This reform is intended to make the Belgian corporate income tax system less complex. Lower tax rates will be introduced and new foreign investment attracted to Belgium. In addition, it will lower the tax burden for entrepreneurs and SMEs.
Since the reform had to be budget ‘neutral’, the tax base will be broadened by abolishing or reducing a number of existing tax deductions or specific exemption regimes. Start-ups, innovative companies and new investments should benefit most from this tax reform.
This corporate tax reform will be implemented in two phases: first in 2018, and then the rest in 2020.
Corporate income tax rates
Currently, the corporate income tax rate is 33.99%. It will be lowered as follows:
- The nominal corporate income tax rate will gradually decrease; the rate for 2018 and 2019 will be 29.58%, and a rate of 25% will apply from 2020;
- A rate of 20.4 % for SMEs will apply from 2018 on the first income band of EUR 100,000; this rate will be further decreased to 20% from 2020;
Moreover, from 2018, the 0.412% rate on capital gains from shares will be abolished. Further amendments to the “fairness tax” regime are expected, which could even include the abolition of the “fairness tax” itself.
Measures applying from 2018
In summary, the most relevant measures that will apply from 2018 are as follows.
Notional interest deduction (NID)
The NID will no longer apply to a company’s total equity, but only to the increase in equity, compared to a ‘moving average’ based on the 5 preceding years. The higher percentage of NID applying to SMEs will continue to apply.
Minimum taxable base
Most deductible items, such as carried-forward tax losses, carried-forward participation exemption, carried-forward innovation deduction, and carried-forward NID, as well as the current year NID, will be limited to an annual ‘basket’. This ‘basket’ will be limited to EUR 1,000,000 plus 70% of the balance of taxable income over EUR 1,000,000. This means that 30% of the profits above the threshold of EUR 1,000,000 will constitute a minimum taxable base, resulting in a minimum effective tax rate of 7.50% on the profits exceeding the threshold of EUR 1,000,000.
For starting companies, the use of carried-forward tax losses will not be limited during their first 4 years of business.
In addition, corrections of the taxable base, such as a result of a tax audit, can no longer be offset against available tax assets, such as carried-forward tax losses. However, such compensation will remain possible with the available participation exemption.
Exemption on capital gains on shares – participation exemption
The minimum participation threshold requirement of 10% or the minimum acquisition value of EUR 2,500,000 (which already applies to dividends received) will also apply for capital gains on shares.
Provisions for risks and charges
Provisions will only be accepted for tax purposes to the extent that they correspond to a liability that, as at the financial year end, is certain. Moreover, to avoid provisions being made prior to the corporate tax rate being reduced, and then reversed afterwards, such a reversal will always be taxable at the corporate income tax rate applying when the provision was made.
Withholding tax on the reimbursement of paid-up capital
From 2018, capital reimbursements will be deemed as being proportionally-related to taxed reserves. As a consequence, withholding tax will be due on part of the amount of the capital reimbursement. The portion of the capital decrease proportionally relating to paid-up capital will not be subject to withholding tax.
Exemption of the salary withholding tax for scientific personnel
The exemption regime for salary withholding tax for scientific personnel will be extended to the holder of a bachelor degree.
Measures applying from 2020
The measures that will apply from 2020 can be summarized as follows:
- The introduction of corporate income tax consolidation; although no details are available yet.
- The implementation of the ATAD directive by limiting the tax deductibility of net borrowing costs.
- The temporary right, during a period of 2 years, to convert tax-free reserves that existed before 1 January 2017 (which, in principle, are taxable upon distribution at the full corporate income tax rate) into taxed reserves. Such a conversion would trigger corporate income tax at a rate of 15% or even 10% (under certain conditions).
- The clarification of the criteria to determine the ‘arm’s length’ interest rate.
- Modification of the definition of permanent establishment (i.e. taking a more economic approach in accordance with OECD guidelines).
- Limitation of the use of losses incurred by foreign branches.
- The introduction of CFC (Controlled Foreign Company) legislation under certain conditions.
- New rules on exit tax and hybrid mismatches.
- Accelerated depreciation will be disallowed for tax purposes. The principle that the depreciation of assets must be calculated on a pro rata basis in the year when the asset is acquired will, from then onwards, apply to all companies.
- The tax-deductibility of certain charges will be limited:
o All fines regarding direct or indirect taxes will be fully non-deductible;
o The special levy on so-called ‘secret commissions’ will no longer be tax-deductible; and
o The further limitation of the deductibility of car costs (which will also apply for electric cars).
- Finally, a number of tax exemptions will be abolished:
o the exemption for addition personnel;
o the (40%) exemption for trainees’ salaries;
o the exemption of capital gains on real estate realised by certain companies for housing credit;
o the exemption for social obligations resulting from the introduction of the uniform regime for white- and blue-collar workers;
o the exemption of capital gains on company vehicles; and
o the exemption of capital gains on vehicles used for the joint transport of personnel between their respective homes and work.
For more information:
Koen Morbée - Partner (firstname.lastname@example.org)
Ben Van Vlierden - Partner (email@example.com)
Claudine Bodeux - Counsel (firstname.lastname@example.org)
Ivo Vande Velde - Counsel Tiberghien (email@example.com)