporation, a taxpayer subject to the legal entities tax or Belgian establishment;
  • and if and to the extent income is taxable in Belgium under a tax treaty or, in the absence of any tax treaty, if the taxpayer does not provide evidence that income is actually taxed in the State where he is resident.

A 15% withholding tax rate applies to dividends paid by SICAFI/Vastgoedbevak or RREC investing for more than 60% in real estate solely or mainly affected to health care. This rate applies to dividends paid or attributed on or after 1 January 2017.

Transposing the Parent-Subsidiary Directive

The  Act implements the amendments to the EU Parent-Subsidiary Directive (‘PSD’) ; it contains two measures: (i) a so-called anti-hybrid measure and (ii) the introduction of a general anti-abuse rule (‘GAAR’), which would apply to income granted or made payable as from 1 January 2016 (meaning that it will apply retroactively).

The anti-hybrid rule introduced into the Belgian Income Tax Code (‘BITC’), provides for an exclusion of the use of the Dividends Received Deduction (‘DRD’) if and to the extent that the dividend paying entity (also including the PE of the distributing entity) can deduct the dividend distributions from its taxable basis.

In addition to the already existing GAAR captured in section 344, §1 BITC, the Act of 1 December 2016 also introduces a new (PSD) GAAR, which claims that the benefits of the EU PSD as implemented in Belgian law (i.e. use of the DRD and the withholding tax exemptions) will not be granted in case of a legal act or series of legal acts, having been carried out for the main purpose (or one of the main purposes) of obtaining a tax advantage and which is (are) not genuine, having regard to all relevant facts and circumstances. A legal act or series of legal acts will be regarded as not genuine to the extent that it/they are not carried out for valid business reasons, which reflect economic reality.

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Exit tax

The Act of 1 December 2016 introduces changes to the Belgian exit taxation system. These changes include the option for the taxpayer to choose between an immediate tax charge and a spread tax charge in case exit tax would be due, such as for international restructuring activities.

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Individuals - Personal income tax

Latest update: 26 October 2017

On 26 July 2017, the federal government reached an agreement on an important tax, economic and social reform package. As key measures, the corporate income tax rate would be gradually reduced to 25% in 2020 and, for the first time, fiscal consolidation would be introduced in Belgium. The notional interest deduction would be maintained.

The tax reform is built around three pillars: budget neutrality, simplification and fair taxation. On top of the tax reform, several additional measures will be taken to boost job creation, with corresponding investments in the Belgian economy.

Details on the announced measures, including the draft legislation and implementation dates, are expected to follow. 

From a personal tax point of view, the following measures were announced:

 

Draft Program Act
 

  • Participation in the company’s profits: This measure would consist in allowing the employees (not applicable to self-employed company directors) to participate in the company profit, without having to hold a share in the company’s capital. This measure would be optional and not mandatory for the companies.

The maximum amount of the profit participation would be limited to 30% of the total wage bill (‘masse salariale’/’loonmassa’) and could consist in a fixed amount or fixed percentage of the employee’s salary (‘general’ profit participation premium). It is not allowed to use the profit participation as a replacement for salary. Finally, the profit participation bonus would not be taken into account for calculating the payroll standard (which determines the maximum margin of increase in wage costs in the private sector and in certain State-owned enterprises).

The employee would be liable to pay a special social security contribution of 13.07% on the one hand and a profit premium tax of 7% on the other hand.

The employer would – according to what is provided in the summer agreement – not have to pay special employer’s social security contributions. However, the profit participation premium will be treated as a disallowed expenses for corporate tax since this premium is not considered to be salary and is therefore not deductible.

If we compare the profit participation to the CAO90 bonus some differences need to be taken into account. The CAO90 bonus is subjected to a special solidarity contribution of 13.07% by the employee (cfr profit participation premium) but is tax exempted up to a certain level resulting in a higher net amount for the employee.

However, the profit participation premium is intended to be less complex to implement. For example, no agreement of the labour unions is in principle needed when a ‘general’ profit participation premium is granted (if the same amount for each employee is used).

Also, the maximum amount of the profit participation premium that can be granted to an employee is much higher than the CAO bonus (30% of the total salary mass instead of an absolute maximum of 3.255 before deduction of solidarity contribution).

With the decrease of the corporate tax rate by 2020, approximately the same net amount can be granted compared to the application of the CAO90 bonus scheme starting from the same cost to the company. The profit participation bonus should also be compared to other alternative pay schemes.

  • Belgian tax on savings income (art. 19bis ITC): currently, capital gains realised on shares or units of capitalising collective investment funds investing more than 25% of their assets in debt claims are subject to a withholding tax of 30%. Under the proposed rules, the 25% threshold would be reduced to 10% and the investment funds in scope would be extended to alternative funds not only investing in securities. These changes would be applicable to income paid in relation to fund shares/units acquired as from 1 January 2018.

  • Contractual investment funds (FCP/GBF): the application of the Belgian tax on savings income (art. 19bis ITC) to contractual investment funds investing in investment companies, which themselves fall within the scope of this tax, would be aligned to the tax treatment of a direct investment in such investment company. This measure would enter into force as from the publication in the Belgian Official Gazette.

  • Annual tax on securities accounts: holders of one or more securities accounts in Belgium or abroad with total assets equal to or exceeding EUR 500,000 would be subject to a 0.15% tax on the average value of the total amount of taxable assets. The taxable assets would be the followings: funds, quoted or unquoted bonds, “kasbons”/”bons de caisse”, warrants, shares and bonds certificates, quoted shares and unquoted shares registered in securities accounts. Registered shares registered in the share register, pension savings accounts and life insurance would be excluded. The average value would be calculated based on a reference period (30 September till 1 October). The securities account would be deemed to be held equally between the holders. Corrections can be made based on supporting documents. The tax in principle would be collected by the financial institution that would also assess the value of the accounts concerned. The withholding is automatic when the holder has a securities account equal to or exceeding EUR 500,000 with a financial institution and when the holder who has securities accounts with several financial institutions has opted for the withholding tax since he could reach the taxable threshold. In the other cases, the holder has to file the tax return, assess the tax amount and make the payment). The securities accounts would also have to be reported in the personal income tax return. Penalties would be provided if the compliance obligations regarding the tax return are not satisfied, in case of late payment of the tax or if the holder does not provide the information requested by the tax authorities. Specific anti-abuse measures could be introduced in respect of this new tax to avoid tax evasion. The draft provisions regarding this measure have been submitted to a new advice of the Council of State.

  • The threshold for the traditional withholding tax exemption on interest received on savings deposits would be decreased from EUR 1,880 to 940.

  • To boost investments in shares, the government provides a new withholding tax exemption for Belgian and foreign dividends up to a threshold of EUR 627, the so-called Michel-De Croo measure; most dividends can benefit from the measure. Dividends distributed undertakings for collective investment by, though investment funds, and legal structures are excluded. The taxpayer can choose the dividends on which the exemption applies and has to request it through the tax return.

  • Tax on stock exchange transactions: as from 2018, rates would increase from 0.09% to 0.12% and from 0.27% to 0.35%.

  • The Cayman tax would be amended at various levels so as to increase its effectiveness and close some existing loopholes. Changes are provided to target intermediate structures. Distributions made by legal structures without legal personality (e.g. trusts) would become taxable, except if they have been already taxed. This measure would apply as from 17 September 2017. Some exclusions would be better outlined, notably the substance exclusion.

    ‘Fonds dédiés’ and private undertakings for collective investment as well as ‘de facto’ associations (labour unions) having foreign investment income (trade unions) would fall within the scope of the tax.

  • Reduction of tax benefits: The draft Act provides for a reduction of tax benefits granted to people for whom the taxable period does not correspond to a full calendar year. In such case, certain tax benefits would be granted on a pro rata temporis basis only. This would be the case e.g. for tax residents of Belgium who leave Belgium in the calendar year and stop being tax residents during the year. A number of tax reductions (e.g. lump-sum business expenses, marital quotient, etc.) and deductions (e.g. tax-free amount, pension savings, etc.) would only be granted on a pro rata basis going forward. For Belgian non-residents, it is anticipated that similar legislation would enter into force and a number of tax reductions would disappear. These measures would be applicable as from assessment year 2018.

 

Draft corporate income tax reform Act
 

  • Reimbursements of paid-up capital: The reimbursement of capital would be deemed to derive proportionally from paid-up capital and from taxed reserves (incorporated and non-incorporated into capital) and exempted reserves incorporated into the capital. The reduction of capital would be allocated to paid-up capital in the proportion of the paid-up capital in the total capital. The portion allocated to the reserves would be deemed to be a dividend and become subject to withholding tax. Share premium distribution would be submitted to the same system.

    Exempted reserves not incorporated into the capital remain beyond of the scope of the rule.

    Some elements such as revaluation surplus, provisions for liabilities and charges, unavailable reserves, etc. have to be withdrawn from the reserves taken into account to calculate the coefficient. A settlement order has been provided if the amount of the paid-up capital and sums being treated as capital are insufficient. This change would be applicable to capital reduction decided by a general meeting as from 1 January 2018.

  • Company cars: From a personal income tax point of view, tax deduction of costs linked to cars  would be brought into line with the rules applicable to companies. This implies changes regarding the rate of deductibility, the capital gains tax on cars, the depreciation regime, etc.

    In general, under the current system, the deductibility rate of car costs in the hands of Belgian companies and Belgian PEs varies in a range between 50% and 120% of the costs, depending on the type (fuel) and CO2 emission of the company car. The deduction for fuel costs is set at 75%.

    These rules would change as follows:

    • The deductibility rate of car costs would be linked to the actual CO2 emission level of the car and would range between 50 and 100%. For highly polluting cars, the deductibility would be limited to 40%, starting already in 2018. A highly polluting car is a car with a CO2 emission of 200 grams or more. Transitional rules are provided for cars acquired or ordered before 19 October 2017 and would be abolished in 2020
    • Under the current rules, car costs for so-called ‘fake’ hybrid cars can easily be deductible at 90 or 100% because of the posted low CO2 emission level. Depending on the battery capacity of the car (in relation to the weight of the car), a rechargeable hybrid car would qualify as a ‘fake’ hybrid car or not. Under the new proposed rules, the deductibility would be brought into line with the tax treatment of its non-hybrid counterpart. By lack of corresponding car, the CO2 emission value would be multiplied by 2,5. Transitional rules are provided. However, the current system would continue to apply to hybrid cars acquired before 1 January 2018.
    • Taxable benefit in kind for “fake hybrid cars”: under the current rules, the benefit in kind for hybrid cars is calculated on the same basis as for regular cars and takes into account the posted low CO2 emission level. Depending on the battery capacity of the car (in relation to the weight of the car), a rechargeable hybrid car would qualify as a ‘fake’ hybrid car or not. Under the new proposed rules, the benefit in kind would be calculated using the same CO2 emission norm as its non-hybrid counterpart.  By lack of such corresponding car, the CO2 emission value would be multiplied by 2,5.
    • The deduction for fuel costs would no longer be fixed (at 75%) but would also be linked to the CO2 emission of the car.
    • Costs in relation to electric cars would only be deductible up to 100%, instead of 120%.

Draft Act providing miscellaneous provisions on economic recovery, social cohesion, fight against tax fraud and modernization of recovery proceedings

  • Pension savings are further encouraged by adding a second option to the tax reduction system: the existing system of pension savings provides for a 30% tax reduction calculated on a maximum amount of EUR 940 per year (tax reduction of up to EUR 282). Going forward, a second system would be introduced which will allow taxpayers to obtain a 25% tax reduction (instead of the current 30%) on a maximum savings amount of EUR 1,130 (instead of the current EUR 940) (tax reduction of up to EUR 282.50). Taxpayers have to choose between both systems. If the taxpayer pays an amount equal to or lower than the maximum amount, he obtains the tax reduction related thereto. If the taxpayer makes an additional contribution higher than EUR 940 or EUR 1,130, the bank repays the difference between his contribution and the maximum amount depending on the option he has chosen. 

  • Lump-sum amount for business expenses: up to now, self-employed people who received profits, have to produce evidence for their actual business expenses. As from 2018, they would be able to use a lump-sum amount of business expenses. This lump sum amount will be calculated using a unique rate of 30% with a maximum of EUR 2,950.

  • Promotion of growth companies: the tax shelter for start-up companies providing for a tax credit would be extended to growth companies under similar conditions. A growth company is a non-quoted small company in the meaning of article 15 of the Companies Code with an age between 5 and 10 years and with at least 10 employees. To be in scope of the new measure the turnover or the workforce of the growth company should have increased by 10% in the last 2 years before the investment. The investment is limited to EUR 100,000 by taxable period and by person, leading to a tax credit of 25%. Growth companies can only receive maximum EUR 500,000 based on this measure (or EUR 250,000 if they already received EUR 250,000 as start-up). These thresholds are maximum amounts applicable for the tax shelter for growth companies and for start-ups combined. Under certain conditions, also non-residents could benefit from this measure.

  • For private investors a new tax credit of 25% is introduced to partly cover the capital loss realised upon liquidation of private PRICAFs constituted as from 1 January 2018. The eligible capital loss is limited to EUR 25,000 by taxable period. Furthermore, the reduced dividend withholding tax rates of 20% or 15% are made applicable to dividend distributions by private PRICAFs to the extent that the underlying shares comply with the conditions of the VVPR regime.
  • Other: The same law also provides for a number of other changes such as: 1. Increase of the tax free amount for single parents with limited income; 2. Tax exempted amount for starters-youngsters; 3. Broadening of the wage withholding tax exemption for shift work; 4. Tax exemption for income from community work, occasional services between citizens and the ‘sharing economy’. 

 

Mobility budget : adopted by the restricted Council of Ministers on 30 June 2017

An agreement has recently been reached by the Federal Government regarding the introduction of a mobility budget as an alternative for company cars. As of 1 January 2018, employees (who already use a company car) are given the possibility to exchange their current company car for a cash compensation, provided that both parties (employer and employee) agree to do so.

In principle, implementing a mobility budget would become possible for employers who have been providing company cars to their employees for a minimum period of 3 years. There would be an exception for starting companies. Furthermore, it would be required that the employees (who request to switch from a company car to a mobility budget) have been provided with a company car for an uninterrupted period of at least 12 months, of which 3 consecutive months prior to requesting a mobility budget.

The corresponding cash amount (that employees would receive for no longer having the private use of a company car) would be determined, taking into account the value of their most recent company car (and will be subject to indexation). Moreover, for employees who also have a fuel card, the mobility budget would be increased with 20%. As is currently the case for the benefit in kind of a company car, no employee’s social security contributions would become due in the hands of employees who would receive a mobility budget. Furthermore employees with a mobility budget would (in most cases) face a lower tax burden as if they would still have the benefit in kind of their company car (subject to indexation). The mobility compensation is a taxable benefit that would be assessed on a lump-sum basis for the whole duration of the mobility allowance. The amount exceeding the taxable benefit would be exempted.

Because the mobility budget may not be used to replace ‘ordinary salary’ or ‘other benefits’, it is anticipated that several anti-abuse measures would be implemented.

The mobility budget would be introduced on 1 January 2018 and subject to evaluation after one year.

Remark: The above announced measures will have to be formalised in draft legislation and are subject to change.


Federal tax measures

Program Act of 25 December 2016 (Official Gazette 29 December 2016) 

Internal capital gains

As previously announced, in the case of a contribution of shares by an individual in a holding company, there is no longer a tax-free step-up: the difference between the fair market value of the shares and their acquisition value is considered as a taxed reserve (and no longer as fiscally paid-up capital). As such, in the case where the reserves are distributed to the shareholder, a withholding tax will apply.

This also applies in the case of gifts or inheritance. However, a sale of shares remain outside of the scope because they can be taxable on the basis of other Income Tax Code provisions. Contributions of shares to non-resident companies also fall within the scope of this measure. This change applies to the capital gains realised as from 1 January 2017.

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Increase in the withholding tax

  • increase in the withholding tax rate from 27 to 30% on investment income as of 1 January 2017;

  • increase of the withholding tax rate from 17 % to 20% on the liquidation reserves created as of 2017 and distributed within the first 5 years

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Speculation tax

abolition of the speculation tax for individuals on the transfer of quoted shares as of 1 January 2017.

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Tax on stock exchange transactions

  • the maximum tax amounts due are doubled and the tax is extended to also include transactions realised through non-resident intermediaries by natural persons having their usual residence in Belgium or legal persons on behalf of an office or establishment located in Belgium;

  • when, as mentioned above, non-resident intermediaries are involved, the individual giving the order must comply with specific tax reporting requirements and is liable for the payment of the tax, except if he can prove that the tax has been paid;

  • the delay for the payment is extended and the penalties are amended (reduced penalties are provided between 1.1.2017 and 31.12.2017);

  • the non-resident professional intermediary may appoint a responsible representative who will pay the tax on stock exchange transactions and comply with the tax reporting requirements;   

  • these changes apply to transactions executed as from 1 January 2017.

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Act of 21 July 2016 introducing a permanent fiscal amnesty (Official Gazette of 29 July 2016)

The Act of 21 July 2016 introduced a permanent fiscal amnesty which provides taxpayers with a possibility – under certain conditions – to regularise income that has incorrectly not been subject to Belgian standard income taxes as well as evaded Belgian VAT. This income is taxable at standard tax rates, increased by 20%.

In addition to the federal fiscal amnesty system, the Act of 21 July 2016 also introduced a permanent system of social amnesty concerning the regularisation of social security contributions on professional income earned by a self-employed person.

 

Tax measures enacted by the Program Act of 1 July 2016 (Official Gazette of 4 July 2016)

Fiscal treatment of the ‘sharing economy’

The Program Act of 1 July 2016 introduces specific fiscal provisions regarding income received by a private individual (outside a business activity) from services provided to another private individual using an electronic platform, which is recognised or organised by the Government.

This income will constitute a separate category of ‘miscellaneous income’ in the Belgian Income Tax Code. If certain well-defined conditions are strictly met and if the income does not exceed a certain threshold (i.e. EUR 5,000, which is the indexed basic amount of EUR 3,255 on an annual basis), a flat tax rate of 20% will be applicable, after application of a 50% lump-sum cost deduction.

Consequently, the effective tax rate will be 10%. The tax provisions on the sharing economy are applicable as of 1 July 2016. As a result, for income year 2016 (tax year 2017) the above-mentioned threshold is reduced by half (i.e. EUR 2,500, which is the indexed amount of EUR 1,627.50). If the threshold is exceeded, the full income will be deemed to be earned income (however, it is possible to provide evidence to the contrary).

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Extension of the investigation period when tax information is received from abroad

Belgian legislation provides an extension of the period to issue an assessment notice with 24 months in the case where the Belgian tax authorities receive information from another State, which has concluded a double tax treaty with Belgium, provided this information is based on a tax audit or investigation (conducted by the competent authorities of that State), showing that taxable income was not declared in Belgium within a 5-year period preceding the year during which the tax authorities receive the relevant information from abroad.

Under the Program Act of 1 July 2016, the Belgian Government brings the term of the investigation period in line with the special assessment period of 24 months. Furthermore, the scope of application is extended to ‘any information received by the competent authority of another State’. This means that it is no longer required that the information results from a foreign tax audit or investigation. Information can also be received spontaneously or via automatic exchange of information. Finally, legal grounds (on which information can be received and used in Belgium) are extended from classical ‘double tax treaties’ to ‘other instruments on the exchange of information’ (such as multilateral treaties, Tax Information Exchange Agreements, EU Directives, FATCA, etc.).

Please also note that, in case of tax fraud, the above period of 5 years is extended to 7 years.

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Tax measures enacted by the Act of 26 December 2015 (Official Gazette of 30 December 2015)

Lump-sum amount of business expenses for employees

In 2014, it was announced that the lump-sum amount of business expenses would be increased. This would result in a higher net income for employees and boost their purchasing power. The increase in lump-sum business expenses (as included in the Program Act of 19 December 2014) was already partially implemented in the tax scales applicable as from January 2015 (and thus processed via the monthly payroll).

Full implementation of this measure would be achieved as from January 2016. Additionally, it has been decided by the Federal Government and approved by the federal legislator to further increase the lump-sum amount for business expenses as from January 2016 (Act of 26 December 2015 enhancing job creation and purchasing power). As from January 2018 (within certain limits), a single percentage will be applied for calculating the lump-sum amount of business expenses for employees, which should further increase the level of these deductible expenses.

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Individual income tax brackets and tax-exempt amount

One of the tax measures that were announced by Prime Minister Charles Michel during a press conference on 10 October 2015 was the abolition of the 30% rate and the increase in the tax bracket of the 45% rate.

According to the Act of 26 December 2015, the progressive abolition of the 30% rate and expansion of the tax bracket of the 40% rate will be achieved in 2 steps, the first changes being implemented as from income year 2016 and full implementation being achieved as from income year 2018. The first step (i.e. expansion of the 25% tax bracket) is implemented and comes into force as from assessment year 2017. The second step (i.e. abolition of the 30% rate and expansion of the tax bracket of the 40% rate by increasing the lower limit of the 45% rate) comes into force as from assessment year 2019.

Additionally, the Act of 26 December 2015 implements new tax brackets for calculating the tax-exempt amount. These new brackets will be different from the actual income tax brackets (used to determine the basic progressive income tax amount due on the taxable income). This measure will result in a higher income tax exemption and is in force as from assessment year 2017. Furthermore, the tax-exempt amount is expected to be further increased as from assessment year 2019.

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Update of the company car benefit in kind under the Royal Decree of 24 November 2016 (Official Gazette 5 December 2016)

For income year 2017, the formula for calculating the taxable benefit in kind for the private use of a company car in the hands of company directors and employees remains unchanged. However, the reference CO2 emission to be used for this calculation has been updated under the Royal Decree dated 24 November 2016 as follows:

  • petrol, LPG or natural gas cars: 105 g CO2/km (instead of 107 g C02/km for income year 2016);

  • diesel cars: 87 g CO2/km (instead of 89 g C02/km for income year 2016).

Regional tax measures

Flemish Region

New tax measures enacted by the Decree of 18 December 2015 (Official Gazette of 29 December 2015)

The Decree of 18 December 2015 contains several changes to the tax relief for mortgage loans that apply to mortgage loans concluded as from 2016:

 

  • The condition of 'sole' dwelling is abolished. Consequently, taxpayers who contract a loan for their own dwelling but already own another house or flat are able to benefit from a tax reduction. However, the tax benefit will be lower compared to the case of taxpayers who take out a loan for the purpose of purchasing or building their first property. In fact, the tax reduction will apply to every house or flat that can be classified as a taxpayer's 'own dwelling', regardless of the number of properties owned.

  • The (maximum) amounts that qualify for the mortgage loan tax relief remain the same as the thresholds set for mortgage loans contracted in 2015, i.e. EUR 1,520 (base) + EUR 760 (increase during the first 10 taxable periods) + EUR 80 (during the first 10 taxable periods if there are 3 or more dependent children on 1 January of the year following the year when the loan is signed).

  • As in the past, the increased amounts of EUR 760 and EUR 80 in principle – there are certain exceptions – are not available for taxpayers who are or become owner of other properties (i.e. houses and/or flats).

  • The tax relief percentage also remains 40% (calculated on the above qualifying amounts).

  • Following the above, the Flemish tax relief for long-term savings (capital repayments) and the Flemish tax relief for 'ordinary interest' paid for the own dwelling are abolished for loans contracted as from 2016.

 

For loans contracted before 2016, the current tax relief continues to exist. Consequently, three differentiating tax systems for the 'housing bonus' ('woonbonus'/'bonus-logement') co-exist in the Flemish Region: (1) the ‘former’ system for loans signed between 1 January 2005 up to and including 31 December 2014, (2) the ‘first-generation’ regional system for loans contracted as from 1 January 2015 and, finally, (3) the ‘second-generation’ regional system for loans contracted as from 1 January 2016. A combination of the first-generation tax relief (i.e. mortgage loans prior to 2016) and the second-generation tax relief (i.e. mortgage loans as from 2016) for the own dwelling is not possible.

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Brussels Region

In 2015, when the Brussels Capital Region presented its budget for 2016, amongst other things a tax reform was announced, to be implemented partly in 2016 and partly in 2017.

  • In 2016, the lump-sum regional tax of EUR 89 and the additional levy of 1% on federal personal income taxes no longer apply. Property taxes, however, increase by 12%, but residents of the Brussels Region are entitled to a EUR 120 reduction in this respect (reduction introduced by the Decree of 12 December 2016). Also in 2016, registration duties on donations of real estate properties are lower.

  • The second part of the tax reform has been implemented by the Decree of 12 December 2016 (Official Gazette 29 December 2016). It abolishes the tax relief for the sole and own dwelling as from 29 December 2016. Instead, when purchasing their own dwelling in the Brussels Region, buyers are entitled to a reduction in registration duties of up to EUR 22,500.00 subject to certain limits. This reduction only applies to the purchase of immovable property up to EUR 500,000. This change enters into force on 1 January 2017 and is not applicable to the deeds of sale made prior to  this date. Regional surcharges on personal income taxes are also lowered by half a percentage.

  • The purchase price of service vouchers (i.e. EUR 9 per voucher) will be maintained until 2020, and the tax relief will be limited to 15%.

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Walloon Region

Chèque-habitat

The Walloon Decree of 20 July 2016 on the reform of the regional tax reduction for mortgage loans for the sole and own dwelling has been published in the Official Gazette on 10 August 2016. It introduces a so-called system of ‘chèque-habitat’.

The tax relief is maintained but is less generous. It becomes an incentive for the first acquisition also calculated in relation to the taxpayer’s personal situation (income, number of dependent children):

  • the ‘chèque-habitat’ is applicable to all mortgage loans concluded as from 1 January 2016;

  • the tax credit is granted for 20 years maximum for the first sole and own dwelling, calculated in relation to the net taxable income of the taxpayers involved, and is increased by EUR 125 per dependent child on 1 January of the assessment year;

  • the tax credit is equal to 100% for the first ten years and then reduced to 50 % from the eleventh year;

  • the maximum tax reduction is capped at EUR 1,520 per year per taxpayer for taxpayers having a net taxable income of up to EUR 21,000. If the taxable income exceeds EUR 21,000 per year, the tax benefit is reduced gradually;

  • the taxpayer whose taxable net income is higher than EUR 81,000 is not entitled to benefit from the tax credit;

  • the tax reduction for loans for one’s own dwelling contracted before 2016 is maintained, but the eligible (maximum) amounts for the tax reduction are no longer subject to any indexation;

  • the tax reduction applies on the basis of certificates established by the financial institution (Implementation Decree of 24 November 2016 published in the Official Gazette of 5 December 2016)

 

Tax credit related to loans for small and medium-sized enterprises and independents

Under the Decree of 28 April 2016 (Official Gazette of 10 May 2016), the Walloon Parliament introduced a tax credit with respect to loans granted by private individuals to small and medium-sized enterprises (i.e. SMEs) and self-employed with registered office located in the Walloon Region, after 1 January 2016.

Taxpayers will be entitled to a tax credit provided that several conditions with respect to the debtor, creditor and loan are fulfilled. The loans should be granted by individuals (not companies or independents) to either SMEs or self-employed for a period of four, six or eight years. Furthermore, the loans should be used solely by SMEs or self-employed in the scope of their business activities. Employees of the SMEs cannot benefit from the tax credit in the case where they grant a loan to the company employing them.

For the first 4 years, the tax credit will amount to 4% of the entire loan amount granted per taxable period per taxpayer. For the following years, it is reduced to 2.5% of this amount. The qualifying loan amount will be capped at EUR 100,000.00 for the debtor and EUR 50,000.00 for the creditor.

The implementation Decree of 22 September 2016 (Official Gazette of 6 October 2016) lays down the entry into force at the date of 30 September 2016 and the implementing rules of this regime.

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Indirect taxes

Latest update: 26 October 2017

 

The draft Act providing miscellaneous provisions on economic recovery, social cohesion, fight against tax fraud and modernization of recovery proceedings no longer contains the possibility for landlords to apply VAT on immovable lettings. The Government announced that for now the reform would be limited to the taxation of lettings of storage places. Rules would be relaxed as from 1 January 2018 (through a circular).

Remark : The above announced measure will have to be formalised in a circular and is then subject to change.

VAT

New measures enacted by the Program Act of 1 July 2016 (Official Gazette of 4 July 2016)

  • As from 1 August 2016, online betting and gambling activities will no longer be exempt from VAT. Lotteries however remain VAT exempt even if offered online.
  • As from 1 July 2016, taxable natural persons active in the sharing economy will fall within a specific VAT system if the turnover per calendar year does not exceed the amount of EUR 5,000 and provided certain other conditions are met.
  • A new provision gives the VAT authorities access to invoices, books, and other documents archived in the ‘cloud’.
  • In view of recent Belgian case law, a provision will be added to the VAT Code to ‘clarify’ that in the context of applying the extended 7-year statute of limitation, the receipt of the information coming from foreign jurisdictions, legal actions or new convincing factors may take place both before and after the expiry of the standard limitation period of 3 calendar years. The text of the law is further amended so that all kinds of international exchange of information are covered, such as for instance multilateral treaties and Tax Information Exchange Agreements (TIEAs).
  • A simplified and standardised VAT procedure is introduced for the seizure of assets (i.e. seizure of a third party’s belongings).

 

Measures enacted by the Acts of 6, 18 and 26 December 2015 and Royal Decrees of 14 December and 26 January 2016

The applicable VAT rate for the supply of electricity to private individuals has increased from 6% to 21% as from 1 September 2015.

As from 1 January 2016, the following changes are also to be noted:

  • the VAT rate applicable to the (non-exempt) sale of, construction works related to and (non-exempt) leasing of school buildings decreases from 21% to 6%;
  • the annual turnover threshold for the exemption for small businesses has been raised to EUR 25.000;
  • the invoice will be re-instated as tax point for VAT purposes. However, for the supply of certain services and the sale of movable goods to public entities, VAT becomes due at the time (partial) payment is received from the public entity;
  •  following the decision in the CJEU case commonly referred to as “Skandia” (C-7/13), article 19bis of the Belgian VAT Code was considered redundant. Therefore this article, being an abuse provision against so-called ‘channelling’, is abolished.

 

Excise duties

  • The excise duties on coffee, wine, liquors and energy become subject to indexation.
  • Tobacco: the duties on tobacco increase.
  • Diesel: the duties on diesel increase.
  • Sodas: duties on sugared and light sodas are introduced.

 

The reduced VAT rate applicable to the renovation of private dwellings increases from 5 to 10 years (the VAT authorities published a transitional scheme until the end of 2015) as from 12 February 2016.


Other taxes or tax measures

Tax on stock exchange transactions

As from 1 January 2015, the temporary increase of taxes on certain stock exchange transactions has become permanent.

In addition, the tax rate of both secondary market transactions in shares and transactions in capitalisation funds is increased (for secondary market transactions in shares: increase to 0.27% with a maximum of EUR 800, for transactions in capitalisation funds: increase to 1.32% with a maximum of EUR 2,000).

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Fight against fraud

The current fight against tax and social fraud would continue. Additional tax inspectors will be hired and trained by the Government.

In the framework of the budgetary control exercise in March 2015, the following measures in this regard were announced: ‘fiscal amnesty’ (for previously undeclared income), fight against abuse of corporate structures and online fraud, extension of data-mining projects, and better use of information concerning the 183 days rule.

The Belgian Minister of Finance also launched the ‘Plan to Combat Tax Fraud’ in December 2015, sharing new insights on how Belgium will be addressing the outcome of the OECD/G20 project in relation to Base Erosion and Profit Shifting (“BEPS”). A plea for coordinated actions in sync with global, OECD and EU initiatives as opposed to unilateral measures is a recurring theme that glimmers through the entire policy document. 

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Contact us

Patrick Boone
Managing Partner, Tax & Legal Services
Tel: +32 (0)2 710 4366
Email

Philippe Vanclooster
Partner
Tel: +32(0) 3 259 3288
Email

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