Corporate Tax Reform
Phase 1 measures | Effective as of tax year 2019
An outline of the Phase 1 tax measures in the Law of 25 December 2017 enacting the Corporate tax reform (hervorming vennootschapsbelasting | réforme impôt des sociétés). These measures are effective as of tax year 2019 (taxable period starting on or after 1 January 2018). Any different effective dates are mentioned in the summary.
Last updated: 17 June 2019
As an anti-abuse measure, the law (Dutch | French) provides that any modification made to the closing date of a taxpayer’s financial year as of 26 July 2017 (“announcement date”) will be disregarded for purposes of the corporate tax reform's application. A circular letter dd. 17 June 2019 (Dutch | French) discuss the practical impact of this anti-abuse measure on the corporate tax return covering phase 1 of the reform.
The standard tax rate is reduced from 33.99% to 29.58%.
For SME’s the first bracket of EUR 100,000 taxable income is taxed at the rate of 20.40%. Three changes are made to the conditions for being eligible for the reduced SME rate:
- The company must satisfy the company law SME definition;
- The 13% cap on dividend distributions has been abolished; and
- The amount of the minimum remuneration to be paid out to at least one company manager / physical person (“bedrijfsleider / dirigeant d’entreprise”) has been increased from EUR 36,000 to EUR 45,000 – in this respect, a new exception has been introduced for start-up SME’s during the first 4 taxable periods as from their incorporation.
A remuneration of less than EUR 45,000 does not prevent application of the reduced rate if this lower remuneration equals at least the company’s final taxable base.
The exit tax (due upon certain transfers of real estate into real estate vehicles) is reduced from 16.995% to 12.75% for transactions that occur(red) as of 1 January 2018.
The tax reform initially sanctioned non-compliance with the minimum remuneration requirement with a new separate “anti-incorporation” tax at the rate of 5.10 %.
This measure was, however, retroactively revoked by the law of 13 April 2019 (published in the Official State Journal on 26 April 2019).
Audiovisual and Performing Arts Tax Shelter
The percentage of the amount of the investment to be exempt has been increased from 310% to 356%. Similarly, the percentage of the tax value of the tax shelter certificate has been increased from 150% to 172%.
A specific anti-abuse rule (SAAR) refuses the new, lower tax rates in case of taxable reversals of (i) exempt investment reserves and capital gains on trucks, barges and sea vessels and deferred capital gains which have become taxable, prior to reinvestment, pursuant to non-compliance with the intangibility condition, or due to lack of timely reinvestment, and (ii) exempt provisions.
This SAAR only applies if the tax-exempt reserves or provisions have been recorded in a taxable period closing at the earliest on 1/1/2017 and at the latest on 30/12/2020.
Such reversals will be taxable at the rate of 33.99% if they relate to provisions or reserves recorded during tax year 2018 or earlier, or 29.58% if they relate to provisions or reserves recorded during tax year 2019 or later.
In case of reversal of a provision, the FIFO principle will apply: the oldest amounts will be deemed reversed by priority.
Minimum Taxable Base
The existing tax attributes have to be allocated to 2 baskets: a first basket without restrictions and a second basket subject to restrictions.
The first basket contains (in order of deduction) the non-taxable items (such as deductible gifts), current year DRD, grandfathered PID, current year IID and investment deduction.
The second basket contains (in order of deduction and subject to the restrictions as mentioned below) the current year NID, DRD carry-forward, IID carry-forward, tax loss carry-forward, unlimited NID carry-forward and NID carry-forward subject to the 7-year limitation.
The restrictions to which the second basket are applicable are the new EUR 1m + 70% limitation and the already existing EUR 1m + 60% limitation for the limited NID carry-forward. The new restriction implies that, where the taxable base after deduction of the first basket items is higher than EUR 1m, the deduction of the second basket items will be limited to an amount equal to EUR 1m + 70% of the remaining taxable base. The EUR 1m + 70% limitation does not apply to previous year tax losses incurred by an SME during the first 4 taxable periods after its incorporation.
The dividend received deduction (DRD) is no longer limited to 95% but has become a 100% deduction.
The pro rata rule for the survival and transfer of tax loss carry-forwards in case of tax-neutral reorganisations has been made equally applicable to the DRD carry-forward. The proportional restriction must first be applied to the tax loss carry-forwards and subsequently to the DRD carry-forward. The DRD carry-forward only has to be restricted if there are no tax losses anymore to be restricted.
Capital gains exemption
The 100% capital gains exemption has become subject to the minimum holding requirement that already applies for DRD purposes, i.e. a shareholding of at least 10% or with an acquisition value of at least EUR 2.5m.
The 100% capital gains exemption will only be allowed “to the extent” of the DRD entitlement. Stated differently, in case of proportional DRD, the capital gains exemption will also be proportional.
The exceptions to the minimum holding and minimum holding period requirements that apply for DRD purposes will equally apply for capital gains exemption purposes.
The separate 25.50% tax continues to be due in instances where only the minimum holding period requirement is not satisfied, unless and to the extent that the gain qualifies for the reduced SME rate.
The 0.412% tax for “exempt” capital gains on shares realised by MNE’s has been abolished.
Finally, shares acquired further to an exchange and temporarily exempt did previouslynot benefit from a final exemption upon their divestment in case the part of the capital gain that was already present at the time of the exchange did not meet the conditions for a final exemption. Under the new rules a full, final exemption has been enabled in such hypothesis, provided of course that all conditions are satisfied upon divestment of the exchanged shares.
NID and Investment Reserve
NID is only granted for “incremental equity” by limiting the NID equity to 1/5th of the positive difference between the company’s Belgium GAAP equity at the beginning of the taxable period and its Belgium GAAP equity at the beginning of the 5th previous taxable period.
The annual NID equity is deemed equal to zero for a taxable period where the company did not yet exist (relevant for the first 4 taxable periods after incorporation).
For each of these taxable periods the NID equity will have to be reduced, where applicable with the previously existing exclusions (own shares, DRD shareholdings, assets not producing periodic income, etc.).
The repair law has added 3 new exclusions to the list of NID equity exclusions. Two new exclusions target jurisdictions that do not exchange information with Belgium. These rules determine that the following items should not be taken into account for the determination of the NID base: (i) receivables on non-resident or foreign establishments established in a country that does not exchange tax information with Belgium and (ii) the part of the capital contributed by non-resident or foreign establishments established in country that does not exchange tax information with Belgium. By way of exception, these two exclusions will not apply where the Belgian company demonstrates that the transaction meets legitimate needs of a financial or economic nature.
The third new exclusion (the so-called “double dip” exclusion) applies to a capital contribution made by an affiliated company, when the contributed funds originate from a loan for which this affiliated company deducts the interest charges.
Finally the NID is also added to the tax attributes governed by the continuity principle as laid down in Article 46, §2 ITC (tax-neutral contributions).
The investment reserve regime is being phased out, by limiting the possibility to constitute such reserve for taxable periods ending at the latest on 30 December 2018.
Change of Control
The change of control rule’s scope of application has been broadened to the DRD carry-forward and the IID carry-forward. These tax attributes are also forfeited in case of a change of control, unless counterproof.
The current double exemption for integration companies (“inschakelingsbedrijven / entreprises d’insertion”), i.e. the combination of the profit exemption and the exemption for regional employment and career switch premiums (“tewerkstellings- en beroepsoverstappremies / primes de remise de travail et de transition professionnelle”), has been abolished.
The conditions and modalities for the profit exemption for integration companies are as follows:
- “License requirement”: the company must have a license from its Region as an integration company at the end of the taxable period, and the profit to be exempted must have been realised during a taxable period for which the company has been licensed as such integration company
- The amount of the profit exemption is linked to the number of qualifying employees employed in Belgium, by capping the exemption to the (gross) salary cost of these qualifying employees, with a minimum (index-tied) amount of EUR 7,440 per qualifying employee employed in Belgium
- This new profit exemption is subject to the “intangibility” condition.
The profit exemption is incompatible with the so-called “economic exemptions” for additional export/quality hirings, trainees, and additional personnel.
Prepaid Expenses and Matching Principle
Prepaid expenses (or expenses that constitute so-called “certain and liquid debts”), recorded as such in the company’s books, are only deductible for a given tax year to the extent they “relate” to this tax year.
Provisions for Risks and Charges
Only two categories of provisions for risks and charges are eligible for a tax exemption: (1) provisions resulting from contractual engagements committed by the company during the taxable period (or one of the previous taxable periods) and (2) provisions resulting from legal or regulatory obligations, other than those resulting exclusively from the application of accounting or financial statements legislation.
The new regime does not apply to provisions (or increases of existing provisions) recorded in a taxable period that started before 1/1/2018.
No changes have been made to the rules governing write-offs on receivables.
The 8% investment deduction for SMEs is increased temporarily to 20%. Temporarily means that the 20% rate is only available for fixed assets acquired or produced between 1/1/2018 and 31/12/2019.
The high-tech investment deduction has been abolished.
A 100% deduction for company car expenses is available for expenses that are re-invoiced to a third party through an explicit and separate mention on the invoice. The deductibility limitation of the expenses only has to be applied by the third party.
A 100% deduction for company car expenses was previously available in certain instances (e.g. taxi’s and cars exclusively rented out to third parties), but only for the owner of the car. Further to the reform, the 100% deduction has been made available to everyone qualifying for the exceptions, irrespective of whether they own the car or lease the car to a third party. The deductibility limitation itself always exclusively applies in the hands of the end user of the car.
Advance Tax Payments
The minimum basic interest rate has been increased from 1% to 3% for companies. In addition, thethe exemption from the increase where the amount is lower than EUR 80 or 0.5% of the tax due has been abolished.
Cash Tax for Tax Audit Adjustments
An effective cash taxation has been introduced further to tax audit adjustments. It is no longer possible to offset any of the tax attributes against the part of the taxable base that has been subject to an amendment of the tax return or an “ex officio” assessment procedure, except for current year DRD that has not (yet) been (fully) claimed. This new rule is limited to assessments for which a tax increase has effectively been imposed by the tax authorities at the rate of 10% or more.
Interest for late payment
The new interest for late payment rate (replacing the previous 7% rate) is equal to the average of the reference indices J with respect to 10-year OLO’s (as published by the Federal Debt Agency) for the months of July, August and September of the year preceding the year during which the late payment interest rate is applicable. This rate is at least equal to 4% and cannot exceed 10%. For calendar years 2018 and 2019 the rate is equal to 4%.
The obligation to pay late payment interest is extended to the spontaneous taxation of certain exempt capital gains prior to the expiration of the reinvestment deadline (such as deferred capital gains). Interest for late payment is due as of 1 January of the tax year for which the exemption has been granted.
The new refund interest rate (instead of the current 7% rate) is 2% lower than the late payment interest rate, implying that the minimum refund interest rate is 2% and the maximum rate 8%. The mechanism to determine the refund rate is identical to the one for the late payment interest rate. The refund rate is 2% for calendar years 2018 and 2019.
Furthermore, refund interest is no longer be due automatically, but only as of the first day of the month following the month during which the administration has been given notice. Interest is calculated per calendar month on the refund amount rounded to the lower multiple of 10 and is not due for the month during which the refund takes place. The new calculation method (i.e. accrual as of notice given by the taxpayer) is only applicable to assessments made as of 1 January 2018. Assessments made prior to that date continue to be governed by the old calculation rules.
There are certain exceptions to the obligation to pay refund interest. The exception where the interest due is lower than EUR 5/month henceforth has to be calculated per assessment and per tax year. According to a new exception, no refund interest is due if (and at least as long as) it is “reasonably impossible” for the tax administration to refund taxes because of, e.g., the lack of the beneficiary’s bank account number.
Lump-sum Minimum Taxable Base
The minimum taxable base for taxpayers, subject to resident corporate tax or non-resident corporate tax, who failed to (timely) file their annual tax return, is increased from EUR 19,000 to EUR 34,000. This minimum is further increased in case of multiple violations according to a scale with progressive percentages ranging from 25% to 200%.
Capital decreases and reimbursements of issue premiums and profit shares
Capital decreases carried out according to the company law provisions, as well as qualifying reimbursements of issue premiums and profit shares that are assimilated to capital, may for transactions decided as of 1 January 2018, partially be treated as a dividend distribution.
The new regime for (assimilated) capital decreases entails the following 3 steps:
First step: determination of “pro rata coefficient”
The proportional allocation of the reimbursement of (assimilated) capital to fiscal capital is based on the coefficient resulting from the following T/N formula:
T = fiscal capital (including assimilated issue premiums and profit shares)
N = T + taxed reserves + tax-free reserves incorporated into capital
Second step: allocation to capital
The portion of the (assimilated) capital decrease that, based on the coefficient determined in step 1, is allocated to paid-in (fiscal) capital, continues to be excluded from the “taxable dividend” definition and is hence exempt from tax.
In case the amount of (assimilated) capital is insufficient to proportionally allocate the reimbursement to each of the 3 categories (capital, issue premiums, profit shares), any excess first has to be allocated to the (assimilated) issue premiums, then the (assimilated) profit shares (in case of insufficient capital), the paid-in capital (in case of insufficient issue premiums or profit shares) and finally from either of the last 2 categories (issue premiums and profit shares) to the other category.
Third step: allocation to reserves
The remaining portion of the (assimilated) capital decrease is allocated to the reserves, in the following order: first the taxed reserves incorporated into capital, then the taxed reserves not incorporated into capital and finally the tax-free reserves incorporated into capital. To the extent of allocation to tax-free reserves, the “intangibility” condition is deemed no longer met.
For purposes of the aforementioned formula, the amount of reserves to be taken into account are equal to the amount of the reserves at the end of the taxable period preceding the period during which the decrease of (assimilated) capital takes place.
By way of exception, a large number of reserves are disregarded for purposes of calculating the pro rata coefficient: negative taxed reserves (other than loss carry-forwards and those created further to a reimbursement of (assimilated) capital), recorded but not yet realised gains and other tax-free reserves that are not incorporated in capital, recorded but not yet realised gains incorporated in capital to the extent that they cannot be distributed, tax-free reserves that are reconstituted in a capital account in case of a tax-neutral merger, demerger or assimilated transaction, hidden taxed reserves (for underestimation of assets or overestimation of liabilities), liquidation reserves, Art. 541 ITC reserves, the legal reserve to the extent of the minimum amount required by law, non-distributable reserves for own (profit) shares within the limits of the Companies Code (or similar foreign provisions), provisions for risks and charges and write-offs, and reserves and provisions as meant by similar foreign law provisions.
An optional application of this new allocation method is provided, by allowing the shareholders’ meeting to apply its own allocation method in the same decision as the capital decrease. This is, however, only allowed as long as the resulting taxable dividend amount is equal to, or exceeds, the dividend calculated according to the new method.
An adjustment has been made to the definition of “paid-in” or “fiscal” capital, in order to disregard reimbursements of (assimilated) capital to the extent that they have been treated as dividends and allocated to taxed and tax-free reserves.
To avoid double withholding taxation, dividend treatment in the context of a reimbursement of capital, issue premiums or profit shares triggers a withholding tax exemption upon subsequent future distribution of the allocated reserves as a dividend.
Note that this exemption does not apply in case of buyback of shares or liquidation. In these hypotheses, the distributed amount has to be reduced with the portion of the capital to which the capital decrease has not been allocated, hence reducing the amount of the taxable dividend.
However, this exemption is only available after distribution of the reserves that have not been treated as dividend in the context of (assimilated) capital reimbursements.
"Tate & Lyle" withholding tax
Given the introduction of a 100% DRD, the 1.6995% withholding tax rate that applied to dividends distributed to EEA shareholders with a shareholding of less than 10% but with an acquisition value of EUR 2.5m or more has been abolished and a new exemption has been introduced with the following conditions:
- Dividends from a Belgian company to its foreign shareholder located in the EEA or in a tax treaty country, provided that this tax treaty or any other treaty provides for exchange of information;
- At the date of payment or attribution the shareholder has the full ownership of a shareholding of less than 10% with an acquisition value of at least EUR 2.5m during an uninterrupted period of at least 1 year;
- Exemption only to the extent that the beneficiary cannot benefit from a credit or a refund in case he would have suffered dividend withholding tax in Belgium;
- Both companies need to have a qualifying legal form and be subject to tax.
A certificate from the foreign shareholder must be available to the Belgian entity.
R&D Payroll Tax Exemption
Prior to the tax reform, the 80% R&D payroll tax exemption for enterprises that employ researchers with specific degrees required that researchers must have (at least) a qualifying master degree.
The R&D payroll tax exemption has been extended, for remuneration paid as of 1/1/2018, to researchers with respectively an academic bachelor or equivalent degree in the eligible master study fields and a professional bachelor or equivalent degree in certain listed study fields.
The exemption for bachelors is capped at 40% (an increase to 80% will take place in phase 3). The overall amount of the exemption for researchers with a bachelor degree is limited to 25% of the total amount of the exemption for researchers with a doctor or master degree (doubled to 50% for companies that qualify as SME for the year during which the remuneration is paid).