Corporate tax reform
08 September 2016
The announced corporate tax reform is definitely the most drastic tax transformation in the last two decades. The new tax scheme aims at simplifying corporate tax fundamentally, offering more legal certainty and guaranteeing an equal tax treatment for businesses.
Given the fact that the corporate income tax rate in Belgium is one of the highest in Europe and even worldwide, a reduction of the tax rate for all companies is one of the priorities of the reform. Favourable tax schemes that currently address only a selective number of companies and the current proliferation of tax deductions will, on the other hand, be abolished.
Lowering the tax burden
Gradual reduction of the corporate income tax rate
The corporate income tax rate is not only to be reduced, it will also be simplified.
A more uniform tax rate will replace the current rates (fixed 33.99% rate and the lowered progressive tax rates). The rate will decrease gradually:
- 28% in 2017
- 24% in 2018
- 20% in 2019
Small companies: 22% from 2017 on the first bracket of EUR 50,000.
Other advantages lowering the tax burden
Other measures are meant to further lower the tax burden.
- Expansion of the incentives for starters by means of a scheme that supports the auto-financing of investments (‘exempted startup reserve’) and additional employment.
- A 100% dividend received deduction (now at 95%). A dividend received deduction is a tax exemption of income which a parent company receives from its subsidiaries, based on the fact that the income had already been taxed at the subsidiary;
- Abolition of the 0.412% tax;
- Abolition of the fairness tax;
- A 35% tax reduction for the recruitment of an unemployed person, a person aged over 55 or young graduates. For other recruitments, businesses would be able to enjoy a 20% tax reduction during 5 years following recruitment. The tax reduction would expire if later on, the total staff members would diminish.
To finance the reforms, certain elements of the taxable base will be revised.
- Abolition of the notional interest deduction;
- Limitation of tax losses that can be carried forward to EUR 750,000 and 40% of the amount exceeding this EUR 750,000 threshold;
- Abolition of the exemption for hiring additional staff;
- Abolition of the spread investment deduction scheme. The tax credit for R&D will, however, be maintained;
- Abolition of the deduction for high technological investments.
- Abolition of the double declining balance depreciation;
- Possibility to transform untaxed reserves into taxed reserves, however upon payment of a single levy at a (more beneficial) rate of 20% (2017-2018), 15% (from 2019);
- The exemption of the capital gains tax will henceforth be subject to a taxation condition of 10% of the capital or a minimum capital of EUR 2.5M;
- Provisions for other liabilities and charges will contain a limited list of provisions that will be tax exempted;
- Limitation of interest deduction to 30% of the EBITDA in application of the European Anti-Tax Avoidance directive;
- Abolition of the excess profit rulings.
- Amendment of the deductibility of certain professional costs:
- A provision will be added to article 49 ICT to express that that costs made with the single purpose of obtaining a tax advantage will not be tax deductible;
- Abolition of the deduction of the secret commissions tax;
- Capping of the deductibility of promotional gifts, reception gifts and collective expenses. This will not apply to starting companies;
- Administrative tax fines will no longer be deductible;
- Prepaid expenses will no longer be deductible;
- Car costs:
- the deduction system will no longer be based on the current CO2 emission categories;
- electric vehicles will only be 100% tax deductible (currently 120%);
- the deduction of fuel costs will be limited according to the CO2 emissions of the vehicle (currently deductible at a fixed 75% rate)
- The deduction of costs related to a dwelling made available at the company manager will be limited to the amount of the benefit in kind on which the company manager is taxed;
- A fased abolition of the investment deduction, currently 8%, but gradually lowered to 5% in 2017, 2% in 2018 and entirely abolished in 2019. The amounts carried forward from previous years can be still be carried forward for another 5 years;
- Abolition of the increased investment deduction system.
Abuse and penalties
To discourage taxpayers in personal income tax converting their business into a (personal management) company purely for tax reasons, companies may become obliged to grant a minimum wage of EUR 40,000 to the company manager. This will not apply to starting companies.
The payment of a lower amount (that is not in line with the income tax code) will be punished with a tax of 50% - the applicable corporate income tax rate. This tax will not be deductible.
Companies that do not file their corporate income tax return in due time may become subject to a minimum tax of EUR 40,000 (previously 19.000).
As mentioned, the proposed measures are not final and remain subject to discussion and consensus within the government. We therefore kindly invite you to visit our website regularly to follow up on the latest changes.