On 22 December 2017, the Belgian parliament approved the Corporate Income Tax Reform Act that includes among others a reduction of the corporate income tax rate, a minimum taxable basis, a reform of the holding regime and a tax consolidation regime. The Income Tax Reform Act was published in the Belgian Official Gazette on 29 December 2017. Some of these new measures are briefly described hereunder.
For a complete and more detailed overview of the new measures please refer to our Corporate Income Tax Reform brochure via this link.
Note that several provisions of the Corporate Income Tax Reform Act might be retroactively adjusted. For instance, several amendments relating to, among others, the correct implementation of the EU Anti Tax Avoidance Directives have already been submitted. Furthermore, some of the tax reform measures will be further developed through Royal Decree.
Nominal tax rate reduction: The nominal corporate income tax (CIT) rate is reduced from 33.99% to 29.58% in 2018 and to 25% in 2020.
Under certain conditions, SMEs can benefit from a reduced rate of 20.4% on the first tranche of €100,000 taxable income as of 2018 (further decreased to 20% by 2020). A minimum annual remuneration of at least €45,000 (or the amount of the result of the taxable basis if lower) is required among others.
Minimum taxable basis: 30% of the remaining taxable result exceeding a first tranche of €1 million will qualify as a minimum effective taxable basis.
The minimum taxable basis will be determined as follows:
- The result of the taxable period (i.e. the adjusted accounting result including the disallowed expenses) is determined under the normal rules. Then, in the following order, dividends received deduction, patent income deduction, innovation income deduction, investment deduction and (as of 2019) the group contribution under the consolidation regime are deducted.
- If after those deductions, the remaining taxable resultexceeds €1 million, the following deductions can only be applied to 70% of the remaining taxable result exceeding €1 million, in the following order: the current year notional interest deduction, the carry-forward dividends received deduction, the carry-forward innovation income deduction, the carry-forward losses, and finally, the carry-forward notional interest deduction.
The excess deductions are carried forward to the following years. An exception to the minimal taxable basis exists for carry-forward tax losses incurred by start-up companies during the first four taxable periods.
Notional interest deduction: The notional interest deduction will no longer be calculated on the company’s total amount of (qualifying) net equity at the end of the preceding financial year but will solely be calculated on the incremental risk capital. The ‘incremental risk capital’ equals 1/5 of the positive difference between the net equity at the end of the year concerned and the net equity at the end of the fifth preceding year.
Exemption for dividends received: The Belgian participation exemption regime for dividends received by a Belgian company is now a full exemption (it used to be a 95% exemption).
Exemption for capital gains on shares: The minimum tax of 0.412% on capital gains on shares qualifying for the participation exemption that was applicable to non-SMEs, is abolished. On the other hand, the conditions to benefit from the exemption for capital gains on shares are aligned with the conditions for applying the dividends received deduction. The reform thus extends the minimum participation threshold requirement of either 10% or €2.5 million acquisition value to the participation exemption for capital gains on shares.
EU Anti-Tax Avoidance directives I and II: The ATAD I of 12 July 2016 (as amended by ATAD II of 29 May 2017) is transposed in Belgium law by implementing measures relating to:
- Neutralising hybrid mismatches, i.e. mismatches often due to the different characterisation of either payments or entities (in countries within the EU and third countries). Entry into force in 2019
- Controlled Foreign Companies. Entry into force in 2019;
- Exit taxation, i.e. whenever a company’s seat or assets are transferred to another country. Entry into force in 2019; and
- An interest deduction limitation: interest expenses will be deductible only up to the higher of 30% of the EBITDA for tax purposes or € 3 million. Entry into force in 2020.
Separate levy: Each Belgian company that does not pay a minimum annual remuneration of the lower of €45,000 or the result of the taxable period to one of its individual managers will have to pay a separate tax equal to 5% (10% as of 2020) on the deficit. This separate tax does not apply to SMEs during their first four tax periods and is tax deductible. For affiliated companies of which at least half of the managers are the same people, the total amount of the remuneration has to amount to €75,000 and the separate tax would be due by the company with the higher taxable basis.
Withholding tax on reimbursements of paid-up capital: as of 1 January 2018, the reimbursement of capital is deemed to derive proportionally from paid-up capital, taxed reserves (incorporated and non-incorporated into capital) and exempt reserves incorporated into the capital. The reduction of capital is only allocated to paid-up capital in the proportion of the paid-up capital in the total capital increased by certain reserves. The portion allocated to the reserves is deemed to be a dividend and becomes subject to withholding tax (if no exemption applied). This rule also applies to capital reductions performed by foreign companies having a Belgian shareholder.
Tax deductible provisions: Provision for risks and charges are only tax exempt if they result from a legal, regulatory or contractual obligation at year-end closing. Reversals of provisions that are recorded between 2017 and 2020 will be taxed at the CIT rate that was applicable when the provision was recorded. This anti-abuse provision also applies to capital gains which are not reinvested timely.
Impact of tax audit: The deduction of current year losses and deferred tax assets (e.g. carry-forward tax losses; with an exception for dividends received deduction of the year) is not allowed against a taxable basis determined following a tax audit. This rule does however not apply for infractions committed negligently and for which no tax increase is applied.
Tax consolidation: As of 2019, Belgium will introduce a CIT consolidation regime which allows the deduction by a Belgian taxpayer of a tax loss incurred in Belgium by another qualifying taxpayer via a group contribution agreement. The Belgian taxpayer that can offset the transferred tax loss needs to pay a compensation to the loss making qualifying taxpayer in the amount of the tax saving resulting from the group contribution.
This compensation will not be tax deductible in the hands of the paying taxpayer and non-taxable in the hands of the receiving taxpayer.
PE losses: As of 2020, tax losses realised in permanent establishments of Belgian companies or with respect to assets of such companies located abroad and of which the income is exempted in Belgium by virtue of a double tax treaty cannot be deducted from the Belgian taxable basis. An exception is made for permanent losses within the EEA.
Other measures: Other measures include the temporary increase of the investment deduction for SMEs to 20%, the extension of the wage withholding tax exemption for scientific research to staff with a (scientific) bachelor’s degree, the abolishment of the investment reserve regime, reform of the late payment interest for tax debts and tax receivables, the abolishment of the double declining depreciation method and the pro rata depreciation for tax purposes (by 2020), the introduction of a notion of market interest rate linked to the MFI interest, the possible conversion of exempted reserves into taxed reserves at a reduced rate of 15% or 10% (by 2020 and 2021), an increased penalty rate of 6.75% in case of insufficient prepayments, new rules for the deduction of company car costs (by 2020), a tax rate on ‘secret commissions’ of 100% in all cases (by 2020), and all administrative fines will no longer be tax deductible, even if they relate to deductible taxes (by 2020).