Corporate Tax Reform - Phase 3 | Deloitte Belgium | Tax has been added to your bookmarks.
Corporate Tax Reform
Phase 3 measures | Effective as of tax year 2021
An outline of the Phase 3 tax measures in the Law of 25 December 2017 enacting the Corporate tax reform (hervorming vennootschapsbelasting | réforme impôt des sociétés). These measures will be effective as of tax year 2021 (taxable periods starting on or after 1 January 2020). Any different effective dates are mentioned in the summary.
Last updated: 4 July 2018
The standard tax rate will be reduced from 29.58% to 25%.
The reduced SME rate will further decrease from 20.40% to 20%.
According to the draft repair law, the tax rate increase from 5.1% to 10% would be cancelled. The rate would therefore decrease to 5%.
The exit tax rate will increase from 12.75% to 15%.
Audiovisual and Performing Arts Tax Shelter
The percentage of the amount of the investment to be exempt will be increased from 356% to 421%. Similarly, the percentage of the tax shelter certificate’s tax value will be increased from 172% to 203%.
Taxable reversals of exempt provisions and reserves will be taxed at the rate of 29.58% (instead of 33.99%) when the taxable event relates to a provision or reserve recorded during tax year 2019 or later.
Release of Tax-exempt Reserves
Certain tax-exempt reserves will be eligible, during tax years 2021 and 2022 only, for release at the preferential rate of in principle 15%:
- Taxable releases of the investment reserve established for tax year 1982
- Taxable releases of exempt gains other than those on trucks, barges and sea vessels and deferred capital gains, due to non-compliance with the intangibility condition, provided that their amount is not higher than the total amount of such gains existing at the end of the last taxable period closing prior to 1/1/2017
- Taxable releases of the 20% super deductions that are exempt and that existed at the end of the last taxable period closing prior to 1/1/2017
- Taxable releases of the investment reserve established during a taxable period closing prior to 1/1/2017.
The draft repair law adds to this list the taxable releases of profits of integration companies that have been exempt during a taxable period closing before 1/1/2017.
The 15% standard rate will be reduced to 10% to the extent that the amount of taxable releases corresponds to investments made in tangible fixed assets (other than passenger cars and cars for double use) and amortisable intangible fixed assets during the taxable period concerned. The reduced rate will not be available if these assets are intended to serve as reinvestment or allocation under certain specific capital gains regimes (e.g. deferred capital gains taxation regime).
It will not be possible to reduce the taxable base for this tax with any of the tax attributes, nor will it be allowed to offset the separate tax with withholding taxes, tax credits and foreign tax credits. This tax will be subject to the increase for insufficient, or lack of, advance tax payments.
ATAD - Interest limitation rule
30% EBITDA or EUR 3m
This rule is the new, ATAD-compliant thin cap or interest limitation rule. As of tax year 2020, any arm’s length “exceeding borrowing costs” (“financieringskostensurplus / surcoûts d’emprunt”) will, as a rule, only be deductible up to the higher of maximum 30% of the taxpayer’s EBITDA or EUR 3m.
Exceeding borrowing costs will be defined as the positive difference between the total of interest and other economically equivalent costs which are treated as deductible expenses of the taxable period and are not linked to a treaty-exempt permanent establishment, and the total of interest and other economically equivalent income, which is included in the taxable period’s profit and not treaty-exempt.
In case the taxpayer is part of a group, interest (and economically equivalent) income and costs will in principle be disregarded in case they arise in relation to a domestic company or Belgian establishment belonging to the same group.
The interest deduction will be limited to 30% of EBITDA. EBITDA will be calculated as follows:
- The result of the taxable period after the so-called “first operation”
- Plus: current tax year (i) tax deductible depreciations and write-offs and (ii) deductible exceeding borrowing costs;
- Minus: current tax year (i) dividends eligible for the 100% DRD, (ii) income eligible for the 85% IID, (iii) income eligible for the 80% PID, (iv) treaty-exempt profits, and (v) profits from a qualifying public private partnership. The draft repair law adds the group contribution to the list of deductible items.
By way of exception, the first bracket of EUR 3m will never be caught by the interest limitation rule.
For purposes of calculating the interest limitation, tax consolidation will be “simulated”. The taxpayer’s EBITDA will in principle be adjusted with any intra-group amounts paid by, or to, a domestic company or Belgian establishment, provided that the latter have been part of the group during the entire taxable period. Similarly, the EUR 3m threshold will in principle be allocated proportionally among all domestic companies and Belgian establishments belonging to the same group during the entire taxable period.
Interest on the following loans will be excluded from the calculation of the exceeding borrowing costs:
- Loans of which the taxpayer has demonstrated that they have been concluded prior to 17 June 2016 to which, as of this date, no “fundamental” modifications have been made (i.e. modifications relating to, for instance, the contracting parties, the interest rate or the duration of the loan); and
- Loans concluded in execution of a qualifying public private partnership, where the project operator, borrowing costs, assets and income are all in the EU.
The new thin cap rule will not apply to certain companies active in the finance sector (e.g. credit institutions, investment companies, insurance companies, etc.) and “standalone” companies, i.e. companies that are not part of a group of companies, and satisfy certain other conditions. The draft repair law adds to this list companies with as sole or principal activity the financing of real estate through real estate certificates as well as certain finance lease and factoring companies.
Unlimited carry-forward of excess interest deduction (that has not been deducted during a previous taxable period) will be available through a new exemption. This exemption will be capped at an amount equal to the positive difference between the 30% EBITDA or EUR 3m maximum amount and the taxable period’s excess borrowing costs as defined above.
An annex will have to be added to the tax return, in order to benefit from the carry-forward deduction.
In case the taxpayer is part of a group, it will be possible to conclude an interest deduction agreement, whereby the non-utilised interest deduction capacity under the limitation rule can be transferred to another Belgian company or establishment of an EEA company that has been part of the group during the taxable period and is not excluded from this provision’s scope of application.
An interest deduction agreement will need to satisfy certain conditions, such as the payment of a compensation that cannot exceed the corporate tax that would have been due pending the transfer. This compensation will be exempt from tax in the hands of the transferor and disallowed in the hands of the transferee. The interest deduction agreement must be added to the tax return. A model will be issued by Royal Decree.
5:1 thin cap rule
The current 5:1 thin cap rule will remain applicable to arm’s length interest payments for (1) interest paid to beneficial owners located in tax havens (regardless of the date) and (2) intra-group interest paid pursuant to a loan agreement of which it has been demonstrated that it has been concluded prior to 17 June 2016 and not “fundamentally” modified since then.
The separate tax rate for capital gains on shares not meeting the minimum holding period requirement will be abolished, as its rate will equal, as of tax year 2021, the standard tax rate.
The investment reserve will be abolished.
Non-mortgage loans without fixed duration
Interest for non-mortgage loans without any fixed duration will only be tax deductible if the interest does not exceed the sum of
(i) the MFI rate for loans up to EUR 1m with a variable rate and an initial rate determination for a period of maximum 1 year, granted to non-financial companies and concluded during the month of November of the calendar year preceding the calendar year to which the interest relates, plus
This rate is published on the website of the National Bank of Belgium.
Interest paid pursuant to cash pooling agreements will be excluded from this new rule.
This new rule is applicable to interest relating to periods after 31 December 2019.
1:1 thin cap rule
The notion of “money loan” (“geldlening / prêt d’argent”) will be replaced by the broader concept of “receivable” (“vordering / créance”).
This amendment is applicable to interest relating to periods after 31 December 2019.
Discounts on non-depreciable tangible or intangible fixed assets, or financial fixed assets, recorded in the P&L account in accordance with accounting law, will no longer be tax deductible where the asset’s purchase price is lower than the asset’s fair market value increased with the discount.
SME’s will also have to comply with the rule that the first depreciation (during the year of acquisition or production) must be limited pro rata temporis.
The double-declining balance depreciation method (“degressieve afschrijving / amortissement dégressif”) will be abolished for corporate tax purposes.
SME’s will (continue to) be allowed to deduct ancillary costs related to the acquisition of tangible or intangible fixed assets either immediately or over the same period as the principal amount. MNE’s will not have this option. They will need to deduct the ancillary costs over the asset’s depreciation period.
New benefit in kind
As of tax year 2021, the benefit in kind (BIK) for a “plug-in” hybrid will be adjusted.
A plug-in hybrid is a vehicle that (i) has been purchased as of 1 January 2018, (ii) is equipped with both an electric battery and a fuel engine, but (iii) where the battery has an energy capacity of less than 0.5 kWh per 100 kg of car weight or where the emission is higher than 50 grams CO2 per km. All plug-in hybrids purchased before that date will continue to be governed by the existing rules.
The BIK for such hybrid will be based on the CO2 emission of the “corresponding” car with only a fuel engine. If no such corresponding car exists, the hybrid’s emission will be multiplied by 2.5 to determine the BIK.
New deductibility rules
Expenses relating to company cars with a CO2 emission of 200 g/km or more will only be deductible for 40%.
For company cars with a lower CO2 emission, the following formula will need to be applied: 120% - (0.5% x coefficient x CO2 g/km), whereby the coefficient is 1 for diesel engines, 0.95 for petrol, LPG, electric and other engines, and 0.90 for cars equipped with a natural gas engine (CNG) and less than 12 taxable horsepower. The resulting percentage will be minimum 50% and maximum 100%.
The plug-in hybrid rule will also apply for the deduction of expenses (save for cars purchased prior to 2018).
The 120% super deduction for electric vehicles will be abolished.
Fuel expenses will also be governed by the new formula.
A number of changes will be made to other expenses:
- Administrative fines will be non-deductible, even if they relate to deductible taxes and irrespective of whether or not they qualify as a criminal penalty (e.g. VAT increases or proportional administrative fines).
- The 120% super deduction for employer-organised commuting will be abolished. The draft repair law also abolishes the super deduction for security expenses and bikes.
- The deduction for the secret commissions tax will be abolished. The 50% rate applicable to the inclusion of hidden excess gains in the accounts will be abolished. Similarly, the rule allowing inclusion of such gains in a later financial year than the actual year of their realisation, will be abolished.
Foreign Treaty PE Loss Deduction
The law on the corporate tax reform abolishes the rule according to which losses incurred abroad and related to a tax treaty permanent establishment or assets (real estate) can, subject to compliance with certain conditions (including a loss recapture rule), be deducted from the Belgian taxable base. Tax treaty losses will in principle be disregarded for purposes of determining the Belgian taxable base, except “final losses” incurred within the EEA.
Foreign losses will be considered final when the Belgian company definitively terminates its activities carried out abroad through a foreign establishment, or no longer disposes of any assets abroad absent such establishment, without having obtained any deduction whatsoever for these losses in the EEA member state where the establishment or assets are located.
A SAAR (specific anti-abuse rule) will target situations where the company restarts its activities in the EEA member state where the establishment or the assets were located, within a period of 3 years after the deduction of the definitive losses. The amount of the final foreign loss that has been deducted previously in Belgium will have to be recaptured and included in taxable base for the taxable period during which the activities were started up again.
A transitional rule will exist for pre-2020 tax treaty losses. Foreign PE losses that were deducted in Belgium during a taxable period that started before 1/1/2020, will have to be deducted from the profits benefiting from a treaty exemption or reduction, unless the taxpayer demonstrates that these losses have not been deducted from the foreign PE’s profits abroad.
Belgian Establishment Definition
The exception for “independent agents” will be thoroughly modified, in order to make it compliant with the new Art. 5, §6 of the OECD Model Convention. Where currently an independent intermediary does not give rise to a Belgian establishment if he acts within the ordinary course of his business, such intermediary will under the new domestic definition nevertheless be constitutive of an establishment if he (almost) exclusively acts for one or more “closely related” enterprises.
A “close relation” with an enterprise will exist, in accordance with Art. 5, §8 of the OECD Model Convention, where, based on all the relevant facts and circumstances, either one party has control over the other or both are under control of the same persons or enterprises. In any event, a person will automatically be considered “closely related” to an enterprise if one party possesses a (direct or indirect) stake of more than 50% in the other (defined differently depending on whether it is an enterprise or a company), or if another person or enterprise possesses such stake in the person and the enterprise concerned.
The exception for order takers will be abolished.
Abolition of Preferential Regimes
A number of preferential regimes will be abolished, namely the exemption for capital gains realised on the transfer of Belgian situs unbuilt real estate in the hands of housing companies and the so-called “economic exemptions” for expert/quality hirings, trainees and additional personnel.
The minimum taxable base will be increased from EUR 34,000 to EUR 40,000. The latter amount will be subject to annual indexation as of tax year 2022.
The reduced 40% R&D payroll tax exemption for researchers with a bachelor degree will be increased to 80% on 1 January 2020.