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.
Old corporate income tax rate
New corporate income tax rate
SMEs (first bracket of EUR 100.000)
Former crisis tax
New crisis tax
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.