As announced since several months, the new Belgian corporate income tax reform was recently enacted by the law of 25 December 2017 (hereafter: “Law”), as published in the Belgian State Gazette of 27 December 2017.
Hereunder you will find a summary of some of the major highlights of this reform.
Decrease of the nominal corporate income tax rates
As from tax assessment year 2019 (i.e. income 2018 if the accounting year matches the calendar year), the Law decreases the standard corporate income tax rate from 33.99% to 29.58%.
For small and medium-sized enterprises (hereafter: “SMEs”) a reduced corporate income tax rate of 20.40% will be applicable with respect to the first tranche of EUR 100,000. Any taxable income exceeding EUR 100,000 will be subject to the standard corporate income tax rate of 29.58%. This reduced tax rate of 20,40% on the first tranche of EUR 100,000 is however subject to the condition that a minimum annual remuneration is paid to at least one of the company’s directors. The annual remuneration should at least be EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or an amount equal to the company’s taxable base (if the company’s taxable base is below EUR 45,000). The minimum remuneration is not required during the first four years for SMEs in order to benefit from the reduced corporate income tax rate.
As from tax assessment year 2021 (i.e. income 2020 if the accounting year matches the calendar year), the standard corporate income tax rate will be further reduced to 25%. For SMEs, the reduced tax rate will be further reduced to 20% on the first tranche of EUR 100,000, provided the above- mentioned minimum annual remuneration is paid to at least one of the company’s directors.
Special taxation if no minimum annual remuneration is paid
Irrespective the fact whether or not a company qualifies as an SME, all companies (including large companies) should pay a minimum annual remuneration to at least one of the company’s directors of at least EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or an amount equal to the company’s taxable base (if the company’s taxable base is below EUR 45,000).
If no such remuneration is paid, or if the remuneration paid is below the minimum, then a special taxation of 5% will be applied at the level of the company on the difference between (i) EUR 45,000 (if the company’s taxable base exceeds EUR 45,000) or the companies taxable base (if the company’s taxable base is below EUR 45,000), and (ii) the highest remuneration paid by the company to one of the company’s directors. Any special taxation paid in this respect will be a tax- deductible expense.
As from tax assessment year 2021 (i.e. income 2020 if the accounting year matches the calendar year), the special taxation will be increased from 5% to 10%.
As mentioned above, the minimum remuneration is not required during the first four years for SMEs.
For “related” companies (cf. Art. 11 of the Company Law Code), whereby at least half of the company directors are the same persons, the full amount of the remuneration paid by these related entities to one of its (common) directors will be taken into account cumulatively in order to verify whether the minimum remuneration has been paid. However, for related companies, the minimum annual remuneration is increased to EUR 75,000.
Minimum taxation basket if too many tax deductions are available
The Law also introduces a minimum taxation basket if and to the extent that the company has too many available tax deductions (dividends received deduction, patent income deduction, innovation deduction and investment deduction). Indeed, the new Law limits as from tax assessment year 2019 the full use of these tax deductions, whereby these deductions will, per tax year, be capped to EUR 1,000,000 plus 70% of the remaining taxable result. Consequently, 30% of that remaining taxable result will then be subject to the corporate income tax (irrespective the presence of additional non-used deductions which will be carried forward to the next tax year), thus leading to a minimum taxable base, i.e. the minimum “basket”. On this minimum basket, corporate income tax will be due.
A fully exempt dividend received deduction regime
Until the new Law, the Belgian dividend received deduction regime (hereafter: “DRD-regime”) merely allowed, under certain conditions, a 95% deduction of the dividends received by a Belgian company. As a rule, the DRD-regime was available to Belgian companies provided that (i) some quantitative conditions (“participation” condition), (ii) qualitative conditions (“subject-to- tax” condition), and (iii) the 1 year holding requirement were met. The quantitative condition required a minimum shareholding of 10% or EUR 2,500,000 in the company distributing the dividends. The qualitative conditions required in essence that the company distributing (or redistributing) the dividends was subject to a normal corporate income tax regime. If these conditions were fulfilled, then the dividends received would be exempt for 95% in the Belgian corporate income tax, and the remaining 5% would then be subject to the ordinary corporate income tax of 33.99%, thus leading to an effective “tax- leakage” of 1.6995% (i.e. 33.99% x 5%) on the dividends received.
As from tax assessment year 2019 (i.e. income 2018 if the accounting year matches the calendar year), the new Law has extended the 95% dividend received exemption to a full (100%) exemption.
Modification as to the calculation basis of the notional interest deduction
The Law also changes the current calculation basis of the notional interest deduction, whereby the notional interest deduction will no longer be calculated on the company’s total amount of (qualifying) net equity at the end of the preceding financial year, but will be calculated on the so- called “incremental” risk capital, which equals 1/5 of the positive difference between (i) the net equity at the end of the taxable period and (ii) the net equity at the end of the fifth preceding taxable period.
Modified tax regime for capital gains on shares
Until the new Law, capital gains on shares realized by Belgian companies were subject to either of the following regimes: (i) a full exemption for capital gains on shares realized by SMEs which comply with the subject-to-tax condition and the 1-year holding requirement, (ii) a 0.412% taxation on capital gains on shares realized by Belgian companies (non-SMEs) which comply with the subject-to-tax condition and the 1-year holding requirement (except for SMEs benefiting from a full exemption), (iii) a 25.75% taxation on capital gains on shares realized by Belgian companies which comply with the subject-to-tax condition but not with the 1-year holding requirement (for SMEs and non-SMEs), or (iv) the standard corporate income tax (of in principle 33.99%) for capital gains of which the shares did not fulfill the subject-to-tax condition.
The new Law abolishes the 0.412% taxation on capital gains realized by non-SMEs. This means that non-SMEs, can now also benefit from a full exemption on capital gains on shares.
However, the full capital gains exemption has now been tightened, since a new minimum participation requirement has been introduced in order to benefit from the full exemption on realized capital gains, and whereby this new condition is also extended to SMEs. This minimum participation requirement requires that the company realizing the capital gains has a minimum participation of either 10% or EUR 2,500,000 in the share capital of the company whose shares are realized.
This means that the new tax regime on capital gains on shares realized by Belgian companies can basically be summarized as follows:
- a full exemption for capital gains on shares realized by Belgian companies (SMEs or non-SMEs) that comply with (i) the subject- to-tax condition, (ii) the 1-year holding requirement, and (iii) the minimum participation requirement;
- during tax assessment years 2019 and 2020, a 25.50% taxation for capital gains on shares realized if (i) the subject-to-tax condition and (ii) the minimum participation requirement are fulfilled, but not the 1-year holding requirement. SMEs realizing such capital gains could then benefit from a 20.40% taxation up and to the extent that the SMEs benefit from the special 20.40% tax rate. As from tax assessment year 2021 onwards, the rate would then be reduced to 25%, and to 20% for SME’s up and to the extent that the SMEs benefit from the 20% tax rate; or
- during tax assessment years 2019 and 2020, the standard corporate income tax rate of 29.58% if either the subject-to-tax condition or the minimum participation requirement is not fulfilled. SMEs would then be subject to the 20.40% taxation up and to the extent that the SMEs benefit from the special 20.40% tax rate. As from tax assessment year 2021 onwards, the rate would then be reduced to 25%, and to 20% for SMEs up and to the extent that the SMEs benefit from the 20% tax rate.
Taxation of capital decreases
The Law also introduces a tax modification with respect to capital decreases carried out as from 1 January 2018 onwards. If and to the extent the equity of the company is composed of fiscally paid- in capital as well as reserves (i.e. retained earnings), then a capital decrease will, for tax purposes, be proportionally imputed to the paid-in capital on the one hand and the reserves on the other hand, whereby such imputation will firstly be made to the taxed reserves and subsequently to the tax-exempt reserves. The imputation of the capital decrease to the reserves, will then be assimilated with a dividend distribution which will, in principle, be subject to the applicable withholding tax.
Miscellaneous tax modifications
The above-mentioned modifications are conceptually the most significant changes in the Belgian corporate income tax. Besides these modifications, the Law has also introduced a variety of changes and modifications, amongst which:
- the limitation of the use of certain deductions, i.e. upon corporate restructurings (proportional limitation of excess dividend received deductions), upon a change of control that does not meet legitimate financial or economic needs (loss of excess dividend received deduction or innovation deduction), or upon a tax audit (no tax deductions to offset a tax supplement, except current year dividend received deductions);
- an increase of the tax increase that is due upon insufficient tax prepayments, an increase of the lump sum taxable base as applicable upon no or late filings of tax returns; and
- a modification with respect to late payment interests on taxes or compensatory interests on tax reimbursements.
