The introduction of an annual tax of 0,15% on securities accounts, the taxation of reimbursements of share capital and the extension of the Cayman tax are some of the compensatory measures for the announced decrease of the corporate income tax to 25%, likely with effect as from 1 January 2018.
On 26 July 2017, the Belgian government agreed on a far-reaching Belgian tax reform aimed at stimulating economic growth & attractiveness for foreign investment, job creation and overall fairness in taxation policy. The presented measures will affect high net worth individuals and family owned businesses.
Please find below an overview of the measures that were announced on 26 July 2017. Please note that the government merely presented an outline of the tax reform and that the details of the measures discussed below are still subject to change.
1. High net worth individuals
- Reimbursements of share capital will be (partially) subject to withholding tax: Currently, when a company distributes its share capital, no withholding tax or personal income tax is due. The Government announced the introduction of a proportional allocation of the capital reduction to the company’s taxable reserves. To the extent taxable reserves are deemed to be distributed, withholding tax will, in principle, be due. This entails that a company’s share capital cannot be reduced without triggering withholding tax if the company has taxable reserves. Example: the company’s share capital amounts to 100, the taxable reserves amount to 100. If the company reduces the share capital for an amount of 50, for tax purposes, the reduction will be allocated to the taxable reserves for an amount of 25, resulting in withholding tax being due on this amount.
- Introduction of an annual tax on securities accounts: Belgian residents holding securities, such as shares, bonds and units of undertakings for collective investment (UCI) for an aggregate amount exceeding EUR 500,000 on securities accounts, will be charged an annual subscription tax of 0.15% on the full balance of the securities account. Securities held through pension savings and life insurances would be exempt, however. Nominative shares will in principle also be excluded.
- New increase of the tax on stock exchange transactions (TSET): After having been increased multiple times in the past years, the rates of the TSET would be increased again. The 0.27% rate, generally applicable to transactions involving shares, would be increased to 0.35% and the 0.09% rate, generally applicable to transactions involving bonds, would be increased to 0.12%. The rate of 1.32% and the TSET ceilings should in principle remain unchanged. Please note that the TSET was extended to transactions carried out abroad by Belgian residents as of 1 January 2017 (read more about it here).
- Capital gains realized on funds that invest in debt receivables will become taxable, regardless the percentage of debt receivables held by the fund: Currently, capital gains realized on qualifying UCI that directly or indirectly invest for more than 25% in qualifying debt receivables (f.e. bonds) are taxed as interest income at the rate of 30% to the extent that the capital gain represents interest. The Government has now announced to abolish the “more-than-25%”-threshold altogether, meaning that all UCI investing in qualifying debt receivables will be targeted by this rule, irrespective of the aforesaid threshold.
- Extension of the Cayman tax: The look-through taxation for income received by trusts, foundations and other entities established in low-taxed jurisdictions will be further reinforced, to cover legal constructions that could otherwise slip through the net (a.o so-called multi-layer structures).
- Extension of the tax shelter for starting companies to growth companies: it was already possible to claim a personal income tax reduction of up to 45% of the funds invested into the equity of starting companies, on the condition (inter alia) to keep the shares during 4 years. Now, this tax shelter would be extended to growth companies, but it is unclear how growth companies would be defined. Further, indirect investments in starting and growth companies would be stimulated by alleviating the regulatory requirements for private investment companies (private privak/pricaf privée) and lowering the investment threshold thereof to EUR 25,000 per investor.
- No general capital gain tax, nor exit tax: The announced measures did not include a general capital gain tax, nor an exit tax. Therefore, capital gains realized on shares within the normal management of private wealth remain free from tax. No tax will be levied when a Belgian resident emigrates.
2. Family owned businesses
- Lowering of the nominal corporate income tax rate: The nominal corporate income tax (CIT) rate is gradually reduced from 33.99% to 29.58% in 2018 and to 25% in 2020. Under certain conditions, such as a minimum annual remuneration to be paid to its managers, SMEs benefit from a reduced rate of 20.4% on the first tranche of EUR 100,000 taxable income as per 2018 (further decreased to 20% by 2020).
- Capital gains on portfolio shares fully taxable: The government announced that the current exemption for capital gains on shares will now be made subject to the following threshold, as already applicable for the participation exemption on dividends: a minimum participation of either 10% or EUR 2,500,000 EUR. This entails that if individuals hold a securities account through a company, the capital gains on shares realized in the securities account will likely become taxable at the ordinary CIT rates, as the above threshold will likely not be met. On the other hand, the current separate taxation of 0.412% on capital gains realized by non-SMEs qualifying for the participation exemption will be abolished.
- Reform of the notional interest deduction (NID): NID will no longer apply to the total equity but only to the increase of equity measured over a rolling 5 years period (incremental based approach referring to the past 5 years). Transitional rules will apply.
- Introduction of a minimum effective tax rate: The reform introduces a minimum taxable base equal to 30% of the taxable income exceeding a first tranche of EUR 1,000,000 (implying an effective tax rate of 7.5% on the taxable income exceeding EUR 1,000,000 as from 2020). Exceptions related to investments would apply.
- Tax consolidation allowing the deduction of a group entity’s losses: By 2020, Belgium will introduce a CIT consolidation regime allowing the deduction of one Belgian group entity’s tax loss from another Belgian group entity’s taxable profits of a given fiscal year.
- Other measures: these include the temporary increase of the investment deduction for SMEs to 20% as from 2018, the extension of the wage withholding tax exemption for scientific research, the extinction of the investment reserve regime, the restriction of the use of losses attributed to foreign permanent establishments (by 2020) and the abolishment of accelerated and pro rata depreciation for tax purposes (by 2020).
The government merely presented an outline of the proposed tax reform. The announced measures will now be translated into pre-drafts, which must be submitted to the Council of State. After the latter’s report has been issued, the bills are submitted to the Federal Parliament, after which they are discussed and voted, adopted and published in the Belgian State Gazette. The entry into force of the measures that were referred to above as being applicable as of 2018, will likely enter into force as of 1 January 2018. However, it cannot be excluded that some measures may enter into force at an earlier date in the second half of 2017. Other measures are announced to enter into force as of 1 January 2020.