The Belgian government has reached an agreement on the legislation implementing the corporate 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. The following overview only gives the highlights of the reform.
For large companies, the rate is reduced in two steps:
The crisis contribution that is currently at 3% also decreases in two steps:
For SMEs, the rate goes down to 20% (20,4% crisis contribution included for AY 2019 and 2020) on the first bracket of 100.000 EUR of net taxable income as from income year 2018. This SME rate will only apply if a minimum salary of at least 45.000 EUR is paid to a director of the company (individual). The minimum salary for (one and the same) director in different group companies will only have to be paid once, but in that case the minimum is increased to 75.000 EUR. A (deductible) separate tax of 10% (5% for AY 2019 and 2020), applicable to all companies, will be due on the difference between the minimum director’s salary and the actually paid director’s salary.
Minimum tax base
The government introduces a minimum tax base for companies with a taxable profit that exceeds 1.000.000 EUR via the limitation of certain deductions, grouped in a “basket”. Those deductions will only be deductible from 70% of the taxable profit exceeding 1.000.000 EUR.
The following deductions are included in the basket (in this order): the notional interest deduction, the dividends-received deduction carried forward, the innovation income deduction carried forward, the deduction of losses carried forward and the (old) notional interest deduction carried forward.
The dividends-received deduction of the year, the innovation income deduction of the year and the investment deduction are not included in the basket.
Notional interest deduction
The notional interest deduction is reformed and will in the future only be calculated on the additional equity (capital increases + retained earnings) and no longer on the total equity. It will be calculated on the increase of the equity over a period of 5 years, divided by 5.
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 EUR.
If this condition is not fulfilled, the capital gain will be taxable at the standard rate.
The separate taxation at 0.412% of capital gains on shares will be abolished.
The dividends-received deduction will be increased from 95 to 100%.
The fairness tax will not be abolished (yet?).
An exemption for new provisions only applies for costs resulting from an obligation which exists on the closing date of the financial year.
When a provision is reversed after 2018, the initial tax rate of the year during which the provision was recorded will remain applicable on the corresponding profit. Same goes for the deferred taxation of capital gains if not reinvested within the 3 or 5 year period.
The investment deduction for SMEs will be increased from 8 to 20% for investments made in 2018 and 2019 and attached to assessment years 2019 and 2020
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 taxed reserves. On this second part the dividend withholding tax of 30% will be due – if no exemption applies.
R&D - partial exemption of payment of wage withholding tax
The 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 rate of exemption is 40% (80% for SMEs), with a maximum exempt amount equal to 25% of the exempt amount for masters.
The interest rate to calculate the penalty in absence of sufficient prepayment of the corporate tax is increased to 3% (actually 1%) leading to an average increase of 6.75% (actually 2.25%).
On tax supplements resulting from a tax audit no deductions (apart of the dividends-received deduction of the year) will be allowed if a tax increase of at least 10% is effectively applied.
Tax consolidation based on the Swedish group contribution model will be introduced. It creates the opportunity to reallocate losses between group companies (90% direct 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), CFC rules and measures avoiding hybrid mismatches/branch mismatch arrangements and further implementing the exit tax.
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 forfeited.
The double declining depreciation method will be abolished. Also for SMEs, first depreciation will be applied pro-rata temporis.
Deduction of company car costs in function of the CO² emission according to the following formula:
120% - (0,5% x number of grams of CO² emission)
Deduction between 50 and 100% (but 40% if CO² emission > 200 g)
Excess deductions (e.g. 120% deduction for electric cars) will be repealed (limited to 100%).
Deduction of fuel costs will be based on the same formula (now always 75%).
Introduction of rules targeting so-called fake hybrids.
Secret commissions’ tax
Special 50 % rate on secret commissions in case of recording of dissimulated gains will be abolished. On top of this, the secret commissions’ tax will in all cases be considered to be a disallowed expense.
Tax free reserves
Certain tax free reserves constituted before 2017 can be converted to taxable reserves at a preferential rate of 15% or 10%, if reinvested.
Tax fines no longer deductible
All fines relating to direct and indirect taxes will no longer be tax deductible.
Several other exemptions, such as for additional personnel and for capital gains on business vehicles will be abolished.
The introduction of an option for VAT taxation of immovable property leases has been withdrawn. However, a loosening of the VAT regime for the lease of storage space will be introduced via a circular letter.
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