Belgian tax reform reduces corporate rate to 25% and introduces fiscal consolidation

Published

On 26 July 2017, the federal government reached an agreement on an important tax, economic and social reform package. A significant gradual reduction in the corporate income tax rate to 25% in 2020 and fiscal consolidation are key components of the package. The agreement preserves the notional interest deduction.

The tax reform is built around three pillars: budget neutrality, simplification and fair taxation. On top of the tax reform, several additional measures will be taken to boost job creation, with corresponding investments in the active Belgian economy. For instance, certain employment law rules are relaxed for the e-commerce sector. Also the PRICAF for asset management will be made more attractive.

In order to finance the reforms, the agreement contains some compensating measures.

Details on the announced measures, including draft legislation and implementation dates are expected to follow in September. More details will follow in a later stage.

 

Corporate income tax rate

The standard corporate income tax rate of 33% will be lowered to 29% in 2018 and to 25% as from 2020. SMEs would even see a decrease in the rate to 20% as from 2018 for the first tranche of EUR 100.000 profit. These rates are to be increased with the crisis tax, which will also be lowered for 2018 and abolished in 2020. See the below summary.  

2018 2020
Old 33%         33%       
New 29% 25%
SMEs (first tranche of 100.000 euros)     20% 20%
Crisis tax old 3% 3%
Crisis tax new 1,5% 0%

At this stage, the status of the Fairness Tax remains unclear, the tax reform being silent on this topic.

 

Corporate income tax base – measures announced for 2018

  • To compensate these new measures, a minimum tax charge would be imposed on companies making more than one million euros profits by limiting a number of corporate tax deductions. As from 2018 a basket of deductions could only be claimed on 70% of the profits exceeding the one million threshold. The remaining 30% would be fully taxable at the above mentioned new rate. The deductions concerned are the deduction of tax losses carried forward, the dividends received deduction carried forward, the innovation income deduction carried forward and the notional interest deduction (carried forward and new incremental NID). Deductions for investments (general and innovation) are excluded. With this measure, any company would always pay 7,5% tax on the amount of profits exceeding one million euros (with a corporate income tax rate of 25% as from 2020). The deductions which cannot be used because of this new rule can still be carried forward. The concrete features of this measure currently remain unclear.
  • The separate 0,412% capital gains tax on qualifying shares would be abolished, while the conditions to benefit from the capital gains exemption would be aligned with the dividends received deduction. This implies the application of a minimum participation threshold of at least 10% or an acquisition value of at least 2.5 million euros in the capital of the distributing company.
  • The notional interest deduction, finally maintained, will be modified to stimulate the increase of equity. As from 2018, this deduction would be calculated based on the incremental equity (over a period of five years) and no longer on the total amount of the company’s qualifying equity, with some transitional rules.
  • Reimbursements of paid-up capital would become subject to withholding tax to the extent that taxable reserves are deemed to be distributed (pro rata method).
  • Pre-paid costs will have to be deducted in the tax years to which they relate (application of the accounting matching principle).
  • Other measures to apply as from 2018 include amongst other the extinction of the investment reserve regime and the taxation of capital gains for which spread taxation was requested but not applied.

 

Corporate income tax base – measures announced for 2020

  • For the first time in Belgian income tax history, tax consolidation would be introduced as from 2020. This implies that Belgian companies of the same group could offset their tax losses against profits of another Belgian affiliated company. Only the consolidated tax base would then be subject to corporate income tax. Details on the system’s application in practice are not yet available.
  • By 2020, the European Anti-Tax Avoidance Directives I and II (Council Directive EU 2016/1164 of 12 July 2016 and Council Directive EU 2017/952 of 29 May 2017) would be implemented, introducing rules on controlled foreign corporations (CFCs), a 30% EBITDA interest limitation, an exit taxation and hybrid mismatches.
  • Other measures that would only become effective in 2020 relate to the abolishment of double-declining balance and pro rata depreciation, stricter rules for deducting car costs and fines/taxes (including the secret commissions tax which will be fully disallowed), the adoption of a more economic definition of a PE to avoid profit shifting (following the BEPS Action Plan) and the restriction of the use of losses of foreign PEs.

 

Compliance

  • Tax supplements resulting from a tax audit will effectively become due, without the possibility to offset these supplements with e.g. current year losses.
  • Companies will be encouraged to make more tax prepayments. Companies with insufficient corporate income tax prepayments will end up paying more because of a higher basic interest rate used to calculate the tax increase. The increase will always be applied as from 2018. 
  • Gradual increase of fines to EUR 40.000 in case no tax return is filed.
  • Moratorium interest and late payment interest will be linked in the future to the OLO interest rate (with a minimum of 2% for moratorium interest). Late payment interest will always be 2% higher than the moratorium interest.

 

Research & development – measures for 2018

  • The wage withholding tax exemption for scientific research personnel would be extended, to include holders of a bachelor’s degree.
  • SMEs will benefit from a temporary increase in the investment deduction from 8% to 20%.

 

Taxation of savings

  • Much debated was the new annual tax on securities accounts. The government reached an agreement to tax portfolios of EUR 500.000 or more at a rate of 0,15% on the full amount on the account. The assets in scope consist of quoted shares, bonds and investment funds. Pension saving accounts and life insurance are excluded.
  • The threshold for the traditional exemption of withholding tax on interest received on savings deposits would be decreased from EUR 1.880 to 940.
  • To stimulate investment in shares, the government provides a new withholding tax exemption for dividends up to a threshold of EUR 627, the so-called Michel-De Croo measure.
  • Pension savings are further encouraged by adding a second option to the tax reduction system.
  • Other measures: The tax burden on investment income from funds is also expected to increase. The same will apply for the rates of the stock exchange transactions tax. And finally, certain loopholes relating to the Cayman tax would be closed. However, few details are currently available in this respect.

 

Promotion of growth companies

  • The regulatory framework of the private PRICAF will be made more attractive by relaxing the control rules, the management activity and the temporary investment. Also the minimum investment threshold of EUR 100.000 would be decreased to EUR 25.000.
  • The tax shelter for start-up companies providing for a tax credit of up to 30% for a period of four years will be extended to growth companies under the same conditions

 

Option to apply VAT on immovable letting

  • The Belgian Government decided to introduce the possibility for landlords to apply VAT on immovable lettings.  For years, investors and landlords in Belgium have been struggling with the cost of non-recoverable or hidden VAT on their real estate as most forms of lettings are VAT exempt. With the new optional regime, the cost of investing in real estate should decrease significantly as input VAT paid on construction and operating costs will become recoverable.  

 

Remark: The above announced measures will have to be formalised in draft legislation which should only be available as from September/October. Only then will full details be known.

 

Don’t hesitate to visit regularly our tax reform website for more information when it is made public.

For any questions you can contact your local PwC contact, Patrick Boone or Philippe Vanclooster.

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