On 31 January 2025 a new Belgian federal government agreement was reached by the so-called ‘Arizona’ coalition. This federal government agreement contains – amongst others – various new tax measures and related changes to the existing legislation with a focus to reduce the tax burden on labour, to increase Belgium’s competitiveness and to try to get the Belgian Government Budget in balance. Reference can be made to our earlier PwC newsflash as well.
In this edition – and without being exhaustive – we further zoom in on some of the corporate income tax (‘CIT’) related matters as stipulated in the Belgian Federal government agreement. Please note that all these measures still require legal enactment and, hence, may be subject to changes.
Tax measures from a corporate income tax perspective
Dividend Received Deduction regime (‘DRD’)
The DRD regime allows companies to deduct (qualifying) dividends received from their taxable base in order to avoid economic double taxation. To benefit from this regime, certain conditions must be met (i.e. the so-called participation condition, the 1-year holding condition as well as the taxation condition). Based on the federal government agreement, the DRD regime would be amended on the following points:
- Reform of the DRD deduction into a DRD exemption: (qualifying) dividends would no longer be deducted from the taxable basis of the recipient, but would be exempted, likely through an increase of the opening position of the taxable reserves.
- Participation condition: the DRD regime can – highly simplified – only be claimed by the recipient if said company holds a minimum participation of minimum 10% in the share capital of the distributing company, or has a participation with an acquisition value of at least EUR 2.5 million (provided that said participation has been / will be held in full ownership for an uninterrupted period of at least one year).
The federal government agreement provides for a more strict application of the participation condition (which is also applicable in the framework of capital gains on shares). Indeed, and based on the current wording of the federal government agreement, the above-mentioned 10% threshold would remain unchanged, but the EUR 2.5 million threshold would be increased to EUR 4 million whilst the participation will need to qualify as a financial fixed asset. Based on the current wording, said change would, however, not target qualifying small and medium-sized enterprises (‘SMEs’), but would be applicable for and between non-SMEs.
Furthermore, the ‘SICAV RDT/DBI BEVEK’ regime would remain applicable, but a 5% tax would be applicable on the capital gain upon redemption. In addition, and in order to be able to set-off the withholding tax on dividends from such an investment, the company needs to comply with the new minimum remuneration to be allocated to its company director (see also further).
Group contribution regime
The group contribution regime, also known as the ‘Belgian fiscal consolidation regime’, aims to compensate the fiscal loss of the financial year of one company with the taxable profit of the financial year of another (group) company. Various (strict) requirements regarding the ownership relation between both companies, as well as the necessary formalities must be fulfilled in due time.
Based on the federal government agreement, the conditions to benefit from the group contribution regime would be softened, whereby also indirect shareholdings, new companies as well as companies which have not yet met the former 5 year holding period requirement may benefit from the regime going forward.
Disallowed expenses
The current Belgian tax legislation regarding disallowed expenses is diverse, complex and often leads to a high administrative burden for Belgian companies.
The federal government agreement foresees to (significantly) simplify this legislation by (e.g.) introducing an optional and simple system which would replace the current complex rules and detailed calculations. Concrete details are not yet available, but a lump sum method to determine the disallowed expenses (as applicable in certain other neighboring countries) may be envisaged.
Tax measures to stimulate research and development as well as investments in energy, mobility and the environment
The federal government agreement introduces a number of measures aiming to create a resilient, innovative and sustainable economy which is able to compete on the global stage and which incentives investing in a sustainable future. For an overview of the key highlights in this respect, we refer to this PwC newsflash.
Harmonization of VVPRbis and liquidation reserve
Both the VVPRbis legislation and the so-called liquidation reserve are regimes which allow qualifying SMEs to benefit from a reduced withholding tax rate (instead of the standard 30% rate) on dividend distribution, provided specific criteria are met.
Simplified, and provided the necessary conditions are met and in case the contributions within the SME have been made as of 1 July 2023, the VVPRbis system provides for a reduced withholding tax rate of 20% for distributions as of the second year after the contribution, resp 15% as of the third year after the contribution.
On the other hand, Belgian tax law also provides for the so-called liquidation reserve which (again highly simplified) allows qualifying SMEs to allocate (a part of) its accounting profit after tax to the so-called ‘liquidation reserve’ whilst triggering a 10% tax on the allocated amount. In a subsequent step, and if a waiting period of at least 5 years has been respected, the liquidation reserve can be distributed at a 5% withholding tax rate. If this waiting period is not respected, 20% withholding tax will be applicable. No additional withholding tax would be applicable in case the liquidation reserve would be distributed upon the liquidation of the company.
In this respect, and with respect to the liquidation reserve, the federal government agreement proposes to reduce the waiting period from 5 years to 3 years and – for liquidation reserves established as from 1 January 2026 – to increase the applicable reduced withholding tax rate from 5% to 6,5%. Consequently, the effective tax rate would be increased to 15%, which equals the VVPRbis regime.
For dividend distributions which are made before the 3 years holding period has lapsed (and abstraction made for the distribution of the liquidation reserve upon liquidation of the company), the standard 30% withholding tax would be applicable.
Varia
- SMEs can in principle benefit from a reduced CIT rate of 20% (instead of the standard CIT rate of 25%) on the first EUR 100,000 of their taxable base. However, specific exclusions exist to this principle. One of these exclusions concerns SMEs that pay – as of the fifth taxable period after the date of incorporation – their company director a remuneration below EUR 45,000. The federal government agreement states that this minimum remuneration will be increased to EUR 50,000 and will be subject to the periodic indexation.
- The federal government agreement states that the so-called UBO (‘Ultimate Beneficial Ownership’) register (and related procedures) will be amended in order to reduce the administrative burden (and related costs).
- Taxpayers can request an advance decision in fiscal affairs through the Belgian Ruling Office in order to increase (upfront) legal certainty. The federal government agreement states that the Ruling Office will retain its decision-making autonomy, but the overall functioning and appointment procedure of the board members will be evaluated, resp. reformed.
- An emigration of a Belgian company can – under certain conditions – take place with so-called ‘legal and accounting continuity’. However (and highly simplified), any latent capital gains, (temporarily) exempted reserves, etc. might be subject to tax if no longer allocated to Belgium (i.e. the so-called ‘exit tax’).
In this context, the federal government agreement states that such emigration, from a Belgian tax perspective, should be considered as a (fictitious) liquidation of the legal entity. Consequently, not only the above-mentioned exit tax may be applicable, but the deemed (liquidation) distribution would be in-scope of the Belgian withholding tax provisions as well.
- Real estate transactions can be completed through e.g. a transfer of the (ownership rights of the) property or through a so-called ‘share deal’, as a result of which the company owning the real estate will be sold. The latter has significantly different tax consequences than a direct transfer of the real estate. In the federal government agreement it is stated that it is the intention to take action against such share deal transactions.
- The application of the legal entities’ tax (instead of the corporate income tax regime) in the hands of non-profit organisations will be evaluated. The tax framework with regards to private foundations will also be evaluated in order to avoid unintended use thereof.
- Belgium will continue participating in OECD and EU initiatives which aim for fair taxation. In addition, Belgium will implement international agreements regarding the so-called ‘digital tax,’ ensuring that large digital multinationals can be taxed even without a physical presence in Belgium. Absent any such international initiative, Belgium would aim to implement the digitax on a unilateral basis.
- In case reference is made to the so-called ‘list of tax havens’, legal certainty will be increased by referring to the list of tax havens as available per 1 January of the corresponding year (without taking changes to said list during the year into account).
Finally, and although – based on the so-called ‘Super Nota’ – expected before, the federal government agreement does not mention anything about – amongst others – the more flexible application of the so-called exceeding borrowing costs (30% EBITDA rule), nor a modification of the CFC rules. Also the possibility to carry-forward unused foreign tax credit is no longer included.
What is next?
As indicated before, the above reflects a high level (and non-limitative) overview of some of the key corporate income tax related measures included in the federal government agreement only. Additional details regarding most of these measures can be expected in the near future.
For more insights on the impact of these possible changes, please do not hesitate to reach out to your regular PwC contact.
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- Belgian tax reform
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