17 November 2013

The programme law if 28 June 2013 involves a number of fiscal measures stemming from the budget control of March 2013.

One of these measures concerns the increase of the withholding tax rate on liquidation bonuses from 10% to 25%.

To counter this drastic tax increase, the programme law provides for a transitional provision, allowing entrepreneurs to anticipate to this planned tax increase and aiming to avoid a wave of early liquidations.

Certain companies will experience difficulties in meeting the deadline to comply with all company law formalities. The Minister of Finance, Koen Geens, therefore proposes a relaxation of the transitional measure.

No liquidation but capital reimbursement at 10% WHT

The transitional measure allows a distribution of taxed reserves as they exist at the company on 31 March 2013, at the current 10% withholding tax rate, provided that they are 'immediately' incorporated again into the paid-in capital. This part of the paid-in capital can be distributed afterwards (after a fixed period of time) to the shareholders free of tax as if it has always been part of the paid-in capital. In doing so, the increased 25% withholding tax rate can be avoided by paying a one off 10% withholding tax already now. 

First requirement: “the taxed reserves existing on 31 march 2013”

These are the reserves as included in the closed annual accounts, approved by the General Meeting prior to 31 March 2013.
Example: a company holds its annual shareholders’ meeting in the month of April. This implies that the taxed reserves as per 31 December 2012 (which will only be approved in April 2013) do not qualify. It is therefore the taxed reserved included in the annual accounts as per 31 December 2011 (approved in April 2012) that will qualify for the transitional regulation. 

Second requirement: “the taxed reserves received need to be incorporated into the paid-in capital immediately.”

The amount received in this context, consists of the net dividends: this amount needs to be incorporated into the company’s paid-in capital after the 10% WHT being withheld. The 10% WHT applies to the extent that at least the amount received is incorporated.

Relaxation announced by Minister of Finance

In a press release of 14 November 2013, the Minister of Finance, announces a relaxation of the rules:
For companies keeping their records on calendar year basis the transitional measure applies until the end of this year. The dividend distribution and contribution into the share capital needs to be accomplished by 31 December 2013 at the latest.

As certain companies may have difficulties to comply with all formalities by this date, the Minister of Finance proposes to allow a relaxation of the transitional measure: companies closing their annual accounts as per 31 December 2013 will be deemed to meet the due date when de dividends are attributed by 31 December 2013 at the latest and provided that the 10% withholding tax is paid by 15 January 2014. However, there is a relaxation in terms of formalities regarding the capital increase and capital contribution. These transactions need to beformalised ultimately by 31 March 2014.
Companies that do not keep their records on calendar year basis, closing their annual accounts between 1 October 2013 and 31 March 2014 may face the same difficulties. A similar relaxation of the rules applies to them. 

Third requirement: “the timing to be respected”

The dividend distribution and capital increase have to take place after 1 July 2013 (date the legislation is deemed to take effect) and at the latest during the accounting year closing prior to 1 October 2014.

More info on this subject is available in our article on the Budget control of March 2013.

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