This summer, the Parliament adopted a range of new tax measures (more details below). Other measures are currently under review at the Chamber or pending before the State Council. More details on the new tax measures are announced on our website: Tax reform in Belgium.
Patent income deduction
The Act of 3 August 2016 providing urgent tax provisions abolishes the current patent income deduction system as of 1 July 2016. The transitional regime allows taxpayers to still apply the patent income deduction system on patent income obtained until 30 June 2021. However, the transitional regime is only applicable to patents requested or acquired before 1 July 2016. Further, the current regime would be replaced by a new regime, i.e. the innovation income deduction. ‘The future regime’, announced for the year-end, would be in line with the nexus approach and would be applicable as of 1 July 2016.
Reduced withholding tax for dividend payments to non-resident minority shareholders (Tate & Lyle)
According to the Act of 18 December 2015, dividends distributed by a Belgian company to non-resident minority corporate shareholders are subject to a reduced withholding tax rate of 1.6995% (instead of 27%) if certain conditions are met. But no taxation condition was required in the hands of the non-resident beneficiary of the dividend. The Act of 3 August 2016 providing urgent tax provisions introduces a taxation condition in the hands of both the Belgian company distributing the dividend and the non-resident company. It also requires that the beneficiary company is not a Belgian resident company. The Act of 3 August 2016 also provides that this certificate needs to state the beneficiary’s contact details and that the beneficiary qualifies for the taxation condition. These measures apply to dividends paid or attributed as from the date the Act is published in the Belgian Official Gazette (11 August 2016).
New transfer pricing documentation requirements
The Program Act of 1 July 2016 introduces formal transfer pricing documentation requirements, compelling multinational groups with operations in Belgium – subject to certain conditions – to submit a Master file, a Local file and a Country-by-Country (‘CbC’) report.
The obligation to file a Master file and Local file documentation will be imposed upon every Belgian entity of a multinational group that, on the basis of the Belgian annual financial statements related to the accounting period immediately preceding the last accounting period, exceeds one of the following criteria:
- Operational and financial revenue of at least EUR 50 million; or
- Balance sheet total of EUR 1 billion; or
- Annual average number of employees of 100 full-time equivalents.
The CbC report should be filed by the Belgian ultimate parent entity of a multinational group that has a gross consolidated group revenue of at least EUR 750 million, as reflected in the consolidated financial statements during the year preceding the reporting year. Under certain conditions, the Belgian entity that is not the ultimate parent entity of the multinational group may be required to file the CbC report directly with the Belgian tax authorities.
The Master file and CbC report should be filed no later than 12 months after the last day of the multinational group’s reporting period concerned. The Local file should be filed with the tax return concerned.
The Programme Act also introduces specific transfer pricing documentation penalties, ranging from EUR 1,250 to EUR 25,000.
The transfer pricing documentation requirements will apply to accounting years that started on or after 1 January 2016.
Extended reporting obligations for payments to tax havens
Belgian taxpayers are obliged to report direct or indirect payments to tax havens, under certain conditions.
The Program Act of 1 July 2016 extends the scope of this reporting obligation. As of 14 July 2016, the scope is extended to payments to:
- permanent establishments located in a State with a low or zero tax charge
- bank accounts managed or held by one of these people or permanent establishments
- bank accounts managed or held through credit institutions (or their permanent establishment) located in one of those States.
The definitions of ‘non-compliant State’, ‘State’ and ‘State with low or zero’ tax charge are also enlarged.
New specific reporting obligations for financial institutions
Financial institutions will also have to report automatically and periodically to the CTIF/CFI their operations (including payments to) with the tax havens referred to in the lists of States with a low or zero tax charge (entry into force on 14 July 2016) (Program Act of 1 July 2016).
Administrative fines in case of omission to report legal construction (Cayman tax)
Under the Program Act of 1 July 2016, the Belgian government has introduced a specific administrative fine for taxpayers who have omitted to state the existence of such a legal construction in their annual income tax return. The fine amounts to EUR 6,250.00 per year and per legal construction that is not mentioned.
Fiscal treatment of the ‘sharing economy’
The Program Act of 1 July 2016 introduces specific fiscal provisions regarding income received by a private individual (outside a business activity) from services provided to another private individual using an electronic platform, which is recognised or organised by the Government. This income will constitute a separate category of ‘miscellaneous income’ in the Belgian Income Tax Code. If certain well-defined conditions are strictly met and if the income does not exceed a certain threshold (i.e. EUR 5,000, which is the indexed basic amount of EUR 3,255 on an annual basis), a flat tax rate of 20% will be applicable, after application of a 50% lump-sum cost deduction. Consequently, the effective tax rate will be 10%. The tax provisions on the sharing economy are applicable as of 1 July 2016. As a result, for income year 2016 (tax year 2017) the above-mentioned threshold is reduced by half (i.e. EUR 2.500, which is the indexed amount of EUR 1.627,50). If the threshold is exceeded, the full income will deemed to be earned income (however, it is possible to provide evidence to the contrary).
Extended investigation period when tax information is received from abroad
Belgian legislation provides an extension of the period to issue an assessment notice with 24 months in case the Belgian tax authorities receive information from a tax audit or investigation conducted by the competent authorities of another State showing that taxable income was not declared in Belgium within a 5-year period preceding the year during which the tax authorities receive the relevant information from abroad. Under the Program Act of 1 July 2016, the Belgian Government brings the term of the investigation period in line with the special assessment period of 24 months. Furthermore, the scope of application is extended to ‘any information received by the competent authority of another State’. This means that information can also be received spontaneously or via automatic exchange of information. In case of tax fraud, the above period of 5 years is extended to 7 years.
New permanent fiscal amnesty
The Act of 21 July 2016 introduced a permanent fiscal amnestywhichprovides taxpayers with a possibility – under certain conditions – to regularise income that has incorrectly not been subject to Belgian standard income taxes as well as evaded Belgian VAT. This income is taxable at standard tax rates, increased by 20%.
In addition to the federal fiscal amnesty system, the Act of 21 July 2016 also introduced a permanent system of social amnesty concerning the regularisation of social security contributions on professional income earned by a self-employed person.
New annual bank tax
The Act of 3 August 2016 establishing a new single annual bank tax has been published in the Belgian Official Gazette on 11 August 2016. This tax replaces four different existing taxes (including the newly-introduced Financial Sector Contribution), with a view to a better distribution of the tax burden between small and large banks.
In practice, the tax is inserted in the Code on Various Duties and Taxes; it is based on the debt to customers of a given year and it has to be paid by 1 July of the following year. For 2016, the tax is calculated based on the debt to customers as at 31 December 2015 and has to be paid by 16 November 2016. As from 2017, to avoid ‘data manipulation by year-end’, the tax will be computed based on the annual average of the debt to customers.
At this stage, the contemplated change does not concern insurance companies or other types of institutional investors such as collective investment undertakings.
New real estate investment funds
The Program Act of 3 August 2016 contains several tax rules applicable to the existing Belgian Regulated Real Estate Company (‘RREC’) and the new Belgian Real Estate Investment Fund (‘FIIS’).
The FIIS is a Belgian special real estate fund system dedicated to institutional investors. The fund is not listed on a stock exchange and proves to be attractive from a tax perspective, in particular for non-Belgian investors and/or for investing in non-Belgian real estate. From a regulatory perspective, this system is highly flexible as it benefits from a light registration procedure and a minimal number of restrictions. For an overview of the amendments of the AIFM law, read our newsflash of 25 July 2016.
A FIIS is subject to Belgian corporate income tax but with a minimal taxable basis, excluding rental income, capital gains, dividends or interest received by the FIIS in relation to Belgian and non-Belgian real estate (similar as is the case for existing RRECs).
An ‘exit tax’ is triggered on Belgian real estate assets entering the FIIS system via conversion of an existing company, (de)merger or contribution. The tax is due on unrealised capital gains at a favourable tax rate of 16.995% and can be offset against available tax attributes.
The Program Act II also brings some major changes to the current tax system applicable to the RREC (these proposed changes will be equally applicable to the FIIS):
- The favourable exit tax rate also becomes applicable if a company contributes Belgian real estate assets to the RREC (previously they were taxable at the default tax rate);
- The dividend withholding tax exemption on the part of income stemming from foreign real estate applies;
- Effective taxation is limited to 1.7% on dividends distributed by the RREC to Belgian corporate investors to the extent that it relates to the part of income stemming from foreign real estate or from dividends for which the ‘tax liability’ condition is fulfilled.
The tax provisions are applicable as from assessment year 2016 on transactions and income attributed as from 1 July 2016.
- Program Act of 1 July 2016, published in the Belgian Official Gazette on 4 July 2016 : NL – FR
- Act of 21 July 2016 introducing a permanent fiscal and social amnesty, published in the Belgian Official Gazette on 29 July 2016 : NL – FR
- Act of 3 August 2016 providing urgent tax provisions, published in the Belgian Official Gazette on 11 August 2016 : NL – FR
- Act of 3 August 2016 establishing a new single annual bank published in the Belgian Official Gazette on 11 August 2016 : NL – FR
- Program Act II of 3 August 2016, published in the Official Gazette of 16 August 2016 : NL – FR
To stay informed of the latest developments and of the tax reform in the last 12 months, please visit our website: Tax reform in Belgium.
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