On 26 July 2017, the Belgian government agreed on a far-reaching Belgian tax reform that will include a strong reduction of the corporate income tax rate, a minimum effective tax rate, a tax consolidation regime and a reform of the holding regime. Most of the measures are intended to enter into force in 2018. The remaining part is anticipated for 2020.
Please note that the details of the measures discussed below are still subject to change during the parliamentary process.
Corporate income tax
- Nominal tax rate reduction: The nominal CIT rate will be gradually reduced from 33.99% to 29.58% in 2018 and to 25% in 2020. Under certain conditions SMEs may 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).
- 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 R&D investments would apply.
- Reform of notional interest deduction: The notional interest deduction 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.
- Tax consolidation: By 2020, Belgium will introduce a tax 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.
- Reform of the holding regime: The reform provides for the abolishment of the 0.412% minimum capital gains tax currently applicable to non-SMEs qualifying for the participation exemption. On the other hand, it extends the minimum participation threshold requirement of either 10% or EUR 2,500,000 acquisition value to the participation exemption for capital gains on shares, as was already the case for the participation exemption on dividends.
- Implementation of Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market: By 2020, Belgium will implement the limitation of tax deductibility of net borrowing costs to the higher of 30% of the EBITDA and an amount of EUR 3 million. Belgium will further adopt legislation introducing controlled foreign companies rules, a broader scope of exit tax and provisions against hybrid mismatches.
- Other measures: Other measures will 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).
- Withholding tax on reimbursements of paid-up capital: when a company distributes its paid-up capital, this is currently free from any withholding tax or personal income tax. The Government has announced that for tax purposes, a proportional allocation of a capital reduction to the company’s taxable reserves would be introduced. To the extent taxable reserves are deemed to be distributed, dividend withholding is, in principle, due.
- Cayman tax: The look-through taxation for income received by trusts, foundations and other entities established by Belgian tax residents in low-taxed jurisdictions will be further reinforced, to cover legal constructions that would otherwise slip through the net.
Other measures include an annual tax applicable to high-value securities’ accounts, an increase of the tax on stock exchange transactions, an exemption of withholding tax for a first tranche of dividends distributed to individual investors, taxation of capital gains on units of undertakings for collective investment as well as multiple other measures aimed at reducing labor cost and modifying pension savings schemes.
The measures announced will now be translated into draft proposals of law, which must be submitted to the Council of State and be discussed and voted in Parliament. 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..