Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Companies are subject to Belgian corporate income tax if they meet all three of the following conditions:
- they are validly incorporated and have a separate legal personality;
- they carry out a business or are engaged in profit-making activities; and
- they have their registered office, main establishment or place of management in Belgium.
Corporate income tax is levied on the total worldwide profit realised by a company, including distributed dividends. The profits are taxed on an accruals and not a receipts basis.
Contrary to, for example, the Netherlands, Belgium does not recognise the concept of a separate fiscal balance sheet. The taxable income of resident companies is, therefore, determined on the basis of the financial accounts and the accounting rules, unless the tax laws provide otherwise (such as for transfer pricing adjustments).
In general, all business expenses are tax-deductible to the extent that they are borne in order to obtain or preserve taxable income; however, special tax provisions limit the tax deductibility of certain items, such as fines, certain social benefits granted to employees, 31 per cent of restaurant expenses, some regional taxes, up to 50 per cent of car expenses (depending on the carbon dioxide emission factor of the car), a 40 per cent portion of the fringe benefit related to company cars (including fuel cards), granted non-at arm's length benefits, clothing costs, capital losses on shares and write-downs on shares. In addition, the corporate income tax paid constitutes a non-deductible item. Please note that the (formula that determines the) percentage of tax deductibility for car expenses will be amended as of 2020 (i.e., tax assessment year 2021 relating to the taxable period starting at the earliest on 1 January 2020).
The depreciation of establishment costs, tangible assets and intangible assets constitutes a tax-deductible item to the extent that it is necessary and corresponds to a decline in value that actually occurred during the taxable period. Belgian tax law currently allows the use of both straight-line depreciation and declining-balance depreciation. However, the latter method can only be used for certain assets and cannot be applied to intangible assets, for example. The double declining depreciation method is abolished as of 1 January 2020. Goodwill acquired from third parties may be depreciated (as a rule, over five years).Minimum taxable basis
A minimum taxable basis has been introduced as of 1 January 2018. The deduction of certain tax attributes is limited to 70 per cent of the remaining taxable result exceeding €1 million. In other words, a minimum taxable basis equal to 30 per cent of the remaining taxable result that exceeds this amount is introduced.
The minimum taxable basis is calculated as follows: first, the result of the taxable period is determined under the normal rules. Then, in the following order, dividends received deduction of the year, patent income deduction, innovation income deduction, investment deduction and (as of 2019) the group contribution pursuant to the tax consolidation regime are deducted (i.e., 'fully deductible tax attributes'). If after the above-mentioned deductions the remaining taxable basis exceeds €1 million, the following deductions can only be applied to 70 per cent of the taxable basis exceeding €1 million, again in the following order: the current year notional interest deduction, carry-forward dividends received deduction, carry-forward innovation income deduction, carry-forward tax losses, and finally, carry-forward notional interest deduction. The excess can be carried forward to the following years. An exception to the minimal taxable basis exists for carry-forward tax losses incurred by start-up companies that qualify as small or medium-sized enterprises (SMEs) during the first four taxable periods.Capital and income
In Belgium, there is no separate capital gains tax. Capital gains are, therefore, taxed as ordinary profits.
Unrealised capital gains that are recorded on certain assets remain untaxed if they are booked in a special blocked reserve account on the liabilities side of the balance sheet. Note, however, that unrealised capital gains on stocks and orders are taxable.
Capital gains realised by a company upon the sale of any asset are, in principle, included in the taxable basis of the company. Two exceptions must be mentioned in this respect.
First, capital gains realised on shares qualifying for the participation exemption regime (see below) are fully exempt from corporate income tax.
Second, it is possible to apply a deferred taxation regime on capital gains realised on fixed tangible and intangible assets that, at the time of the disposal, have been owned by the company for at least five years already. It must be noted that intangible assets qualify only under the deferred taxation regime if they have been depreciated. Consequently, capital gains realised on, for example, a self-established client base cannot benefit from the deferred taxation.
The capital gains realised on the qualifying assets will only benefit from the deferred taxation if the entire selling price (thus, not only the capital gain realised) is reinvested in intangible or fixed tangible assets that are used in the European Economic Area and that can be depreciated (thus, for example, not in land).
The total reinvestment must, in principle, be implemented before the end of the third year following 1 January of the year during which the assets were sold. It is important to note that the term for reinvestment is increased to five years in the case of reinvestment in real estate (other than land), planes or ships.
If the reinvestment is made in qualifying assets and in due time, the capital gain realised is only taxable in proportion to the annual depreciation on the fixed assets in which the reinvestment is made. If the total selling price is not reinvested within the aforementioned terms, the capital gain realised will be taxable in the tax year during which the reinvestment period has expired. As of tax assessment year 2019 (related to a taxable period starting at the earliest on 1 January 2018), this will equally be the case if the capital gain becomes taxable prior to the expiry of the reinvestment period if no reinvestments were (fully) made. In this respect, an anti-abuse provision is introduced as well in order to avoid that a tax-free reserve for spread taxation of capital gains is recorded in order to benefit from the new lower tax rates (that are introduced as of 2018 – see rates below)) upon reversal at a later stage: a reversal of such reserve that is recorded during a taxable period that starts at the earliest on 1 January 2017 and ends at the latest on 30 December 2020 will be taxed at the tax rate that was applicable when the reserve was recorded if (1) the capital gain becomes taxable prior to the expiry of the reinvestment period without the required reinvestments being made or (2) the capital gain becomes taxable because the company did not reinvest in a timely manner. Furthermore, interest for late payment will be due.Losses
Losses incurred by a Belgian company can be carried forward without limitation. They cannot, however, be carried back.
Losses carried forward may be proportionally reduced (or even cancelled) if the company is involved in a tax-neutral restructuring (merger, spin-off, etc.).
The losses carried forward will, moreover, be cancelled upon a change in control over the company that does not correspond to legitimate financial or economic needs. For these purposes, 'control over a company' is defined as the ability to exercise a decisive influence on the appointment of the majority of the directors or on the orientation of the company's policy.
Even if there is a change in control, the losses carried forward will not be cancelled if it can be established that the change in control corresponds to legitimate financial or economic needs. With respect to the presence of the latter, one can request an advance ruling from the Belgian tax administration. From a number of published advance rulings, one can deduct that legitimate financial or economic needs will be deemed present if the following conditions are (cumulatively) met:
- the change in control forms part of an (international) reorganisation of the group that has the objective of rationalising or simplifying the group structure in view of the development of new activities or the strengthening of the market position; and
- the transactions envisaged (causing the change in control) are aimed at ensuring the continued existence of the company, maintaining the present employment, and continuing or even expanding the present activities of the company.
The crucial criterion in this discussion seems to be the maintaining of the activities and the employment after the change of control.
Tax losses incurred by a PE of a Belgian company or with respect to assets of such a company located abroad and of which the income is exempt in Belgium by virtue of a double tax treaty can no longer be deducted from the Belgian taxable basis as of tax assessment year 2021 (relating to the taxable period starting at the earliest on 1 January 2020). The tax treatment of these losses in the foreign state is irrelevant. An exception is made for definitive losses within the EEA. Definitive losses are losses that exist in a certain Member State upon the final termination of the activity or possession of the asset if these losses have not been deducted in that state and cannot be deducted by another tax subject in that state. If an activity is restarted within three years after the termination, there is a recapture of the losses deducted from the Belgian taxable basis.Capital losses
Losses originating from the transfer of assets are first set off against other positive income. If these losses exceed the positive income, they are treated as ordinary losses.
Capital losses on shares are, in principle, not tax-deductible. The only exception to this rule is that the loss incurred on the liquidation of a company in which shares are held remains deductible up to the loss realised on the fiscal paid-up share capital represented by those shares. The scope of application of this tax non-deductibility is limited to capital losses realised on shares. Capital losses realised on other securities (e.g., bonds) or derivatives (e.g., options) are fully tax-deductible.Rates
The standard corporate income tax rate is 29.58 per cent and will be reduced to 25 per cent in 2020. SMEs benefit from a reduced rate of 20.4 per cent on the first tranche of €100,000 taxable income as of 2018 (further decreased to 20 per cent by 2020). The definition of 'SME' for the purpose of the reduced rate refers to companies that fulfil all of the following conditions:
- in accordance with Article 15, Section 1-6 of the Belgian Companies Code, the company may not exceed more than one of the following criteria (1) annual average number of 50 employees; (2) annual turnover of €9 million (excluding VAT); and (3) a total balance sheet of €4.5 million (if applicable to be determined on a consolidated basis);
- the company pays a minimum annual remuneration of €45,000 (or, if lower, at least the amount of the taxable income of the company), to at least one company manager that is a natural person;
- more than 50 per cent of the company's shares are held by natural persons;
- the company is not an investment company; and
- the company does not hold participations for an acquisition value that exceeds 50 per cent of either the revalued paid-up capital or the paid-up capital, taxed reserves and recorded capital gains (participations of at least 75 per cent being excluded for the calculation).
Federal taxes, such as corporate income tax, are handled by the Federal Public Service Finance. Companies must file their corporate income tax return with the tax office responsible for the area in which they are established. In principle, tax returns must be filed by the date mentioned on the official return forms that are sent to each company. The filing period may not be shorter than one month following the approval of the accounts, nor longer than six months following the end of the financial year. However, the tax administration may deviate from these time limits. In practice, the date mentioned on the forms is often nine months after the closing of the financial year. Corporate income tax returns must be filed using an online application, BizTax. Paper returns are no longer allowed.
Companies must, in principle, estimate their corporate income tax liability during the financial year and must pay the tax in advance. If insufficient tax is paid in advance, a tax increase is applied.
The statute of limitations is three years. In the event of (alleged) fraud, it is extended to seven years. Even longer audit and assessment periods are possible, for instance in case the tax authorities spontaneously receive information from foreign tax authorities. Tax audits may take place within these terms, but there is no regular routine audit cycle. A tax audit is in most cases preceded by a request for information. The taxpayer must, in principle, reply within one month to such request for information, but extensions are often granted.
If the tax administration wants to change the filed tax return upon a tax audit, it must send a notice of change of tax return. The taxpayer can reply to this notice within one month. If the tax administration does not agree with the position taken by the taxpayer and intends to assess the company on a modified tax return, it must send another notification by registered mail to the taxpayer.
If a taxpayer disagrees with an assessment imposed after a tax audit, it may file a notice of objection with the regional director. This notice, which must include specific grounds for the objection, must be filed within six months following the date on which the assessment was sent. If the regional director fails to take a decision within six months, the taxpayer may challenge the assessment before court. If the taxpayer waits for the decision of the director, or if the director takes a negative decision within the time frame mentioned above, the taxpayer can still challenge this decision before court within three months after notice of the director's decision was given to the taxpayer.
In order to stimulate taxpayers to fulfil their duties in the field of corporate income tax compliance, no deduction of current year losses and deferred tax assets (e.g., carried forward tax losses) is allowed against a taxable basis determined as a result of a tax audit. An exception is made for the participation exemption for dividends received during the same taxable period. The new rule does not apply for infractions committed negligently and for which no tax increases are applied. In an M&A environment, an increased need for thorough due diligence may therefore arise. The rule applies as of tax assessment year 2019 (relating to the taxable period starting at the earliest on 1 January 2018).Tax grouping
The taxable income of resident companies is determined on an individual basis. Belgian tax law does not yet provide for a system of consolidation for corporate income tax purposes.
A CIT consolidation regime will, however, be introduced as of assessment year 2020 (relating to the taxable period starting at the earliest on 1 January 2019) and will allow the transfer by a Belgian taxpayer of taxable profits to another loss-making qualifying taxpayer via a group contribution agreement. Certain taxpayers that benefit from a special tax regime are excluded. A qualifying taxpayer is a Belgian company or a foreign company established in the EEA that:
- is the parent company, subsidiary or sister company of the Belgian taxpayer owning at least 90 per cent of the capital. In the case of sister companies this implies that a parent company should own 90 per cent of the capital of both the Belgian taxpayer and the qualifying taxpayer; and
- is affiliated to the Belgian taxpayer for an uninterrupted period of at least five taxable periods (including the current one). Provisions have been introduced that determine the consequence of a restructuring in which one (or both) of the parties to the agreement was involved.
Tax consolidation is achieved via a group contribution agreement that should be filed together with the income tax return. Parties to the agreement are the Belgian taxpayer and either a Belgian qualifying taxpayer or the Belgian permanent establishment (PE) of a qualifying foreign taxpayer. All the following conditions should be respected:
- the agreement relates to one and the same assessment year;
- the agreement mentions the group contribution. The (loss-making) qualifying Belgian taxpayer or the Belgian PE of a qualifying foreign taxpayer should include the amount of the group contribution in the income tax return as a profit of the taxable period concerned; and
- the Belgian taxpayer (that transfers its taxable profits) pays a contribution to the loss-making qualifying taxpayer in the amount of the tax saving resulting from the group contribution. This payment is not tax deductible in the hands of the payer and not taxable in the hands of the payee (i.e., the payment is fiscally neutral).
In addition, Belgium has an optional system of value added tax (VAT) grouping. No VAT is charged between the members of a VAT group, as they are considered as a single taxable person. This system provides interesting perspectives for optimising the VAT position.ii Other relevant taxesValue added tax
VAT is levied at each stage in the production chain, and on the distribution of goods and services. The tax base is the total amount charged for the transaction excluding VAT, with certain exceptions. Owing to deductions in previous stages of the chain, VAT is not cumulative. Every taxable person is liable for VAT on their turnover (the output tax), from which the VAT charged on expenses and investments (the input tax) may be deducted. If the balance is positive, tax must be paid to the tax authorities; if the balance is negative, a refund is received. The tax paid by the ultimate consumers of the goods or services is not tax-deductible. The tax is based on the VAT rate applicable to the VAT-exclusive price of the goods or services received.
The general VAT rate is 21 per cent. A reduced rate of 6 per cent applies to the supply, import and acquisition of foodstuffs, some real estate services and medicines. A reduced rate of 12 per cent applies to certain goods and services, such as social housing and certain restaurant services. An exemption applies to the Intra-Community supply of goods or to the export of goods out the EU. In business-to-business relationships, goods destined for another EU Member State will be subject to VAT in the EU Member State to which they are transported.Capital tax
In principle, the contribution of cash or other assets to a Belgian company is only subject to a fixed fee of €50.Net wealth tax
Belgium does not levy a net wealth tax.Transfer taxes
Transfer tax is levied on the transfer of ownership of immovable property located in Belgium. The tax is levied at a rate of 10 per cent or 12.5 per cent, depending on the location of the property. The transfer of new immovable property is subject to VAT and not to transfer tax. The sale of shares of a company owning Belgian real estate is in principle not subject to transfer tax.Securities tax
Transfers of public securities for consideration that are concluded or executed through a professional intermediary, whether or not established in Belgium, are subject to Belgian stock exchange tax. The standard rate per party amounts to 0.35 per cent, which is levied on the purchase price (brokers' fees excluded) if due by the transferee and on the sales price (brokers' fees included) if due by the transferor. The standard rate applies to all types of securities that do not qualify as, among others, bonds or shares held in real estate companies (0.12 per cent) or a buy-back of capitalisation shares in investment companies (1.32 per cent)). The total amount of the securities tax, per party and per transaction, is, however, capped at €1,600.