The Belgian Corporate Income Tax reform 2018-2020
Belgium enacted a major corporate income tax reform at the end of last year. On 22 December 2017, the Belgian parliament approved the Corporate Income Tax Reform Act of 25 December 2017. The Corporate Income Tax Reform Act was published in the Belgian Official Gazette on 29 December 2017.
However, the corporate income tax reform Act was rushed through Parliament and was therefore in need of some improvement. Various measures have therefore been retroactively modified via the Act of 30 July 2018, which was published in the Official Gazette on 10 August 2018 (hereinafter also referred to as "Repair Act"). Some of the tax reform measures will still need to be further developed through Royal Decree.
The implementation date of the numerous measures varies. Most of the measures will take effect as of 2018. Other measures will only take effect as of 2019 or 2020. A general overview is depicted in the annex.
The details of the entire corporate income tax reform are outlined below.
Corporate Income Tax (`CIT') rate
Nominal CIT rate Reduced CIT rate Corporate Income Tax base Provision for risks and charges Depreciations Matching principle Tax deductibility of expenses Foreign permanent establishment Investment deduction Notional Interest Deduction Limitation to the deduction of carried forward items resulting in a minimum taxable basis A tax consolidation system Changes to the Belgian holding regime Changes to the tax treatment of capital gains on shares Changes to the tax treatment of dividends received/distributed Increase for insufficient prepayments Withholding tax Capital reimbursements Dividend distributions Separate assessments Separate assessment in case of insufficient managers' remuneration Tax on secret commission fee Procedural changes to ensure compliance Minimum taxable basis in case of no or late corporate income tax return filing Effective payment on tax audit adjustments Late payment and moratorium interest Implementation of the Anti Tax Avoidance Directives Hybrid mismatches Controlled Foreign Company-legislation Exit taxation and step-up Interest limitation rule Various other amendments Annex
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1.Corporate Income Tax (`CIT') rate
1.1 Nominal CIT rate
The nominal CIT rate will gradually be reduced from 33.99% to 29.58% in 2018 and to 25% in 2020. Small and medium sized enterprises (SME's) benefit from a reduced rate of 20.4% on the first tranche of EUR 100,000 taxable income as of 2018 (further decreased to 20% by 2020). This amendment can be summarized as follows:
Nominal CIT rate
SME's taxable income EUR 100,000
SME's taxable income > EUR 100,000
1.2 Reduced CIT rate
Companies with certain tax-exempt reserves will be temporarily (during assessment years 2021 and 2022) encouraged to convert these amounts into taxed reserves at a reduced CIT rate of 15% (further reduced to 10% subject to a reinvestment condition ). The qualifying tax-exempt reserves include for example the investment reserve of 1982, the investment reserve that existed at the end of the last taxable period prior to 1 January 2017 to the extent the investment period has expired and the reinvestment condition was fulfilled and the exempt reserve in relation to the 20% cost deduction permitted above the 100% deduction that existed at the end of the last taxable period prior to 1 January 2017. The measure applies as a minimum taxable basis.
The special exit tax rate for Belgian REITs and SREIFs is reduced to 12.75% for transactions that occur as of 1 January 2018 and will be increased again to 15% for transactions that occur as of 1 January 2020.
2.Corporate Income Tax base
2.1 Provision for risks and charges
The definition of `SME' for purposes of the reduced rate is adjusted as well. A SME is now defined as a company that fulfils all of the following conditions:
In accordance with article 15, 1-6 of the Belgian Companies Code, the company may not exceed more than one of the following criteria (a) annual average number of 50 employees; (b) annual turnover of EUR 9,000,000 (excl. VAT); (c) a total balance sheet of EUR 4,500,000 (if applicable to be determined on a consolidated basis).
The company pays a minimum annual remuneration of EUR 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.
The company's shares are held for more than 50% by natural persons.
The company is not an investment company. The company does not hold participations for an
acquisition value that exceeds 50% of either the revalued paid-up capital or the paid-up capital, taxed reserves and recorded capital gains (participations of at least 75% being excluded for the calculation).
A provision for risks and charges that is recorded as of assessment year 2019 (relating to taxable periods starting the earliest on 1 January 2018) will only be treated as a tax free provision if the risks and charges result from a contractual, legal or regulatory obligation (other than accounting regulations). Provisions that are recorded on a voluntary basis, for example for maintenance costs, are disallowed for tax purposes. The new rule also applies to increases of existing provisions.
In order to avoid that tax-free provisions are recorded in order to benefit from the new lower tax rates upon reversal at a later stage, an anti-abuse provision is introduced. 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. In this respect, the oldest amounts of the provision are deemed reversed first.
For corporate income tax purposes, the double declining depreciation method is abolished.
Furthermore, the obligation to depreciate assets on a pro rata temporis basis during the year of acquisition is extended to SME's.
Finally, SME's are given the possibility to either deduct the ancillary costs related to the acquisition of tangible or intangible fixed assets at once or opt for depreciation but if they opt for the latter, they will be obliged to depreciate these costs in line with the asset to which the ancillary costs relate (as it is already the case for non-SME's).
These changes apply to the assets acquired or put in place as from 1 January 2020.
2.3. Matching principle
The matching principle is introduced in tax law. Expenses relating to a subsequent tax year will consequently only be deductible in that following tax year. This implies for example that prepaid rent can no longer be deducted in the year of payment to the extent the rent relates to the subsequent years. The rule applies to assessment year 2019 relating to the taxable period starting the earliest on 1 January 2018.
2.4. Tax deductibility of expenses
Various changes are introduced regarding the tax deductibility of expenses. Unless indicated otherwise, the new rules apply as of 2020 (to tax assessment year 2021 relating to the taxable period starting the earliest on 1 January 2020). The rules can be summarized as follows:
Deductibility of administrative fines and penalties imposed by the government will be disallowed even if these fines are not of a criminal nature or relate to a deductible tax.
The tax deductibility of car expenses will be amended as follows: The (formula that determines the) percentage of tax deductibility will be: -- For vehicles with CO2-emissions equal to or greater than 200 g/km: 40%. -- For other vehicles: 120% - [0.5% x coefficient x CO2 g/km] with a maximum of 100% and a minimum of 50%. The coefficient will equal 1 for diesel vehicles, 0.95 for petrol vehicles and 0,9 for CNG vehicles. For plug-in hybrid vehicles that have a battery with an electric energy capacity of less than 0,5 Kwh per 100 kg of the vehicles weight, the CO2 emission will be ascertained based on the non-hybrid equivalent with the same fuel. If there is no equivalent, the CO2 value will be multiplied by 2.5.
The tax deductibility of fuel expenses will no longer be determined at a rate of 75% but will be aligned with the regime applicable to the other car expenses.
The 120% deductibility of costs is reduced to 100% with respect to the organization of common transportation for employees, security costs and company bicycles.
The tax on secret commission will no longer be tax deductible.
The separate assessment resulting from insufficient remuneration paid to at least one company manager is tax deductible. The rule applies to tax assessment year 2019 relating to the taxable period starting the earliest on 1 January 2018.
The discount for debt relating to non-depreciable fixed assets recorded as a cost will not be tax deductible to the extent the purchase price is lower than the actual value plus the discount.
Interest is only deductible to the extent that the interest rate does not exceed the market rate. For non-mortgage backed loans without maturity date the term `market rate' is now defined as the MFI interest rate announced by the National Bank of Belgium for loans up to EUR 1,000,000 with a variable rate and initial rate fixation up to one year issued to non-financial companies concluded in the month of November of the calendar year before the calendar year to which the interest relates, increased by 2.5%. Please note that this interpretation will equally apply to the 1:1 thin capitalization rule. In addition, it is clarified that the 1:1 thin capitalization rule also applies to interests on outstanding receivables (recorded as a current account). The new rules apply to interest that accrue after 31 December 2019.
2.5. Foreign permanent establishment (`PE')
Changes to the PE-concept The PE-concept under national law has been extended so as to include PE's created via the commissionaire (or similar) arrangements. This adjustment is in line with the OECD report on the prevention of the artificial avoidance of permanent establishment status (action 7). Please note that in the framework of the Multilateral Convention (MLI), Belgium has for the time being chosen to reserve the right for the "commissionaire PE" definition not to apply to its Covered Tax Agreements.
Changes to the tax treatment of foreign PE's losses Tax losses incurred by a PE of a Belgian company or with respect to assets of such a company located abroad and of
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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 the earliest on 1 January 2020). The tax treatment of these losses in the foreign state is irrelevant. An exception is made for so-called 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.
If a double tax treaty does not provide for an exemption of foreign PE profits but does foresee a reduction of the Belgian taxes, the foreign PE losses can be deducted to the same extent. This is the case for the tax treaties that Belgium concluded with the Isle of Man, Uganda and the Seychelles. Only the latter treaty has currently entered into force.
2.6. Investment deduction
A temporary increase of the base rate of the investment deduction for SMEs will apply. The investment deduction is a tax deduction that comes on top of the deduction of the depreciation of eligible assets. In order to encourage investments by SME's, the base rate would be increased to 20% calculated on the acquisition or investment value of fixed assets acquired or created between 1 January 2018 and 31 December 2019 by SME's.
2.7. Notional Interest Deduction (`NID')
company claims a tax deduction for interest payments on this loan. In addition, it is foreseen that the contribution of capital by or the fiscal value of a receivable towards a non-resident taxpayer or foreign PE that is established in a country with which Belgium does not exchange information is deducted from the risk capital unless the taxpayer demonstrates that the transaction can be supported by financial or economic motives.
The NID rate remains unchanged. The rates applicable for assessment year 2019 are 0.746% for non-SME's and 1.246% for SME's.
Example: existing company (taxable period corresponds to financial calendar year):
Risk Capital (RC) 2,500
2014 2015 2016 2017 2018 Determination of NID for FY 2018 RC at the beginning of 2018 RC at the beginning of the 5th preceding taxable period Positive difference NID base (1,200 x 1/5) NID (240 x 0.746%)
2,000 2,200 3,000 3,500 3,700
2,500 1,200 240 1,79
As of assessment year 2019 (relating to taxable periods starting the earliest on 1 January 2018), the currently existing NID system, which is calculated on the basis of the adjusted accounting equity (so-called `risk capital') at the end of the preceding taxable period, is reformed to a system in which NID is only granted with respect to an average five-year increase of the risk capital. The equity base to calculate the NID is equal to 1/5th of the positive difference between (a) the risk capital at the beginning of the taxable period and (b) the risk capital at the beginning of the fifth preceding taxable period. This implies that no NID can be applied if the difference is negative. Adjustments during the taxable period are not taken into account anymore.
Please note that the Repair Act introduces several new anti-abuse provisions. First, a capital contribution by an affiliated company will be excluded from the risk capital if the contribution was financed with a loan and the affiliated
Example: newly incorporated company (taxable period corresponds to financial calendar year):
FY 2013 2014 2015 2016 2017 2018 Determination of NID for FY 2018 RC at the beginning of 2018 RC at the beginning of the 5th preceding taxable period Positive difference NID base (3,700 x 1/5) NID (740 x 0.746%)
Risk Capital (RC) 0 0 0 0 0
0 3,700 740 5,52
2.8. Limitation to the deduction of (mainly) carried forward items resulting in a minimum taxable basis
The reform limits the deduction of certain tax attributes to 70% of the remaining taxable result exceeding EUR 1,000,000. In other words, a minimum taxable basis equal to 30% of the remaining taxable result that exceeds this amount is introduced.
2.9. A tax consolidation system
A CIT consolidation regime is introduced as of assessment year 2020 (relating to the taxable period starting the earliest on 1 January 2019) which allows 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.
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 (see 2.9) are deducted (i.e. `fully deductible tax attributes'). If after the above mentioned deductions, the remaining taxable basis exceeds EUR 1,000,000, the following deductions can only be applied to 70% of the taxable basis exceeding EUR 1,000,000, 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 SME during the first four taxable periods.
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 and whereby the capital is owned for at least 90%. In case of sister companies this implies that a parent company should own 90% 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 years. 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 of a qualifying foreign taxpayer. All the following conditions should be respected:
Items carried forward (Mio EUR) Tax losses carried forward NID carried forward
Calculation minimum taxable basis (Mio EUR) Remaining taxable result after deduction of the `fully deductible tax attributes' Maximum allowed utilization (1,000 + (5,500-1,000) x 70%)
Minimum taxable basis (30% x (5,500-1,000))
Items carried forward to the following years (Mio EUR) Tax loss carried forward NID carried forward
Company A 6,000 1,000
5,500 4,150 1,350
The agreement relates to one and the same assessment year.
The agreement mentions the group contribution. The amount of the group contribution is unlimited (and can thus exceed the loss incurred by the qualifying Belgian taxpayer or a Belgian permanent establishment) but the recipient cannot deduct the so-called tax deduction such as for example the dividend received deduction, carried forward tax losses and the notional interest deduction nor can foreign withholding taxes be credited against this amount.The (loss-making) qualifying Belgian taxpayer or the Belgian permanent establishment 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.
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).
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No tax consolidation Taxable result Tax (25%) Tax loss carried forward Tax consolidation Taxable result Group contribution (determined in group contribution agreement) Taxable result (via correction in the corporate income tax return) Tax (25%) Effective group contribution payment from B to A (fiscally neutral)
Company A -2,000 0 2,000
0 0 500
Company B 5,000 1,250 0
5,000 -2,000 3,000
3.Changes to the Belgian holding regime
3.1. Changes to the tax treatment of capital gains on shares
The conditions to benefit from the exemption for capital gains on shares are aligned with the conditions for applying the participation exemption (i.e. the dividends received deduction). This implies that the minimum participation threshold requirement of either 10% or EUR 2,500,000 acquisition value is extended to capital gains on shares. To the extent that the participation exemption can only partially be granted, the exemption of the capital gains on these shares will be granted to the same extent.
The minimum capital gains tax on shares of 0.412% that was applicable to non-SMEs qualifying for the participation exemption is abolished.
The current separate tax rate of 25% (to be increased with surcharges) on capital gains that are realised on shares within the one year holding period will be abolished as of 2020 since the standard corporate income tax rate will also equal 25%. For SME's which are eligible for the reduced CIT rate, the rate will however equal 20.4% on the first EUR 100,000 taxable income as of 2018 (20% as of 2020).
The CIT rate for capital gains can now be summarized as follows:
Subject to tax
No Taxation at standard rate
of 29.58% (or 20.40%
for SME's taxable income
As of 2020 Taxation at standard rate of 25% (or 20% for SME's Yes taxable income
One year holding period fulfilled?
As of 2018 Full exemption
No 2018-2019 Taxation at a separate rate of 25.50% (or 20.40% for SME's taxable income EUR 100,000)
As of 2020 Taxation at standard rate of 25% (or 20% for SME's
taxable income EUR 100,000)
3.2. Changes to the tax treatment of dividends received/distributed
As of 2018, the participation exemption regime for dividends received by a Belgian company is increased from 95% to 100%.
As will be described below (see 5.2), an exemption of withholding tax is introduced - provided certain conditions are met - if a Belgian company distributes a dividend to a shareholder having a holding in the capital of the Belgian company of less than 10% but with an acquisition value of at least EUR 2,500,000.
On 17 May 2017, the CJEU has ruled that the Belgian fairness tax (which can become due as a result of a dividend distribution under certain circumstances) is not in accordance with EU law in the specific case where a resident company redistributes dividends in a taxable period following the taxable period in which it received these dividends. On 1 March 2018, the Constitutional Court annulled the fairness tax entirely because it violates the principle of legality and the principle of equality. In general an annulment has retroactive effect. With the exception of the situation where the application of the fairness tax gives rise to a violation of EU law, the Constitutional Court decided to maintain the effects of the annulled act for assessment years 2014-2018 in order to take into account the budgetary and administrative difficulties resulting from the annulment. The abolishment of the fairness tax as was foreseen by the draft Repair Bill but was eliminated in the Repair Act due its annulment in the meantime.
4.Increase for insufficient prepayments
During the taxable period, companies have the possibility to make prepayments on the corporate income tax due. If no or insufficient prepayments are made, the corporate income tax due (as well as the separate assessment in case of insufficient managers' remuneration) will be increased with a non-tax deductible surcharge. For assessment year 2018 the minimum surcharge was set at 2.25% (i.e. 2.25 x 1%). As a result of the tax reform, the surcharge will as a minimum amount to 6,75% (i.e. 2,25% x 3%) as of assessment year 2019. This is because the basic interest rate is increased from 1% to 3%. The increase does not apply for SME's in the first three years following its incorporation.
Example: For the taxable period 2018 (i.e. 1 January 2018 31 December 2018) a company is liable to corporate income
tax in the amount of EUR 100,000. The company did not make any prepayments during this period. The corporate income tax due will be increased with the following amount: 100.000 X 6,75% = 6.750 EUR.
This surcharge can be avoided (or reduced) by making timely prepayments at specific dates.
5.1. Capital reimbursements
Prior to 2018, no withholding tax was due on capital reimbursements. Capital reimbursements decided upon as of 1 January 2018 will be deemed to relate proportionally to taxed reserves and certain tax-free reserves. Withholding tax will then become due on part of the amount of the capital reimbursement that is deemed to relate to these reserves as it qualifies as a dividend distribution (unless a withholding tax exemption applies). Furthermore, this amount also qualifies as a deemed dividend in the hands of a Belgian shareholder. The rule therefore also applies to foreign companies having a Belgian shareholder. The measure is amongst others not applicable to tax-free reserves that are not incorporated in the share capital, the legal reserve up to the minimum required amount, the liquidation reserve and the negative taxed reserve recorded as a result of a corporate restructuring.
The amount of the capital reimbursement that is considered to relate proportionally to taxed and certain tax free reserves should be established as follows:
Step 1: determine the pro rata allocation by virtue of a percentage that is obtained via the following formula:
Share Capital + share premiums assimilated to share capital + amounts subscribed via profit participating
The amount of the numerator + taxed reserves (whether incorporated in the share capital or not) + tax free reserves incorporated in the share capital
Step 2: determine the amount of the capital reimbursement that relates to capital based on the percentage determined in step 1 neither withholding tax nor corporate income tax is due on this amount.
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Step 3: determine the amount of the capital reimbursement that relates to the reserves in the following order: 1. On the taxed reserves incorporated in share capital
withholding tax becomes due (unless an exemption applies) 2. On the taxed reserves not incorporated in share capital
withholding tax becomes due (unless an exemption applies) 3. Finally, on the tax-free reserves incorporated in share capital corporate income tax and withholding tax becomes due (unless an exemption applies)
Example: A company decides to reduce its capital for an amount of EUR 1,000:
Equity Share capital (not including any reserves) Tax-free reserves incorporated in share capital
Tax-free reserve not incorporated in share capital Capital reimbursement Step 1: Percentage:
5,000 9,000 (5,000+1,000+3,000)
Step 2: Capital reduction that relates to share capital: 1,000 x 55.55%
Step 3: Capital reduction that can be fully imputed on taxed reserves: 1,000 - 555.55
5,000 1,000 100 3,000 2,500
5.2. Dividend distributions
In order to avoid that reserves are subject to a double taxation (i.e. at the occasion of a capital reimbursement and at the occasion of a later distribution of reserves), an exemption of withholding tax is introduced for dividends that are distributed out of reserves that have previously been subject to withholding tax upon a capital reimbursement (see 5.1). However, distributions are allocated first to those reserves which have not yet been subject to withholding tax.
Further to the `Tate and Lyle'-case of the European Court of Justice and the changes to the participation exemption regime (see 3.2), a new exemption of withholding tax is introduced. The exemption applies to dividends paid by a Belgian company after 1 January 2018 to a company established in the EEA or in a country with which Belgium has concluded a double tax treaty that foresees the possibility to exchange information provided the following conditions are met: The exemption is only applicable to the extent that the Belgian withholding tax cannot be credited or is not refundable in the beneficiary's jurisdiction. The beneficiary must be a non-resident corporate shareholder having a holding in the capital of the distributing company of less than 10% but with an acquisition value of at least EUR 2,500,000. The holding is or will be maintained for an uninterrupted period of at least one year in full ownership. The shareholder must have a legal form as mentioned in the EU Parent-Subsidiary Directive or a similar form. The shareholder is subject to a corporate income tax or a similar tax and does not benefit from a regime that deviates from the common tax regime. The distributing company has a certificate confirming that the various conditions are met.
6.S eparate assessments
6.1. Tax on secret commission fee
Business income that is not reported in the accounts is subject to a so-called tax on secret commissions amounting to 100% of the undisclosed income. This rate is reduced to 50% if the undisclosed income was spontaneously reintegrated in the accounting profit of the company in a subsequent financial year. The reduced secret commission tax rate of 50% on such reintegrated income is removed as of 1 January 2020 as well as the provision that no administrative penalty can be imposed in such case.
6.2. Separate assessment in case of insufficient managers' remuneration
7.2. Effective payment on tax audit adjustments
Each Belgian company that does not pay a minimum annual remuneration of the lower of EUR 45.000 or the amount of the taxable income of the company to at least one company manager-natural person will have to pay a separate tax. This separate tax will not apply to SMEs during their first four taxable periods.
The separate tax equals 5% (this rate will not be increased to 10% as was originally foreseen) on the difference between the minimum amount of remuneration and the highest remuneration that the company pays to one of its company managers. For related companies within the meaning of the Belgian Companies Code of which at least half of the company managers are the same people, the total annual remuneration received by that company manager should equal EUR 75,000. If this condition is not met, the separate tax becomes due by the company that declares the highest amount of taxable income.
7.Procedural changes to ensure compliance
7.1. Minimum taxable basis in case of no or late corporate income tax return filing
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 a thorough due diligence may therefore arise. The rule applies as of tax assessment year 2019 (relating to the taxable period starting the earliest on 1 January 2018).
7.3. Late payment and moratorium interest
As of 1 January 2018, new rules apply with respect to late payment and moratorium interest in order to better reflect the economic reality. The new rules can be summarized as follows:
Late payment interest (i.e. interest to the benefit of the tax administration) is decreased from the current 7% to a percentage that is based on the OLO amount on 10 years from the months of July, August and September. This percentage cannot be lower than 4% and not be higher than 10%.
If the corporate income tax return is not or not timely filed, the tax authorities can tax a Belgian taxpayer based on a minimum taxable basis. This minimum taxable basis equals EUR 34,000 as from assessment year 2019 (relating to the taxable period starting the earliest on 1 January 2018) and will increase to EUR 40,000 as of assessment year 2021 (relating to the taxable period starting the earliest on 1 January 2020). This amount will be indexed annually as from 2021. In the event of repeated infringements, the minimum taxable basis will be increased with a percentage ranging from 25% to 200%. The taxpayer maintains the possibility to provide evidence to the contrary. If no (sufficient) evidence is provided, this measure results in the following corporate income tax to be paid:
Standard CIT rate
Late payment interest will also become due in case the taxpayer converts the tax free reserve for spread taxation, the tax free reserve for capital gains on commercial vehicles or the tax-free reserve for capital gains on inland waterway vessels used for commercial shipping into a taxed reserve prior to the expiration of the reinvestment term. Also, if the reinvestment conditions for the exemption of capital gains realized on sea-going vessels is not met, late payment interest becomes due. This rule applies as of tax assessment year 2019 relating to the taxable period starting the earliest on 1 January 2018.
Moratorium interest (i.e. interest to the benefit of the taxpayer) is decreased from the current 7% to a percentage that is 2% lower than the late payment interest. It cannot be lower than 2% and cannot be higher than 8%. This interest would start to accrue as of the first day of the month following the month during which a notice of default (e.g. a tax complaint or a request for ex officio relief) is sent to the tax authorities. The month of repayment is not included. No moratorium interest becomes due if the tax authorities do not have the necessary details for making the repayment.
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Please note though that an action for annulment of these new rules has in the meantime been brought before the Constitutional Court.
8.Implementation of the Anti Tax Avoidance Directives (ATAD I and II)
As a member of the EU, Belgium is obliged to implement the measures included in the Anti-Tax Avoidance Directives ("ATAD I and II"). As part of the CIT reform, measures neutralising hybrid mismatches (within the EU and towards third countries), CFC legislation, exit taxation and the interest limitation rule have been implemented.
8.1. Hybrid mismatches
8.2. Controlled Foreign Company (`CFC') legislation
A CFC-rule intends to tackle profit shifting (out of the residence state or even out of third states) and long-term deferral of taxation that a taxpayer achieves via structures with low taxed companies without substantive activities. If the conditions of the CFC-rule are fulfilled, the non-distributed profits realized by such foreign companies will immediately become subject to tax in the hands of the Belgian parent company. The rule applies as of tax assessment year 2020 relating to the taxable period starting the earliest on 1 January 2019.
Definition of a CFC A foreign company qualifies as a CFC if the following conditions are met:
A `hybrid mismatch' means a situation between associated enterprises that form part of the same enterprise or that act in the framework of a structured arrangement where the following outcome is achieved: (a) a deduction of the same payment, expenses or losses occurs in two jurisdictions or (b) a deduction of a payment occurs in the jurisdiction in which the payment has its source without a corresponding inclusion for tax purposes of the same payment in the other jurisdiction (`deduction without inclusion'). No hybrid mismatch is present if this non-inclusion results from a special tax regime that applies to the payee. Differences in tax outcomes that are solely attributable to differences in the value ascribed to a payment, including through the application of transfer pricing, also fall outside the scope of a hybrid mismatch.
These results are often attributable to differences in the legal characterization of a financial instrument or entity. According to the Act, Belgium is required to solve such hybrid mismatches through the denial of deduction of payments or the inclusion of income that would otherwise not be taxed. In addition, various other types of mismatches are targeted. For instance, where a Belgian taxpayer has a permanent establishment (`PE') in another EU Member State and the two jurisdictions treat the PE differently, resulting in double non-taxation of the PE income, Belgium is required to tax the PE income that would otherwise not be taxed pursuant to a double tax treaty. Another example includes the situation whereby a company is resident in Belgium and in another jurisdiction and this company deducts the same expense in both residence states. Belgium will then be required to disallow the deduction unless the company is resident of Belgium according to a double tax treaty concluded with another Member State.
The Belgian taxpayer owns directly or indirectly the majority of voting rights, or holds directly or indirectly at least 50% of the capital, or is entitled to receive at least 50% of the profits of the foreign company (control test);
The foreign company is in its country of residence either not subject to an income tax or is subject to an income tax that is less than half of the income tax if the company would be established in Belgium. In calculating this income tax, the profits that this foreign company would have realized through a PE is disregarded if a double tax treaty applies between the country of the foreign company and the country in which the PE is located that exempts this profit (taxation test).
The Repair Act adds foreign PE's of a Belgian taxpayer to the scope of application if the profits of the PE are exempt or reduced in Belgium by virtue of a double tax treaty and the taxation test is met.
B CIT 10%
Belco holds in total more than 50% of the capital of company B (i.e. 40% directly + 51% indirectly). According to the Belgian rules, the taxable income of company B would amount to EUR 100,000.
Case scenario 1: According to local rules, the taxable income of company B amounts to EUR 90,000. The corporate income tax that company B pays in its country of residence amounts to EUR 9,000 (10% x EUR 90,000). Since this amount is lower than half of the income tax that would be due if the company would be established in Belgium (i.e. EUR 12,500 (12.5% X EUR 100,000)), the company qualifies as a CFC.
Case scenario 2: According to local rules, the taxable income of company B amounts to EUR 150,000. The corporate income tax that company B pays in its country of residence amounts to EUR 15,000 (10% x EUR 150,000). Since this amount exceeds half of the income tax that would be due if the company would be established in Belgium (i.e. EUR 12,500 (12.5% X EUR 100,000)), the company does not qualify as a CFC.
Income to be included under the CFC rules The ATAD I left Member States the option to either include non-distributed specific types of income as defined in the ATAD (i.e., interest, dividends, income from the disposal of shares, royalties, income from financial leasing, income from banking, insurance and other financial activities, income from invoicing associated enterprises as regards goods and services where there is no or little economic value added) or to include non-distributed income arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage. Belgium has opted for the latter approach. An arrangement shall be regarded as non-genuine to the extent that the CFC would not own assets or would not have undertaken risks if it were not controlled by the Belgian taxpayer where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income. The attribution of income is then limited to the income attributable to the significant people functions carried out by the Belgian controlling taxpayer. The rule thus only prevents taxpayers from shifting profits out of Belgium. The same approach applies irrespective of whether the CFC resides in a Member State or in a third country.
The question arises as to the interaction with existing transfer pricing rules. The Repair Act clarifies that article 1852a ITC 92, which incorporates the internationally accepted arm's
length principle in Belgian tax law, takes precedence over the CFC-rule.
Elimination of double taxation If the CFC distributes profits to the taxpayer and those distributed profits are or were previously taxed in the hands of the Belgian taxpayer, these profits shall be fully deducted from the tax base when calculating the amount of tax due on the distributed profits. The Repair Act provides that capital gains realised on the disposal of shares of a CFC will be exempt to the extent that the profits of the CFC have already been taxed in the hands of the Belgian taxpayer as CFC income and these profits have not yet been distributed and still exist on an equity account prior to the alienation of the shares.
Double taxation is however not fully eliminated. The taxes that the CFC pays in its country of residence (for example in scenario 1 referred to above) are not allowed as a deduction from the Belgian tax. Moreover, the current rules do not foresee that the allocation of the profit of the CFC to the Belgian taxpayer is proportionate to the taxpayers' participation in the CFC.
Reporting obligation A Belgian taxpayer should report in its tax return that it has a foreign subsidiary or PE that qualifies as a CFC if the income is subject to tax in the hands of the Belgian taxpayer pursuant to the CFC rule.
8.3. Exit taxation and step-up
Via the Act of 1 December 2016, the existing provisions on exit taxation were brought to a large extent in line with the requirements on exit taxation laid down in the ATAD I. More precisely, Belgium introduced a deferred payment regime of 5 years for companies subject to exit taxes on (EEA) outbound cross-border transfer of assets/business, tax residence and restructuring. However, outbound internal dealings (i.e. outbound transfers from a Belgian head office to a foreign permanent establishment) were up to now not covered. This transaction will now equally trigger a (deferred) exit tax which is calculated on the positive difference between the market value of the transferred assets on the one hand and the acquisition or investment value of the assets decreased with previously allowed impairments and depreciations on the other hand.
The rules regarding inbound transfers have been adjusted as well. Previously, these rules generally provided that assets entering the Belgian territory had to be registered at their pre-transaction foreign book value, i.e. no step-up in the tax base was provided. Since this was contrary to the ATAD I, the new rules now accept the market value as the starting value of the assets for tax purposes.
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To the extent that these assets were subject to an exit tax in the country of emigration and Belgium has concluded a treaty with this country that provides for the possibility to exchange information, the value established by this foreign country is refutably presumed to correspond to the market value (unless it is a tax haven). If these conditions are not fulfilled, the market value is presumed to correspond to the book value according to Belgian rules, unless proof to the contrary is provided.
The amended exit tax rules apply to transfers that occur as of 1 January 2019.
8.4. Interest limitation rule
Limitation of the interest deductibility The interest limitation rule foresees that exceeding borrowing costs will be deductible in the tax period in which they are incurred only up to the higher of 30% of the taxpayer's EBITDA or EUR 3.000.000 (`threshold amount'). Based on the current legislation, this new rule only enters into force as of 2020. The implementation date of the new interest limitation rule might be advanced to 2019 based on a political agreement that was reached in July 2018. No legislative text is, however, available yet.
income deduction, the innovation income deduction and income that is exempt pursuant to a double tax treaty), with the amount of the group contribution and with profit realized through the execution of a public-private partnership if the operator, interest cost, assets and profits are located in the EU.
For taxpayers that form part of a group:
interest expenses (or income) paid (or received) by the taxpayer to (or from) a Belgian company or Belgian permanent establishment that form part of the group and are not excluded will be disregarded for purposes of calculating the exceeding borrowing costs.
the threshold amount is to be considered on a consolidated basis. This implies that: the EBITDA of the taxpayer should be increased/ decreased with the amounts paid/received by the taxpayer to/from a Belgian company or Belgian permanent establishment that form part of the group and are not excluded from this rule. the threshold of EUR 3,000,000 will be allocated proportionally among the members of the group (the allocation key is still to be determined by Royal Decree).
The term borrowing cost in the ATAD I is broad and includes interest expenses on all forms of debt, other costs economically equivalent to interest and expenses incurred in connection with the raising of finance as defined in national law. The definition of interest under national law will therefore be supplemented by a Royal Decree in order to also cover other costs that are economically equivalent.
Exceeding borrowing costs are defined as the positive difference between (a) the amount of the deductible interest costs (and other economically equivalent costs) of a taxpayer that are not allocable to a permanent establishment if its profits are exempt in accordance with a double tax treaty and (b) taxable interest revenues (and other economically equivalent revenues) that the taxpayer receives and that are not exempt pursuant to a double tax treaty.
EBITDA is determined based on the result of the taxable period (i.e. the tax adjusted accounting result including disallowed expenses) to be:
increased with depreciations, write-offs and the exceeding borrowing costs that are tax deductible.
decreased with certain tax exempt income (i.e. income that benefit from the participation exemption, the patent
Interest that cannot be deducted pursuant to this new interest limitation rule and is not transferred to another group company, can be carried forward indefinitely. The use thereof in a subsequent year is, however, limited to the threshold amount of that year.
Excluded loans and taxpayers The rule does not apply to: loans used to fund a long-term public infrastructure
project where the project operator, borrowing costs, assets and income are all in the EU. loans that were concluded prior to 17 June 2016 if no essential changes were made. For these loans the current 5:1 thin capitalization rule will remain applicable. This 5:1 thin capitalization rule will nonetheless also remain applicable for loans concluded after 17 June 2016 if the interest is paid to tax havens (for other loans concluded after 17 June 2016 this thin capitalization rule is abolished). stand-alone companies (i.e. a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment).
various financial undertakings , for example, credit institutions, investment companies and (re)insurance undertakings. The Repair Act added companies that are solely or mainly active in the financing of real estate through real estate certificates, financial leasing companies and companies that are mainly active in factoring activities.
Exceeding borrowing cost Interest expense Interest income Exceeding borrowing cost
Company A Company B
Calculation threshold amount
Allocation of EUR 3.000.000 threshold (presumed) EBITDA Result of the taxable period: + depreciation/write-offs + exceeding borrowing cost - Exempt income Total EBITDA 30% of EBITDA
2,000 2,000 -5,000 5,000 1,500
Disallowed exceeding borrowing cost
0 16,000 4,800
Tax deductible exceeding borrowing cost Disallowed exceeding borrowing cost
Consolidation regime A consolidation regime is put in place in case a taxpayer forms part of a group of companies. Indeed, any non-utilized threshold amount, and even amounts exceeding this threshold amount, can be transferred to another Belgian group company or Belgian PE. An agreement should be concluded between both taxpayers that provides for the transferred threshold amount and for the payment of a compensation in the amount of the tax saving resulting from the transfer. Taking into account the example above, this would imply that company B could transfer 500 of its remaining threshold amount to company A as a result of which company A can deduct its entire interest expense.
No impact on investment companies Certain investment companies benefit from a derogatory tax regime as their taxable basis is determined based upon
abnormal or benevolent advantaged received and most of the disallowed expenses. In order to avoid that those companies are penalized by this new measure, the Repair Act provides that the disallowed exceeding borrowing cost does not form part of the taxable basis.
9. Various other amendments
Several other amendments have been introduced: In line with administrative practice, it is now explicitly
foreseen that dividend received deduction carried forward will be transferred at the occasion of a restructuring on a pro rata basis in the same way as is currently the case for tax losses carried forward. This applies to transactions that occur as of 1 January 2018. The exemption of capital gains realized by a company for housing credit that is subject to a special tax regime, is abolished. The exemption regime for the work-inclusion company is amended and is limited to the amount of the gross wage of the hired employee. In addition, the tax-free premiums of the region can no longer be exempt twice. Amendments to the tax shelter regime have been introduced. The investment reserve is abolished for new investments. The possibility to constitute such reserve is limited to taxable periods ending at the latest on 30 December 2018. Abolition of certain economic exemption regimes, for example in relation to supplementary personal and certain trainees. In order to avoid the reversal of certain tax free reserves that are recorded during a taxable period that starts the earliest on 1 January 2017 and ends at the latest on 30 December 2020 (for example tax-free reserves in relation to the spread taxation regime for capital gains realized on certain assets subject to reinvestment conditions) into taxed reserves at the new lower rates, an anti-abuse provision is introduced. Under certain conditions, these reserves will be taxed at the rate that was applicable when the reserve was recorded. The wage withholding tax exemption of scientific research personnel is extended to include holders of a bachelor's degree. The exemption amounts to 40% of this wage withholding tax as from 1 January 2018 and will increase to 80% as from 1 January 2020. The exemption only applies if the company also employs scientific research personnel with master degrees for whom the exemption is applied.
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Annex - Entry into force
2018 Decrease of corporate income tax rates Reduction exit tax rate for real estate companies Adjusted SME definition Limitation to tax free provision for risk and charges Introduction of the matching principle in tax law Temporary increase of the investment deduction Amendments to the notional interest deduction regime Limitation to the deduction of (mainly) carried forward items (minimum taxable basis) Introduction of a minimum participation threshold requirement for capital gains on shares The separate tax rate for capital gains realized on shares not maintained for a period of at least one year is not applicable for SME's Abolition of the minimum capital gains tax on shares Increase of the Belgian participation exemption regime to 100% Increase for insufficient tax prepayments Introduction of a pro rata allocation of capital reimbursements to reserves Introduction of a withholding tax exemption on certain dividends distributed Introduction of a (tax deductible) separate tax for insufficient managers' remuneration Increase of minimum taxable basis in case of no or late corporate income tax return filing Introduction of an effective payment on tax audit adjustments Decrease of late payment and moratorium interest Late payment interest becomes due if reinvestment condition is not fulfilled upon conversion of certain tax-free reserves into taxed reserves prior to the expiration date Pro rata transfer of dividend received deduction carried forward at the occasion of a restructuring Amendment to exemption regime for the work-inclusion company Amendments to the tax shelter regime Abolition of investment reserve Introduction of an anti-abuse provision to avoid the conversion of some existing tax-free reserves into taxed reserves at the new lower rates Extension of the withholding tax exemption to certain bachelor's degrees employed in R&D projects or programs 2019 Introduction of a tax consolidation regime Introduction of hybrid mismatch rules Introduction of CFC-legislation Amendments to the exit taxation regime and introduction of step-up
2020 Further decrease of corporate income tax rates Increase of exit tax rate for real estate companies Changes to the depreciation system Disallowance of the tax deductibility of fines and penalties Adjustment to the tax deductibility of car expenses Abolition of the 120% deductibility of certain costs Disallowance of the tax on secret commission Disallowance of the discount on debts recorded as a cost Interpretation of the term `market rate' and clarification of the term `loan' Disallowance of the deduction of foreign PE losses Extension of PE-definition under national law Abolition of the separate tax rate for capital gains realized on shares not maintained for a period of at least one year for non-SME's Abolition of reduced secret commission tax rate of 50% on undisclosed income and exemption of administrative fine Further increase of the (tax deductible) separate tax for insufficient manager remuneration Further increase of minimum taxable basis in case of no or late corporate income tax return filing Introduction of a new interest limitation rule Abolition of the exemption of capital gains realized by a company for housing credit Further amendments to the tax shelter regime Abolition of certain economic exemption regimes Further increase of the withholding tax exemption to certain bachelor's degrees employed in R&D projects or programs
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Tax Aspects of M&A Marc Dhaene Partner T +32 2 743 43 22 E email@example.com
Tax Dispute, Litigation & ADR Christian Chruy Partner T +32 2 743 43 03 E firstname.lastname@example.org
Family-Owned Business & Private Wealth Saskia Lust Partner T +32 2 700 10 27 E email@example.com
Corporate Income Tax 19
Transfer Pricing Natalie Reypens Partner T +32 2 743 43 37 E firstname.lastname@example.org
Indirect Tax Bert Gevers Partner T +32 2 743 43 18 E email@example.com
Family-Owned Business & Private Wealth Nicolas Bertrand Partner T +32 2 773 23 46 E firstname.lastname@example.org
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