The renewal of the Belgian Company Code has an impact on various tax rules. Certain tax rules have therefore been modified in light of the new Company Code. Below, we have highlighted four aspects to be aware of from a corporate income tax perspective.
Tax implications upon the conversion of disappearing companies
One of the most striking innovations of the Belgian Code for Companies and Associations (BCCA) is the abolishment of a number of (still fairly common) company forms. These ‘disappearing’ companies will need to be converted into a different legal form, click here for more information. Company law allows that such conversion occurs through an ordinary amendment of the articles of association. This simplified procedure may, however, create adverse tax consequences. A conversion is in principle regarded as a liquidation for tax purposes, unless the conversion occurs according to the appropriate conversion procedure under Company law. This exemption has been extended in light of the company Code but this extension only enters into force after the conversion of the disappearing company. In order to avoid any discussion or doubt from a tax perspective, the conversion of disappearing companies through the appropriate conversion procedure may need to be considered.
Tax implications of the introduction of the statutory seat doctrine
The BCCA contains a fundamental change regarding the applicability of the BCCA: the real seat doctrine is replaced by the statutory seat doctrine. This means that companies will be subject to Belgian company law if the company’s registered seat is in Belgium. Since the amendments to the BCCA must be neutral from a tax perspective, the real seat (i.e. place of effective management) remains the connecting factor in tax law. However, a legal refutable presumption has been introduced: if the statutory seat is located in Belgium, the company is presumed to have its real seat in Belgium. In order to avoid situations of so-called ‘stateless’ companies, proof to the contrary can only be provided if it is shown that the tax residence of the company is established in a country other than Belgium according to that country’s domestic tax legislation and under a double tax treaty.
As from 1 May 2019, it will thus be possible for a Belgian corporate taxpayer to be governed by foreign company law, because its place of effective management is located in Belgium but not its statutory seat. A taxpayer wishing to establish its tax residence in Belgium should, in these circumstances, pay even more attention to the level of substance that is available in Belgium. Dependent on the facts of each specific case, some flexibilities granted by the BCCA (e.g. resolutions in writing by the board (click here for more information) or one director only (click here for more information) may not necessarily be appropriate from a tax point of view. In addition to this, the administrative burden of such a company is considerably increased since an obligation is introduced to keep accounts and to draw up an inventory and annual accounts according to Belgian accounting legislation and to attach those annual accounts to the tax return.
Tax implications of the abolishment of capital in a limited liability company and cooperative company
Under the BCCA, the share capital concept has been abolished for the limited liability company (click here for more information) and the cooperative company. This implies that these companies are no longer required to have a minimum share capital requirement. Although the starting funds of these companies can therefore in principle fully consist of debt, the tax consequences thereof should also be monitored.
The abolishment of the capital raised concerns from a tax point of view since the Income Tax Code refers to the concept of capital at various places. In order to address those concerns, several amendments have been made to the tax law, such as the introduction of a separate tax definition of capital and the abolition of the minimum capital requirement in order to benefit from the VVPRbis measure. Taking into account the flexibilities offered by the BCCA, it is noteworthy to recall that no preference shares may be created in order for the VVPRbis measure to apply.
Due to the abolishment of the share capital-concept, there will also no longer be a ‘capital reduction decision’ for these companies in the future. There will only be decided upon a ‘distribution of fund to the shareholders’. Since the tax consequences are different for a repayment of fiscal capital compared to a distribution of profits, it might be appropriate for the company to explicitly mention in its decision to distribute fund to what the distribution relates.
Tax implication of a repurchase of own share > 20% of capital
Under the current/former Belgian Companies Code (BCC), the nominal value of the repurchased shares may not exceed 20% of the issued capital. This 20% threshold is abolished under the BCCA. However, in order to ensure fiscal neutrality, the 20% is maintained for corporate income tax purposes. If own shares representing more than 20% of the capital are repurchased, shares above that limit are thus deemed to be cancelled immediately, with the redemption bonus being treated as a distributed dividend. Withholding tax will then become due unless an exemption applies. The company has the possibility though to indicate the shares that are deemed to have been cancelled.