The Belgian government reached an agreement on a corporate income tax reform. The reform will take place in two steps in 2018 and 2020 and contains several major changes. Most important is the reduction of the corporate tax rate to 29.58% (crisis contribution included) as from assessment year 2019 and 25% as from assessment year 2021. As a general remark – the measures described in this e-tax flash still have to be transposed into law and thus the ultimate result might differ from what is known today. Therefore, the following overview only gives the highlights of the reform.
For large companies, the rate is reduced in two steps:
The crisis contribution (cc) that is currently at 3% decreases also in two steps:
For SME’s, as defined in art. 15 Company Code, the rate goes down to 20% (20,4% cc included – 20% as from 2020) on the first bracket of 100.000 € of net taxable income as from income year 2018 (assessment year 2019). This SME-rate will only apply if a minimum salary of at least 45.000 € is paid to a director of the company (individual).
Minimum tax base
The government introduces a minimum tax base for companies with a taxable profit that exceeds 1 mio € via the limitation of certain deductions, grouped in a “basket”. From the amount of the taxable profit exceeding 1.000.000 €, only 70% of this basket will be deductible.Following deductions are included in the basket: losses carried forward, notional interest deduction (and (old) carry forwarded NID), carry forward of innovation income deduction, carry forward of dividend received deduction. Innovation income deduction of the year and the investment deduction would not be included in the basket.
An example to illustrate this: a company has a taxable profit of 1.6 mio € and the same amount of deductions grouped in the basket for a given year:
Notional interest deduction
The notional interest deduction is reformed and will in the future only be calculated on the additional equity of the year (capital increases + retained earnings) and no longer on the total equity.In order to temper fluctuations it will be calculated on the average increase of the equity over a period of 5 year. Possibly specific anti-abuse legislation will be envisaged.
Exemption of capital gains on shares
For capital gains on shares the government introduces a minimum participation threshold.Capital gains will be exempt if the company holds a participation of 10 % or the participation has an acquisition value of at least 2.500.000€.
If these conditions are not fulfilled the capital gain will be taxable at 25,50% as from 2018 and 25% as from 2020.
The separate taxation at 0.412% of capital gains on shares will be abolished.
R&D - partial exemption of payment of wage withholding tax
The 80 % exemption of payment of wage withholding tax for scientific research staff (master or PhD) will gradually be extended to staff with a (scientific) bachelor’s degree.
The interest rate to calculate the penalty in absence of sufficient prepayment of the corporate income tax is increased to 3% (actually 1%) leading to an average increase of 6.75% (2.25% actually).
Withholding tax on reduction of capital
Reduction of capital will be considered to be pro rata a reduction of capital and pro rata a distribution of retained earnings.On this second part the dividend withholding tax of 30% will be due – if no exemption applies.
Provision for risks and charges will only be tax deductible if at the end of the taxable year an ‘obligation to pay’ actually exists.
When a provision is reversed after 2018 the initial tax rate when the provision was recorded will always apply.Same goes for the deferred taxation of capital gains if not reinvested within the 3 or 5 year period.
On tax supplements resulting from a tax audit no deductions (apart of the dividend received deduction of the year) will be allowed.
Tax consolidation based on the Swedish group contribution model will be introduced.It creates the opportunity to reallocate losses between group companies (90% participation required).
Implementation of ATAD I and II
Implementation in Belgian law of the Anti-Tax Avoidance directives I and II, introducing an interest deduction limitation (30% of the EBITDA), general anti-abuse rule, CFC rules and measures avoiding hybrid mismatches/branch mismatch arrangements.
Permanent establishments (PE)
Extended PE definition based on BEPS action 1 and 7 will be introduced.Losses of foreign establishments will only be tax deductible in Belgium if in the country of the PE the compensation of the losses is permanently ‘lost’.
The double declining depreciation method will be abolished.
For SME’s pro-rata temporis depreciation will be applicable.
Revision of the rules governing the deduction of company car costs. Deduction of fuel costs will be in function of the CO² emission of the car (now always at 75%). Excess deductions (e.g. 120% deduction for electric cars) will be repealed.
Secret commissions’ tax
Special 50 % rate on secret commissions will be abolished (only 100% rate will remain).On top of this, the secret commissions’ tax will in all cases be considered to be a disallowed expense.
Tax free reserves
Tax free reserves constituted before 2017 can be converted to taxable reserves at a preferential rate of probably 15% or 10%.
Tax fines no longer deductible
All fines relating to direct and indirect taxes will no longer be tax deductible.
For further information please contact your trusted KPMG advisor.
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