Belgian Tax reform – Entities – Companies
Latest update: 4 December 2019
In 2019, the second step of the Belgian corporate income tax reform entered into force. The main topics were the tax consolidation, the CFC rules, the exit taxation and the anti-hybrid rules (see below under “Measures for 2019”).
In 2020, the third and last step of the tax reform will enter into force. These changes mainly relate to the definition of the permanent establishment, the use of losses of foreign permanent establishments, the limitation of the deductibility of certain business expenses, the depreciation regime, the new definition of the “interest market rate”, and the conversion of exempted reserves to taxed reserves at a favourable rate (see below under “Measures for 2020”).
At the end of this year, we also expect a new amending law, which would notably give more details on certain aspects of the EBITDA rule. This draft law has just been introduced at the Chamber of Representatives.
As a reminder, a detail of the other measures provided by the Corporate Income Tax Reform Act and by the Act of 30 July 2018 on Various Income Tax Provisions (Official Gazette of 10 August 2018), hereinafter referred to as “amending law”, which amends and supplements the Corporate Income Tax Reform Act and the Program Act, can be found below.
Draft law amending the provisions transposing the ATAD Directives
On 3 December 2019, a draft bill amending the provisions transposing the ATAD Directives was submitted to the Belgian Chamber of Representatives. Several upcoming changes are related to the interest deductibility limitation (i.e. 30% EBITDA rule) which was introduced in the 2017 corporate income tax reform and applicable as of 1 January 2019 (assessment year 2020). If enacted, the draft legislation will substantially modify some of the concepts currently included in art. 198/1 CIT92.
The main changes included in the draft bill relate to the following:
- computation of deduction capacity; and
- allocation of €3mio threshold
(i) Computation of deduction capacity
The draft bill would significantly change the computation of the deduction capacity by introducing an obligation for group entities with a negative EBITDA to allocate this negative EBITDA to all other Belgian group members with a positive EBITDA in proportion to this positive EBITDA. The legislator confirms this step is needed in order to ensure an application of the EBITDA rule on an overall ‘consolidated’ basis.
A second change – with equal rationale – relates to the situation where some members of a group have net borrowing income. Under the draft bill such net borrowing income should be allocated to the deduction capacity of other Belgian group members with net borrowing costs, again in proportion to this net borrowing costs.
(ii) Allocation of 3 mio threshold
Subsequently, the draft bill foresees in three specific methods to allocate the €3 million threshold amongst Belgian group entities:
- a complex, mixed allocation based partially on the 30% of the group EBITDA, and partially of an allocation of the €3mio limiting amount;
- a more simplified allocation method, in which a group waives it right to apply the 30% EBITDA threshold (but will thereby also no longer have the burden to calculate the Tax EBITDA, including its intercompany eliminations, for each entity separately). In that case, the €3mio threshold will be allocated based on the net borrowing costs;
- an equal allocation between all group members.
Important to note is that, as a result of the new rules, members of a group would have to consistently apply either the 30% EBITDA as threshold or the €3mio as threshold. Application of the two thresholds within members of the same group would no longer be allowed.
Furthermore, the draft bill provides some clarification on the elimination of Belgian intra-group transactions and definitions regarding ‘group’ and ‘assessment periods’.
The concept of “economically equivalent to interest” when calculating the net borrowing cost, however, is still to be defined by Royal Decree of which no draft has been shared publicly per today.
Draft law transposing Directive (EU) 2018/822 of the European Council of 25 May 2018 modifying Directive 2011/16/EU regarding the automatic and mandatory exchange of information of cross-border tax arrangements
On 11 October 2019, the Council of Ministers approved, on the proposal of Finance Minister Alexander de Croo, the transposition of the European Directive that is better known as “DAC 6”. The draft law has just been introduced at the Chamber of Representatives.
The European Directive “DAC 6” provides for the obligation to declare certain cross-border tax arrangements to the Belgian tax authorities. This obligation is incumbent on both taxpayers and intermediaries, such as tax advisers and consultants. In order to capture potentially aggressive tax planning arrangements, the Directive also provides for general and specific “hallmarks”, namely a list of the features and elements of transactions that present a strong indication of tax avoidance or abuse (e.g. acquisition of loss-making companies in order to use these losses, conversion of income into capital, gifts or other categories of revenue that are taxed at a lower level or exempt from tax, specific hallmarks related to cross-border transactions, specific hallmarks concerning automatic exchange of information and beneficial ownership, and specific hallmarks related to transfer pricing). Certain hallmarks may only be taken into account if they meet the “main benefit test”, i.e. where a tax benefit is the main or one of the main objectives of the arrangement.
Like the Directive, the Belgian draft law would cover direct taxes, registration duties and inheritance taxes and would exclude domestic transactions. The draft law does not provide for additional hallmarks.
The draft law adheres to the existing Belgian professional secrecy rules. In this case, the legislator wanted to protect the interests of the taxpayer and provided for a specific procedure for lawyers and tax consultants where clients are given advice that falls under the professional secrecy rules.
Under this procedure, the intermediary would have the obligation to notify the other intermediary(ies) that he is prevented from reporting. This obligation would automatically be incumbent to the other intermediary(ies). In absence of intermediary, the obligation would fall upon the taxpayer. As regards professional secrecy rules, there is at all times the possibility for the client to waive application of the professional secrecy rules and enable the lawyer or tax consultant to nevertheless report. With this upfront notification, the professional secrecy rules would be fully observed. If the taxpayer would not authorize the intermediary to report, he would be responsible for the reporting and the lawyer or the tax consultant would have to provide him with the required information in order to comply with this reporting obligation.
In the case of marketable arrangements (a cross-border arrangement that is designed, marketed, ready for implementation or made available for implementation without a need to be substantially customised), the intermediary would be required to make a periodic report every 3 months.
The draft law would be applicable as from 1 July 2020. The first declarations would have to be made no later than on 31 August 2020 and would cover the aggressive cross-border tax arrangements put in place between 25 June 2018 and 1 July 2020.
The penalties would range from EUR 1,250 to 100,000, depending on the infringement.
Penalties would not be applied if the information regarding reportable cross-border arrangements the first step of which was implemented between 25 June 2018 and 1 July 2020 are filed before 31 December 2020.
Act of 2 May 2019 implementing Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (Official Gazette of 17 May 2019)
Directive (EU) 2017/1852 provides for an enhanced procedure for resolving cross-border direct tax disputes that puts taxpayer rights at the forefront, has a broader scope of application than the Arbitration Convention (for example residence issues, withholding taxes, definition of permanent establishment are now covered), and imposes an obligation on the competent authorities of the EU Member States to take conclusive and enforceable decisions that effectively resolve taxation not in accordance with a relevant double tax treaty. According to this legislation, meanwhile implemented in the Belgian legal order by an Act of 2 May 2019 (published in the Belgian Official Gazette on 17 May 2019), companies and individuals will be able to make a complaint under the new procedure as from 1 July 2019 for (cross-border) tax disputes concerning income or capital related to a taxable period commencing on or after 1 January 2018.
A dispute will have to be referred to the competent authorities of the Member States concerned by means of a formal complaint (art. 3). The “affected person” (large companies and companies that are part of a large group of companies) has to simultaneously submit the complaint with the same information to each competent authority, indicating in the complaint which other Member States are concerned. Small enterprises and individuals only have to submit the complaint to the Belgian competent authority. Once the complaint has been accepted and the taxpayer has provided the required information, the competent authorities of the tax administrations concerned will try to resolve the dispute by mutual agreement within 2 years, starting from the last notification of a decision of one of the Member States on the acceptance of the complaint. (art. 4). Both an obligation to produce a result and a timeline have now been set down. An Advisory Commission (art. 6) has to be set up if the complaint has been rejected by at least one but not by all of the competent authorities of Member States concerned or if the competent authorities failed to reach an agreement. If a complaint is rejected or the competent authorities fail to set up the Advisory Commission, the taxpayer can challenge that non-agreement or failure before the court of first instance. If deemed appropriate, the competent authorities can decide to set up an Alternative Dispute Resolution Commission (art. 10). The opinions of the Advisory Commission or of the Alternative Dispute Resolution Commission become binding if the competent authorities failed to reach an agreement.
The Belgian Implementing Act contains a number of provisions requiring special attention and a few that are more specific compared to the Directive. For instance, the Belgian legislator prescribes strict time limits within which the taxpayer has to provide information to facilitate proceedings and the time limits within which the tax administration has to act vis-à-vis the taxpayer or the foreign authorities concerned.Under this procedure, there is an obligation to publish the final decision (if not in its entirety, then as an abstract). Taxpayers who wish to rely on this procedure can do so while simultaneously applying administrative, judicial or other international procedures but will need to choose for one of these procedures at some point. Practice in the next few years will tell if this enhanced procedure lives up to the promise and will really lead to a more effective resolution of cross-border tax disputes.
Act of 2 May 2019 concerning various tax provisions 2019-1 (Official Gazette of 15 May 2019)
The Act introduces provisions on the following (non-limitative description):
- for multinational groups, the country-by-country reporting has to be completed by a specific company, normally the ultimate parent entity. If this company is the same as in the previous period, no new notification is needed. A new notification is only requested if there is a change. This relaxing of legislation will apply to reporting periods ending on 31 December 2019 or later;
- the abolishment of the investment reserve under the Act of 25 December 2017 has been withdrawn;
- slight changes are also brought to the EBITDA-rule :
- the computation of the EBITDA is adapted to exclude from the EBITDA-base the disallowed exceeding borrowing costs that are exempted (i.e. “use” of exceeding borrowing costs that were carried forward – art. 194 sexies ITC);
the provision related to the Belgian group of companies has been adapted in order to neutralize all the internal transactions within the group in the computation of the EBITDA;
the Code is also amended so that the EBITDA-measure remains tax neutral in case of re-organisation (in order that the disallowed exceeding borrowing costs are not lost in this case).
Act of 13 April 2019 amending the ITC 92 eliminating the sanction for non-compliance with the minimum director fee condition (Official Gazette of 26 April 2019)
The Corporate Income Tax Reform Act introduced a distinct taxation of 5% due by each company (large or small) that does not grant a minimum director fee of EUR 45,000 (EUR 75,000 for affiliated companies). The tax is due on the difference between the highest compensation actually paid and the required amount, and is deductible.
On 4 April 2019, however, the Chamber adopted the proposal eliminating the sanction for non-compliance with the minimum remuneration condition.
Article 219quinquies will be removed from the Income Tax Code. Therefore, the distinct taxation of 5% will be considered never to have existed and will not apply to any company, regardless of the amount of the director fee since 1 January 2018.
The provisions referring to this article are also modified.
Except for one provision, the new law is applicable as from the assessment year 2019 that is linked to a taxable period that starts, at the earliest, on 1 January 2018.
Act of 17 March 2019 adapting certain federal tax provisions to the new Companies and Associations Code (Official Gazette of 10 May 2019)
The Act of 23 March 2019 introduces the new (Belgian) Companies and Associations Code. This law reduces, for example, the number of types of companies while providing for the abolition of the notion of capital (except for the “société anonyme”/“naamloze vennootschap”). It also consolidates the switch from the “head office” theory (effective place of management) to the “registered seat” theory, i.e. the seat as set down in the company’s articles of association.
Therefore, adjustments to federal-level tax provisions are needed. The objective is to ensure the fiscal neutrality without changes to substance (save for exceptions).
The Act identifies companies with corporate capital (such as the “société anonyme”/“naamloze vennootschap”) and companies without capital. It will also include a new definition of the notions of capital and paid-up capital. The notion of “capital” will refer to a company’s equity as it is determined under the Belgian or foreign legislation to which the company concerned is subject to the extent that it is formed by contributions in cash or in kind other than industrial inputs.
As regards the company’s nationality, from a tax point of view, the rule will remain the rule of the “real seat” whereas the general rule in company law will become the “registered office” (“siège statutaire”/“statutaire zetel”). Consequently, new definitions of “companies”, “resident companies” (combined with a rebuttable presumption to avoid situations of double non-residence) and “foreign companies” are introduced in the Belgian Income Tax Code. Changes are also brought with regard to repurchases of own shares, mergers, demergers and other restructuring operations. Foreign companies or any taxable person receiving profits via a Belgian establishment will also incur new accounting obligations (exemptions can be provided for by Royal Decree).
Most of the provisions will enter into force on 1 May 2019. Transitional provisions are also provided.
A Royal Decree of 29 April 2019 implementing the Companies and Associations Code has also been published in the Official Gazette (30 April 2019).
Act of 11 February 2019 providing tax, fight-against-fraud, financial and various other measures (Official Gazette of 22 March 2019)
This law introduces provisions on the following (non-limitative description):
- the Belgian 30% EBITDA rule will enter into force retroactively as from assessment year 2020, i.e. financial years starting on or after 1 January 2019;
- reporting and withholding obligations: as from 1 March 2019, a reporting and wage withholding tax obligation will be introduced in the hands of Belgian employers/companies, in case affiliated foreign companies grant taxable benefits to employees or company directors working for a Belgian company (more information in our news flashes and on the “Individuals” section of our website);
- exemption for social liabilities: the amount of profits to be exempted is spread over the taxable period and the subsequent four periods at 20% per taxable period;
- legal constructions: where the taxpayer used certain legal constructions, the assessment and investigation periods will be extended to ten years
- tax rulings: decisions can no longer be issued on transactions or situations related to a tax haven that is not cooperative with the OECD or to a country that is mentioned on the list of States with low or no taxation except if this country exchanges information with Belgium
- exchange of information with third countries: in order for Belgium to meet its international obligations and to act in accordance with the OECD standards, the exchange of information on the “ultimate beneficial owner” register will be extended to include jurisdictions outside the EU with whom there is a legal basis for exchange of information with Belgium.
Act of 11 January 2019 containing measures to combat tax fraud and tax evasion with respect to withholding tax (Official Gazette of 22 January 2019)
- The law provides that the beneficiary of the movable income (interest, dividends, etc.) becomes liable for the payment of the withholding tax (“WHT”) when it has benefited from either an unlawful WHT exemption (this was already applicable in the case of misrepresentation) or an unlawful WHT refund. Furthermore, to avoid situations of double refund, the granting of a WHT refund will be subject to the condition that the applicant was the legal owner of the securities concerned on the date when the holders of rights were identified for a given corporate action.
- To avoid situations of double refund, the granting of a withholding tax refund will be subject to the condition that the applicant was the legal owner of the securities concerned on the date when the holders of rights were identified for a given corporate action.
- Finally, some specific provisions will be applicable to pension funds regarding “short-term shareholdings”. The law notably provides for a rebuttable presumption of non-genuine holding where a pension fund does not hold the shares in full ownership during at least 60 days. In other words, in order to benefit from a WHT exemption or refund with respect to shareholdings held for less than 60 days, Belgian and foreign pension funds will now have to evidence that there is no underlying artificial construction (reversal of the burden of proof). Practically speaking, the relief at source on short-term shareholdings is likely to be impaired.
The new rules entered into force on 22 January 2019.
Change to the definition of legal constructions subject to the Cayman Tax
The so-called ‘Cayman Tax’, introduced on 1 January 2015, is a taxation regime in the Belgian Income Tax Code that introduces tax transparency required of certain legal constructions set up by Belgian private individual tax residents. These individuals will be taxed directly, as if they had received the income directly, on the income derived from certain qualifying entities. In this respect, a distinction is made between 3 categories of legal structures: (i) trusts and other structures without legal personality (type 1), (ii) foreign entities with legal personality that are subject to an effective tax rate of less than 15% calculated in accordance with the rules of Belgian income tax law (type 2) while (iii) a legal construction type 1 or type 2 wrapped up in an agreement will be considered as a type 3 legal construction (type 3). In this respect, the legal structures of type 2 have been listed in two Royal Decrees dated 18 December 2015 (exhaustive list of entities within the European Economic Area – “EEA”) and 23 August 2015 (non-exhaustive list of entities outside the EEA). These two Royal Decrees have been modified by a Royal Decree of 21 November 2018 (legal constructions within EEA) and by a Royal Decree of 6 May 2019 (legal constructions outside EEA).
Royal Decree of 21 November 2018 (Official Gazette of 3 December 2018)
The Royal Decree of 21 November 2018 introduces three categories of legal constructions within the EEA that will be considered as legal constructions that may fall within the scope of the Cayman Tax going forward:
- investment vehicles (private UCIs and AIFs) that are held by one individual or several individuals who are related to each other, including SICAV-SIFs;
- entities that are not transparent for Belgian income tax purposes, but that are tax transparent in the jurisdiction within the EEA where they are established. However, entities are also not considered transparent if the shareholders pay, in the country where the company concerned is established, tax of at least 1% of the income realized in the residence state (to be determined in accordance with the Belgian income tax rules) ;
- entities with legal personality established in the EEA and which are not subject to income tax or are subject to income tax that is less than 1% of the taxable income realised (as determined under the Belgian income tax law rules). This 1% threshold will only be applicable to entities that do not fall within the scope of category 1 or 2 (priority rule).
The entities as defined under 2 and 3 are not considered to be legal constructions in the case that the income derived by the legal construction would be exempted from Belgian income tax under the applicable double tax treaty if the Belgian tax resident founder of the legal construction had received the income directly.
The Royal Decree will apply to income received, granted or made payable by legal constructions as from 1 January 2018.
Royal Decree of 6 May 2019 (Official Gazette of 16 May 2019)
The new Royal Decree aims to align the rules for entities outside of the EEA with the new rules that were already implemented by the end of last year for entities within the EEA. The Royal Decree still refers to an effective tax rate of 15% calculated according to the rules of Belgian income tax law and contains a (non-exhaustive) list of entities that are presumed to fall within the scope of the Cayman Tax. However, the Royal Decree furthermore clarifies that the following entities – similar to entities established within the EEA – are presumed not to be subject to an effective tax rate of 15%:
- investment vehicles (private UCIs and AIFs) that are held by one individual or several individuals who are related to each other;
- the so-called hybrid entities, e.legal structures that are not transparent for Belgian income tax purposes but which are tax transparent in the jurisdiction where they are established.
The Royal Decree applies to income received, granted or made payable by legal constructions on or after 1 January 2019.
Corporate Income Tax Reform Act of 25 December 2017 (Official Gazette of 29 December 2017)
Corporate income tax rate
The standard corporate income tax rate of 33% is lowered to 29% in 2018 and to 25% as from 2020. Small and medium-sized enterprises (SMEs) will see a decrease in the rate to 20% as from 2018 for the first bracket of EUR 100,000 in profit. These rates are to be increased with the crisis tax, which is also lowered for 2018 and will be abolished in 2020.
|Old corporate income tax rate||33%||33%|
|New corporate income tax rate||29%||25%|
|SMEs (first bracket of EUR 100.000)||20%||20%|
|Former crisis tax||3%||3%|
|New crisis tax||2%||0%|
Measures for 2018
- The 95% dividends-received deduction (DRD) is increased to 100%, resulting in a full participation exemption.
- The separate 0.412% capital gains tax for multinational enterprises on qualifying shares is abolished, while the conditions to benefit from the capital gains exemption are brought in line with the DRD. This implies the application of a minimum participation threshold of at least 10% or an acquisition value of at least EUR 2.5 million in the capital of the distributing company.
- Capital gains on shares whose dividends partly entitle to the DRD regime are also partially exempted (DRD-SICAVs/BEVEKs, SIRs/GVVs etc.). Specific rules apply to capital gains after a restructuring.
- In a nutshell, in 2018 and 2019, capital gains on shares are:
- exempted provided that all the conditions are met;
- taxed at 25.5% if the one-year holding period requirement is not met;
- taxed at 29.58% if the participation condition or taxation condition is not met.
- As from 2020, capital gains on shares are:
- taxed at the standard rate (25%) if one condition is not met.
- also exempted when all the conditions are met
- The wage withholding tax exemption for scientific research personnel is extended to include holders of a bachelor’s degree. The exemption is applicable for up to 40% of this wage withholding tax as from 1 January 2018, and for up to 80% as from 1 January 2020.
- The notional interest deduction (NID) is maintained, but, as from 2018, it is 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. Simplified, the incremental equity equals one-fifth of the positive difference between the equity as at the beginning of the taxable period and that as at the beginning of the fifth preceding taxable period. The current rules on equity formation and exclusions as well as on stock of carry-forward NID remain applicable. The rate is the rate of the financial year to which the tax return relates. An anti-abuse measure is introduced by the amending law to tackle the contribution in capital made by an affiliated company by means of borrowed funds. Two other specific anti-abuse provisions are added in order to exclude from the calculation base the receivables from and the capital contributions by a non-resident taxpayer or a PE situated in a country that does not exchange information with Belgium, except if the company can prove that the concerned operations meet lawful financial or economic needs. Finally, the amending law provides for the application of the continuity principle in case of contribution of one or more branches of activity or universality of goods (as it is in case of mergers, demergers, etc.).
- To finance these new measures, a minimum tax charge is imposed on companies making profits of more than one million euros by limiting the number of corporate tax deduction items (“tax attributes”). Also a new order of deduction applies (see below). As from 2018, deduction items outside the basket are fully deductible. Deduction items within the basket can only be claimed on 70% of profits exceeding the one-million threshold. The remaining 30% of profits are fully taxable at the above new rate. The tax attributes concerned are the deduction of carry-forward tax losses (CF losses), carry-forward dividends-received deduction (CF DRD), carry-forward innovation income deduction (CF IID) and carry-forward notional interest deduction (CF NID) as well as the new incremental NID. Deduction for investments (whether general or innovation related) is excluded. The new rules do not apply to losses incurred by SMEs starters.
- The current limited deduction of prior-year losses in the framework of a tax-neutral reorganisation also applies to the CF DRD. The amending law provides that this provision is applicable to operations executed as from 1 January 2018.
- Minimum company director fee: SMEs can benefit from the reduced corporate income tax rate on the first bracket of EUR 100,000 if certain conditions are met. In this regard, the company must grant to at least one company director (natural person) a fee of minimum EUR 45,000 (instead of EUR 36,000) or possibly lower, depending on the taxable income. Exceptions are available for SME start-ups. The amending law specifies that the director receiving the minimum fee has to be a natural person. Exceptions are also provided for SME start-ups.The above measure is applicable for corporate income tax purposes. The distinct taxation of 5% if the condition of the minimum director fee is not met, has been removed from the Income Tax Code by a proposal adopted by the Chamber on 4 April 2019 (see above).
- SMEs benefit from an increase in the investment deduction from 8% to 20% for the next 2 years (assessment years 2019 and 2020) for asset acquired or created between 1 January 2018 and 31 December 2019.
- Reimbursements of paid-up capital: the reimbursement of capital is deemed to derive proportionally from paid-up capital and from taxed reserves (incorporated and non-incorporated into capital) and exempted reserves incorporated into capital. The reduction of capital will be allocated to paid-up capital in the proportion of the paid-up capital in the total capital increased with certain reserves. The portion allocated to reserves is deemed to be a dividend and becomes subject to withholding tax (if applicable). Share premium distributions are submitted to the same system. Exempted reserves not incorporated into capital continue to be outside the scope of the rule. Some elements, such as (but not limited to) revaluation surpluses, provisions for liabilities and charges, and unavailable reserves, have to be withdrawn from the reserves taken into account for the coefficient calculation. A sequence of allocation has been set for situations where the amount of the paid-up capital and sums being treated as capital are insufficient. This change is applicable to capital reductions decided by general meetings held on or after 1 January 2018
- Pre-paid costs have to be deducted in the year of payment in the proportion of the part of the charge that relates to this accounting year (application of the accounting matching principle). It is then no longer possible to shift costs that will only be made in the future to the current year in order to reduce the tax charge on the current-year profits
- Provisions for risks and charges are only deductible for tax purposes if:
- they correspond to an existing and known obligation at year-end closing (in addition to the other conditions already existing)
- they result from any contractual, legal or regulatory obligation (other than those resulting merely from the application of the law on accounting rules and annual accounts). This change does not apply to existing provisions created before assessment year 2019.
- Other measures to apply as from 2018 include (without being limited to) the removal of the investment reserve system and a change to the capital gains tax for which spread taxation was requested but for which the re-investment did not take place within the legal deadline or in compliance with the legal conditions: such capital gains will be taxed at the nominal rate applicable in the year in which the capital gain is realised.
- Further to the 100% DRD, the special Tate & Lyle withholding tax rate is replaced by a withholding tax exemption.
Compliance related measures (as from 2018)
- Tax supplements resulting from a tax audit will effectively become due, without the possibility to offset these supplements against, for instance, current-year losses. It will, however, remain possible to claim the DRD of the current financial year. Such tax supplements will constitute a minimum tax base. This measure only applies if tax penalties equal to or higher than 10% are effectively applied. In other words, questions of principle would normally be outside the scope of this new rule.
- Companies will be encouraged to make more tax prepayments. The basic interest rate increases to 3% (instead of 1%). The increase will always be applied as from 2018. The rate of the tax increase with regard to advance payments will be 6.75% in assessment year 2019.
- In the absence of a corporate tax return, the minimum taxable lump sum amounts to EUR 34,000 from 2018, and to 40,000 from 2020 (instead of currently EUR 19,000). It will be indexed on an annual basis. In the event of repeated infringements, the minimum taxable lump sum increases from 25% to 200% (from the fifth infringement). The taxpayer may always produce evidence to the contrary.
- The default interest and late payment interest system has been reviewed. Late payment interest amounts to minimum 4% (and maximum 10%). The default interest rate is 2% lower than the late payment interest rate. These rates are linked to the OLO interest rate and will then be adapted on an annual basis according to the latter rate. The default interest rate is due as from the first day of the month following the month of the formal notice and provided that the taxpayer has actually paid the tax.
Measures for 2019
- For the first time in Belgian income tax history, tax consolidation will be introduced as from assessment year 2020, i.e. years starting 1 January 2019 or later. In practice, Belgian companies will be able to transfer taxable profits to other Belgian affiliated companies with the aim to offset these profits against current-year tax losses. This transfer has been coined “deduction of the group contribution”. In the end, the group companies will compensate each other for the tax burden of the group contribution, as a result of which the tax consolidation will be financially neutral. The scope of the consolidation regime is limited to certain qualifying companies:
- a 90% direct shareholding between the companies (or via the EEA parent company) during the entire assessment year is required, limiting the scope to the parent, subsidiary and sister companies and their Belgian permanent establishments;
- the measure is limited to group companies that have been affiliated for at least the last five successive calendar years;
- some companies such as investment companies and regulated real estate companies (SIRs/GVVs) are excluded.
In order to benefit from this new system of tax consolidation, the group companies concerned have to conclude a “group contribution agreement” that meets the following conditions (that have to be effectively put in place):
- the agreement covers a specific assessment year;
- it has to mention the amount of the group contribution;
- the receiving resident company or permanent establishment (PE) commits to report the amount of the group contribution in its tax return (corporate income tax or non-resident income tax) as included in the profits of the assessment year (no deduction other than the current-year loss can be claimed against the amount of the group contribution; in this regard, the amending law provides that no deduction can be made on the part of the intragroup transfer that would exceed the current-year loss);
- the taxpayer commits to pay the receiving resident company or PE a compensation corresponding to the additional tax that would have been due if the group contribution had not been deducted from the profits of the assessment year;
- the agreement is filed together with the tax returns of the entities concerned (each entity is still required to file its individual tax return).
The group contribution is deductible from the taxpayer’s profits of the assessment year provided that the profit is effectively included in the tax return of the receiving company and provided that the compensation has actually been paid (proof should be provided if requested).Under similar conditions it will in practice also be possible to deduct final losses of a foreign subsidiary under the consolidation regime. However, a recapture rule of the final losses is introduced when the activities are restarted within the period of three years in the foreign country.The amending law provides for an anti-abuse measure in the case of reorganisation. According to this provision, a merged company can only qualify for the consolidation if all individual companies were qualifying companies before the merger.
- The Corporate Income Tax Reform Act implements 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). The implementation of the measures (i.e. CFCs, exit taxation, hybrid mismatches and the interest limitation rule) will take effect in 2019.
- Under the new CFC rules, certain non-distributed income of a CFC will become taxable in Belgium at the level of the Belgian controlling taxpayer. A CFC is a low-taxed foreign company (or foreign PE) of which a Belgian taxpayer (alone or together with its associated enterprises) holds directly or indirectly more than 50% of the voting rights or the capital or is entitled to receive more than 50% of the profits of that entity. In addition, the CFC either is not subject to income tax under the applicable rules of its residence State or is subject to income tax that is less than half of the corporate income tax of the CFC computed based on Belgian rules.Based on the so-called transactional approach, non-distributed income of the CFC arising from (a series of) non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage becomes taxable. This is the case to the extent that the CFC would not own the assets or would not have assumed the risks that generate all or part of its income if it had not been controlled by a company where the significant people functions that are relevant to those assets and risks are carried out and are instrumental in generating the CFC’s income. Income that is not generated by assets or risks linked to the significant people functions carried out by the controlling company is out of scope. Measures to avoid double taxation are provided via a 100% DRD for distributed income or, as it is introduced by the amending law, for non-exempt capital gains when the CFC is transferred provided that the income has already been subject to tax under the Belgian CFC rules.The CFC rule will enter into force as from an assessment year 2020 that is linked to a taxable period that starts, at the earliest, on 1 January 2019.The amending law introduces an obligation for the taxpayer to report the existence of a CFC whose profits are taxable in its hands. The same reporting obligation is extended to the existence of a permanent establishment whose profits are not attributed to this permanent establishment.
- The exit taxation rules are further completed by covering all transactions referred to in the ATAD I Directive (e.g. transfers of assets from head office to PE) and by imposing a step-up in the case of an inbound transfer from another Member State or from third countries provided that the gain has been subject to tax in the exit State and Belgium has concluded with the exit State a bilateral treaty or a bilateral or multilateral instrument that allows for an exchange of information.The Act of 1 December 2016 already introduced the option to defer the exit taxation over 5 years and the possibility to request a guarantee (without interest) (see existing art. 413/1 of the Income Tax Code (ITC)).The new exit taxation rules will enter into force on 1 January 2019 for transfers taking place on or after 1 January 2019.
- A series of rules and definitions is inserted in Belgian tax legislation to tackle hybrid mismatches, tax residency mismatches and imported mismatches in line with the ATAD II Directive.These new hybrid measures will enter into force as from an assessment year 2020 that is linked to a taxable period that starts, at the earliest, on 1 January 2019.
- A new interest limitation rule is introduced on the basis of article 4 of the ATAD I Directive (“30% EBITDA rule”).
- This new rule must be computed at the level of each taxpayer (Belgian company or PE). Three types of taxpayers are out of scope: financial undertakings, standalone entities, and public private partnerships. According to the amending law, the list of financial undertakings out of scope includes leasing and factoring companies (the latter must be operating “within the financial sector”), as well as companies which main activity is the financing of real estate through the issuance of real estate certificates.
- The exceeding borrowing costs are computed on a net basis and they take into account payments economically equivalent to interest (exact guidance still to be communicated – based on the Directive). Three types of loans are outside the scope of the exceeding borrowing cost computation: loans granted before 17 June 2016 without “fundamental modification” (grandfathering rule – still subject to old 5:1 thin cap rule), loans in relation to public-private co-operation projects, and loans granted between Belgian entities that are part of the same group.
- The law offers a mechanical rule to compute the tax EBITDA, which starts from the result of the taxable period after the first operation.
- For each taxpayer, exceeding borrowing costs will be deductible up to the highest amount of 30% tax EBITDA or EUR 3 million (= de minimis/safe harbour rule – EUR 3 million to be allocated across Belgian group entities – exact guidance still to be communicated). Disallowed exceeding borrowing costs can be carried forward without time limit. Alternatively, the amending law provides for a transfer of “deduction capacity” to another Belgian group entity (while the current law provides for a transfer of exceeding borrowing costs). This must be analyzed in conjunction with the new consolidation regime. Disallowed exceeding borrowing costs are not part of the tax base as set in article 185bis, which means that the companies taxed on this basis (e.g. regulated investment companies or regulated real estate companies) are de facto out of scope.
Although this measure would only enter into force as from 2020, the Belgian government decided in July 2018 that it would advance the entry into force to 2019 (assessment year 2020 that is linked to a taxable period that starts, at the earliest, on 1 January 2019).
Measures for 2020
- Permanent establishments (PE):
- The PE definition in Belgian legislation has been modified in line with the OECD/BEPS guidelines containing a more economic PE concept. Although the domestic PE definition is mainly relevant for non-treaty situations, this modification will ensure that national legislation does not create an obstacle if and when the new PE concept is introduced in Belgium’s double tax treaties. The definition of Belgian PE includes commissionaires or similar companies that act in their own name but which are closely connected with a foreign company. The PE definition will be further adjusted in line with BEPS Action 1 (Digital economy) and related ongoing EU actions.
- The deduction of foreign PE losses by a Belgian head office will going forward only be granted for final PE losses from within the EEA. PE losses are final when the PE’s activities have been terminated and to the extent that these losses are not deducted from other income in the PE State (e.g. income from other entities or in the framework of a tax consolidation). The possibility of recapture is introduced for deducted final PE losses in the event that the Belgian company would restart activities in the PE State within three years after the PE’s closure.
- Discounts on long-term debts related to non-depreciable assets will no longer be deductible.
- Company cars: the tax reform also aims – once more – to strengthen the rules on the tax charge applied to company cars for Belgian companies. In general, under the current system, the deductibility rate of car costs for Belgian companies and Belgian PEs varies in a range of between 50% and 120% of the costs, depending on the type (fuel) and CO2 emission of the company car. The deduction for fuel costs is set at 75%.These rules change as follows:
- The deductibility rate of car costs is linked to the actual CO2 emission level of the car and will range between 50% and 100% according to the following formula: 120% – (0.5% x coefficient x gr CO2/km). The coefficient is 1 for vehicles running on diesel, and is 0.95 for vehicles with a different engine. For highly-polluting cars, the deductibility will be limited to 40%. A highly-polluting car is a car with a CO2 emission of 200 grams or more.
- Under the current rules, car costs for so-called ‘fake’ hybrid cars (rechargeable hybrid cars) can easily be deductible at 90 or 100% because of the posted low CO2 emission level. According to the new rules, ‘fake’ hybrid cars are vehicles with a fuel engine and a rechargeable electric battery with an energy capacity lower than 0.5 kWh per 100 kg of vehicle weight, or with a CO2 emission level of more than 50 gr/km. Under the new rules, the deductibility and tax charge on the corresponding benefit in kind are aligned to the tax treatment of its non-hybrid counterpart. By lack of corresponding car, the CO2 emission value will be multiplied by 2.5. The current system continues to apply to hybrid cars acquired before 1 January 2018.
- The deduction for fuel costs is no longer fixed (at 75%) but will also be linked to the CO2 emission of the car.
- Costs in relation to electric cars are only deductible up to 100% instead of 120%.
- Exceptions to the limited deductibility will be available for taxi services, rental cars with drivers, driving schools and vehicles leased only to third parties. The limited deductibility is also inapplicable to taxpayers who re-invoice the car costs to a third party.
- Limited deduction of other business expenses such as fines and taxes: all administrative fines imposed by a public authority become disallowed expenses even if they do not qualify as a criminal penalty or if they are related to deductible taxes. Increases related to social security contributions also become disallowed expenses. The distinct tax charge on secret commissions is no longer deductible. Hidden profits are no longer reincorporated into the corporate accounts, and the reduced rate applicable in this case is abolished. Other costs deductible at a rate of 120% are deductible up to 100%.
- Other measures that will only become effective in 2020 concern notably the possibility to convert exempted reserves (created before 2017) into taxed reserves at a favourable tax rate, and changes in the depreciation regime: the double-declining balance method will be abolished and, as with large enterprises, for the year of investment,SMEs will only be entitled to apply a prorated deduction.