Corporate Income Tax
Eye-catcher of the corporate income tax reform is, no doubt, the significant decrease of the corporate tax base rate to stimulate the Belgian economy and to increase the competitiveness of Belgian businesses. The agreement also intends to oxygenate SMEs, start-ups and innovation.
The tax reform is a.o. financed by means of a tax on securities accounts, a restricted application of tax deductions for companies, and a further cutback of the notional interest deduction scheme.
The reform will be implemented in differenct phases over the next few years:
Reduction of the corporate income tax rate
From 2018, the basic corporate income tax rate decreases from 33% to 29%. It will be lowered to 25% by 2020.
SME’s as defined in article 15 of the Belgian Companies Code will be able to benefit from a 20% tax rate on the first tranche of € 100,000. Only small companies will, henceforth, qualify for the reduced corporate tax rate. The currently existing requirement that no dividend exceeding 13% of the paid-up capital can be distributed, will be abolished.
From 2018, the crisis surcharge that comes on top of the basic rate will be reduced from 3% to 2%, and will be abolished in 2020.
A minimum tax has been adopted for companies with a taxable result exceeding € 1 million. With respect to the taxable result in excess of this amount, certain tax deductions will no longer be fully deductible.
More specifically, the deduction for previous tax losses, dividend received deduction carried forward, innovation income deduction carried forward, notional interest deduction carried forward and the new incremental notional interest deduction (see below) will henceforth be limited to € 1 million. Above this amount, these deductions can only be offset up to 70% against profits;. 30% of the profits exceeding € 1 million can therefore not be neutralized by the aforementioned deductions.
This results in an actual minimum tax of 7.5% on the taxable profits in excess of € 1 million.
Tax deductions which cannot be applied, can however be carried forward to future taxable periods.
Tax losses carried forward by starting companies will not be subject to this limitation during the first four financial years.
100% Dividend received deduction
From 2018 the dividend received deduction will increase from 95% to 100%.
Revision of the notional interest deduction scheme
The notional interest deduction scheme will be calculated based on the incremental equity - over a five year period - and no longer on the total amount of the company’s qualifying equity.
This means that only the average increase of the qualifying equity will qualify for the application of the notional interest deduction (the so-called “incremental notional interest deduction).
Discouragement conversion of one-man businesses
As a consequence of the fact that the corporate tax rate is decreasing, the government wants to avoid multiple conversions of one-man businesses (self-employed individuals) into (management) companies.
To benefit from the reduced tax rate, the minimum annual remuneration that must be granted to at least one company director in order to benefit from the reduced corporate tax rate increases from €36,000 to €45,000. When a lower remuneration is paid, the payment should at least equal the company’s taxable result. Related companies that are managed for at least 50% by the same company managers can choose to take into account the total remuneration granted to one of these company managers in order to determine the minimum remuneration. In that case, the minimum annual remuneration amounts to € 75,000.
Companies that do not pay the minimum remuneration or half of the taxable basis will be subject to a 5% separate tax on the required remuneration. The amount is, however, tax deductible. Starting companies are excluded from this measure. This measure has been withdrawn retroactively by the act of 13 April 2019 (Belgian Official Journal 26 April 2019). The separate tax will therefore not apply.
Capital gains on shares
The 0.412% tax that applied to capital gains on shares realised by large companies, has been abolished from 2018.
As a consequence, capital gains on shares are, again, entirely tax exempt. However, in line with the conditions for the dividend received deduction, the exemption of capital gains on shares only applies if, during at least one year, the participation equals at least 10% or if the acquisition value of the shares equals at least € 2,500,000.
Insertion companies were previously able to benefit from a double exemption from corporate income tax:
- no tax is due on their retained earnings; and
- the received grants for employment and career transition are exempt from corporate income tax.
This double benefit will be limited from now on. On the one hand, the subsidies will no longer be tax exempt. On the other hand, the exemption for reserved profits will be limited to the employment cost related to the qualifying employees in this regulation.
Adoption of a fiscal matching principle
The introduction of a fiscal matching principle in corporate income tax will have as a consequence that costs attributed to activities or income of the subsequent financial year will only be deductible in this subsequent financial year. They will, therefore, no longer be deductible upon payment in the current financial year.
Limitation of provisions for future expenses
To avoid excess provisions being incurred prior to the reduction of the overall corporate income tax rate, which are reversed later (without application) at a lower nominal tax rate, the withdrawal of these excess provisions will be taxed at the nominal tax rate applicable on the date the provisions were accounted for.
Taxation of reinvestment gains
Reinvestment gains which become subject to tax upon expiration of the reinvestment deadline or because they are voluntarily subject to tax by the company, will be subject to the nominal tax rate applicable on the date the gain was realised.
In the event the gain is voluntarily subject to tax, late payment interest will also be due.
Withholding tax on capital decreases
Capital decreases will partially be subject to (in principle 30%) withholding tax in proportion to the taxed reserves included in the paid-up capital, increased by the taxed reserves that are not included in the capital.
Untaxed reserves are excluded from this. A capital decrease may not have as a consequence that untaxed reserves are being taxed, except if the amount of the capital decrease exceeds the total amount of the paid-up capital and taxed reserves. In addition, dividends under the secure scheme of article 537 ITC can be distributed free of tax.
Temporary increase of the non-spread investment deduction rate to 20%
In 2018 and 2019, the non-spread investment deduction rate will temporarily increase from 8 % to 20% for SME’s and one-man businesses. This temporary measure applies to assets acquired or produced between 1 January 2018 to 31 December 2019 and is, therefore not related to a taxable period.
The investment deduction carried forward is not included in the basket of tax deductions that will be limited under the tax reform (supra, minimum tax).
Late payment and moratorium interest
The calculation of late payment and moratorium interest will change. Late payment interest will be determined within a fork between 4% -10% and will always be 2% higher than moratorium interest.
Non-submission of the corporate income tax return punished more severely
Non-submission of the corporate income tax return will be punished more severely: the minimum taxable base will increase, but will be subject to the decreasing corporate tax rate:
| Assessment year
|| Mininmum taxable base (€)
|| Amount due (€)
Non-submission of the income tax return will also be punished by means of an increase of taxable profits:
- 2nd infringement: 25% (up to € 50,000)
- 3rd infringement: 50% (up to € 60,000)
- 4th infringement: 100% (up to € 80,000)
- 5th and subsequent infringements: 200% (up to € 200,000).
The absolute minimum profit amount will be indexed on an annual basis from assessment year 2022 onwards.
Insufficient prepayments will also be discouraged by means of an increase of the base rate on which the tax increase is calculated.
Exceptions to the tax increase will no longer be accepted (currently there is no tax increase if the amount of the tax increase does not exceed a certain limit or a certain amount).
Increase of the tax base due to a tax audit
No tax deductions will be admitted on increases of the tax base due to tax audits, except for the dividend received deduction of the current year.
Professional withholding tax exemption extended to certain academic bachelor degrees
The professional withholding tax exemption for R&D staff will be extended to holders of certain academic bachelor degrees: biotechnology, industrial science and technology, nautical science, product development, commercial science and business administration (with focus on IT) . The exemption amounts to 40% for 2018 and 2019. From 2020 it will be 80%.
Decreased withholding tax rate – Tate & Lyle
The 1.69% reduced withholding tax rate that was adopted in response to the Tate & Lyle case in order not to disadvantage certain foreign companies (compared to Belgian companies), needs to be revised because this tax regime is based on a 95% dividend received deduction. As the dividend received deduction will rise to 100%, a new deduction system will be adopted for said dividends paid or attributed from 1 January 2018.
Tax shelter regime
The tax shelter regime for audio-visual productions and stage productions will be amended according to the new tax rate so the same ROI may be guaranteed as before the decrease of the corporate tax rate.
The restrictions for deduction of car expenses recharged to third parties will only apply to this third party and not to issuer of the invoice. The car expenses, however, need to be mentioned explicitly on the invoice.
In case of a transfer of assets to Belgium, the assets will, at the occasion of future depreciations, capital gains or losses, ... be valuated at fair market value at the moment of transfer (instead of balance sheet value or acquisition value). This concerns the following inbound transfers:
- the transfer of assets from a foreign establishment (of which profits are tax exempt in Belgium) to a Belgian company
- the transfer of assets from a foreign company to a Belgian establishment
- the transfer of assets from a foreign establishment to a Belgian establishment to the extent that they are related to the same foreign company
- the tranfser of assests from a foreign establishment of a foreign company in case of a transfer of this foreign establisment to Belgium.
This measure will aply to transfers as from 1 January 2019.
Transposition ATAD Directives
From 2019 (assessment year 2020) onwards, the ATAD directives will be further transposed:
- Modifications to the interest deduction on foreign debt (from assessment year 2021)
- Introduction of CFC legislation (from assessment year 2020)
- Modifications to the exit tax (from assessment year 2020)
- A regulation on hybrid mismatches (from assessment year 2020).
A system of limited fiscal consolidation according to the Swedish model will be introduced from 2019 (assessment year 2020). Group entities will still have separate taxable bases, but can make a contribution to group companies that are in a loss position. The paying member of the group will be able to offset its “group contribution” against its taxable profits. This group contribution will be taxable in the hands of the beneficiary in the same taxable period. An anti-abuse measure will prevent companies from making a group contribution until they are related for at least 5 taxable periods.
- A further decrease of the corporate tax rate to 25% (infra)
- Debt discounts for non-amortisable assets will taxwise no longer be accepted as a deductible expense
- As a temporary measure, companies will be encouraged to convert tax-exempt reserves into taxed reserves at a reduced tax rate of 15%, which, on certain conditions, can be further reduced to 10%. Note: these tax-exempt reserves will effectively be taxed. Tax deductions cannot be offset and withholding tax cannot be compensated. The tax increase for insufficient advance payments also applies
- Tax losses of foreign permanent establishments will only be deductible if proven that they cannot be definitively deducted abroad. Moreover, the concept of PE’s will be approached from a more economic perspective
- The possibility of the declining depreciation of assets will be abolished. SMEs will have to apply depreciations on a pro rata basis
- Certain costs will have to be reported as a disallowed expense (e.g. proportional VAT fines, secret commissions tax). The system for the deduction of car expenses will be subject to different parameters for deduction, up to a maximum of 100% from assessment year 2021. Favourable tax regimes, allowing a 120% deduction of car expenses (e.g. electric cars, collective transport of staff members for commuting) will be abolished.
Personal income tax
Tax on securities accounts
As a compensation for the reduction of the corporate income tax rate, the federal government decided to introduce a 0.15% tax on securities accounts from 1 January 2018. The first tranche of € 500,000 will, however, be tax exempt.
An anti-fraud mechanism will be adopted: shares or other securities that are converted into nominal shares with the purpose to remain below the € 500,000.00 threshold will be taken into account for another year for the calculation of the tax on securities accounts.
The act on the introdution of the tax on securities accounts takes effect as from 10 March 2018.
Decrease of tax exemption on saving deposits
The tax exemption that applies to saving deposits will decrease from 1 January 2018. The withholding tax exemption on interest on savings will be limited to € 940 (before € 1,880).
Reduced withholding tax on dividends
A new partial withholding tax exemption on dividends has been introduced. The withholding tax exemption will apply to a threshold up to € 800 dividend distribution from 1 January 2018.
Collective profit bonus
The introduction of a collective profit bonus will allow companies to let their employees share in the company profits:
- Without any obligation for the employer
- Without capital participation
- Access for all employees within the company (but not for company directors)
- Bonus does not count towards the calculation of the wage norm
- The bonus is not allowed to replace the existing salaries
- The bonuses paid may not exceed 30% of the total wage mass
- On behalf of the employee: 13.07% social security contributions and a 7% income tax
- On behalf of the employer: the collective profit bonus is not tax deductible
- Entry into force on 1 January 2018.
The measure takes effect on 1 January 2018. Collective profit bonusses can be granted based on the profit of the financial year closing on 30 September 2017 or later.
Contributions to a pension saving fund
People making deposits into a pension saving fund will have the option between two tax schemes in personal income tax:
- The current tax scheme: 30% tax reduction on € 940 deposits; or
- A new tax scheme: 25% tax reduction on € 1,200. deposits.
The dual system takes effect as from assessment year 2019.
Harmonisation of fixed professional costs for self-employed
The fixed amounts of deductible professional costs in personal income tax for employees and self-employed will be harmonised in the favour of the self-employed.
The measure applies to profits realised from 1 January 2018.
Tax shelter for growth companies
The existing tax shelter scheme for starting companies will be extended to growth companies. Details on the concept of growth companies will have to be awaited.
Growth companies are small companies
- with at least 10 FTE’;
- who’s annual turnover has increased on average by 10% during the previous two assessment years or who’s FTE increases on average by 10%.
The tax reduction amounts to 25% with a maximum of € 100,000 per taxable period. This is a global threshold for both the tax shelter for start-ups and for growth companies.
The measure takes effect from assessment year 2019.
Tax free supplementary income
Supplementary income can be gained free of tax and social security charges up to a limit of € 6,000 per year. Employees and self-employed persons that already have a main occupation need to work at least 80%. This requirement does not apply to the sharing economy.
Pensioners will also be able to gain supplementary income free of tax and social security charges within the framework of the existing accumulation rules.
The tax exempt supplementary income is limited to income from activities ordinarily performed during personal leisure time in the non-profit sector. A specific list of activities will be issued by Royal Decree.
The measure applies to income gained or received from 20 February 2018. .
The system of deduction of car expenses will change considerably.
In personal income tax, car expenses will be deductible based on the CO2 emissions, analogously to the deduction system in corporate income tax. This implies that the standard 75% fixed deduction rate will no longer apply to cars purchased from 1 January 2018. For cars purcahsed before 1 January 2018the deduction of car expenses will be based on the CO2 emmissions, however with a minimim of 75%.
From assessment year 2021 (taxable period starting on 1 January 2020 at the ealiest), the formula to calculate the deduction percentage also changes:
120% - (0.5% x gram CO2/km)
For petrol cars this formula is to be multiplied by 0,95.
Car expenses will be deductible up to a maximum of 100% . The deduction by 120% for electric cars will therefore be abolished.
The minimum deduction will be 50%, unless the CO2 emissions of the car exceed 200gr./km. In that case, the deduction of car expenses is limited to 40%.
‘Fake' hybrid cars will be excluded from favourable tax regimes. It concerns vehicles equipped with both a fuel engine and battery with a capacity of less than 0.5 KWh/100 Kg or an emmission of more than 50g/km. For those vehicles, the deductibility of car expenses will be calculated on the basis of the engine of the car.
The benefit in kind of such hybrid cars will be taxed based on the CO2-emmissions of the corresponding car with only a fuel engine. This regulation will apply to cars purchased as of 1 January 2018.
Visit our website regularly to follow up on the further developments of these topics. Feel free to contact your regular BDO contact to discuss the impact in our situation, or send an e-mail to [email protected].