Belgium: Corporate tax reform | KPMG | GLOBAL

Belgium: Corporate tax reform, tax rate phased down to 25%

Belgium: Corporate tax reform

The Belgian government has reached an agreement on a corporate income tax reform. The reform is to be effective in two phases—once in 2018 and then in 2020—and includes a reduction of the corporate tax rate to 29.58% (including the crisis contribution) as from assessment year 2019, and 25% as from assessment year 2021.

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Corporate income tax rate reduction

For large companies, the rate would be reduced in two phases: 

  • 29% as from income 2018 (assessment year 2019)
  • 25% as from income 2020 (assessment year 2021) 

The crisis contribution (currently at 3%) would be reduced in two phases: 

  • 2% for as from 2018 
  • 0% as from 2020

For small and medium sized enterprises (SME), the rate of corporate income tax would be reduced to 20% (20.4% including the crisis contribution and then 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 tax rate would only apply if a minimum salary of at least €45.000 is paid to a director (individual) of the company.

Additional measures, effective as from 2018

Minimum tax base 

The government has introduced a proposal for a minimum tax base for companies with a taxable profit that exceeds €1 million with a limitation imposed on certain deductions, grouped in a deduction limitation “basket.” For the amount of the taxable profit exceeding €1 million, only 70% of this basket amount would be deductible.

The following deductions would be included in the deduction limitation “basket:”

  • Losses carryforwards
  • Notional interest deduction (and (old) carried forwarded NID)
  • Carryforwards of the innovation income deduction
  • Carryforwards of the dividend received deduction

The innovation income deduction of the year and the investment deduction would not be included in the basket. 

Example

Assume a company has a taxable profit of €1.6 million and the same amount of deductions grouped in the basket for a given year:

  • Nothing changes for the amount up to €1 million—all deductions could be applied and this part of the profit could be totally reduced.
  • In a second step, only 70% of the remaining taxable profit (€600,000 x 70% or €420,000) of the deductions could be applied. In other words on 30% of the remaining taxable profit (€180,000) of corporate income tax would be due, at a rate of 29.58% in 2018 (as from 2020, the rate drops to 25%).
  • The amount of deductions in the basket (€180,000) that could not be used in the tax year would be carried forward to the following years. 

 

Notional interest deduction

The notional interest deduction regime would be reformed, and would only be calculated on the additional equity of the year (capital increases plus retained earnings) and no longer would be applicable on the total equity. To address fluctuations, the notional interest deduction would be calculated on the average increase of the equity over a period of five year. Possibly specific anti-abuse rules could be considered in the legislation.

 

Exemption of capital gains on shares 

For capital gains on shares, the tax reform would introduce a minimum participation threshold. Capital gains would be exempt if the company holds a participation of 10% or the participation has an acquisition value of at least €2.5 million. Otherwise, the capital gain would be taxable at a rate of 25.50% as from 2018 and 25% as from 2020. 

The separate taxation at a rate of 0.412% of capital gains on shares would be repealed.

 

R&D, partial exemption of payment of wage withholding tax

The 80% exemption of payment of wage withholding tax for scientific research staff (that is, individuals holding advance degrees, either a master’s or doctorate degree) would gradually be extended to staff having a (scientific) bachelor’s degree.

 

Prepayments 

The interest rate to calculate the penalty that applies absent a sufficient prepayment of the corporate income tax would be increased to 3% (actually 1%) leading to an average increase of 6.75% (2.25% actually).

 

Withholding tax on reduction of capital 

A reduction of capital would 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% would be due (if no exemption applies). 

 

Other provisions 

Provision for risks and charges would only be tax deductible if at the end of the tax year an “obligation to pay” actually exists. When a provision is reversed after 2018, the initial tax rate when the provision was recorded would apply. Similar treatment would apply for the deferred taxation of capital gains if not reinvested within the three- or five-year period. 

 

Tax audits 

Tax supplements resulting from a tax audit, no deductions (apart of the dividend received deduction of the year) would be allowed.

Measures announced for 2020

Tax consolidation

Tax consolidation rules, based on the Swedish group contribution model, would be introduced. This would provide an opportunity to reallocate losses between group companies (90% participation required).

 

Implementation of ATAD I and II

There would be implemented, in Belgian law, the Anti-Tax Avoidance Directives I and II and that would introduce an interest deduction limitation (30% of the EBITDA), a general anti-abuse rule, CFC rules, and measures addressing hybrid mismatch / branch mismatch arrangements. 

 

Permanent establishments (PE)

The PE definition based on the base erosion and profit shifting (BEPS) Actions 1 and 7 would be introduced. Losses of foreign establishments would only be tax deductible in Belgium if, in the country where the PE is located, the compensation of the losses is permanently “lost.”

 

Asset depreciations 

The double declining depreciation method would be repealed. For SMEs, the pro-rata “temporis depreciation” would be applicable.

 

Company cars

There would be measures to revise the rules for the deduction of company car costs. The deduction of fuel costs would be based on a function of the CO² emission of the car (now at 75%). Excess deductions (e.g., the 120% deduction for electric cars) would be repealed.

 

Secret commissions tax 

The special 50% rate on “secret commissions” would be repealed (only a 100% rate would remain). Also, the secret commissions tax would in all cases be considered to be a disallowed expense.

 

Tax-free reserves

Tax-free reserves before 2017 could be converted to taxable reserves at a preferential rate to be established (possibly 15% or 10%). 

 

Tax penalties, no longer deductible

All penalties relating to direct and indirect taxes would no longer be tax deductible. 

 

Read an August 2017 report prepared by the KPMG member firm in Belgium

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