To tackle the Covid-19 pandemic crisis, three new measures to strengthen the liquidity and solvency of businesses in Belgium were submitted to the federal parliament in a draft bill on 5 June 2020.
1° Anticipated tax deduction of losses (individual income tax and non-resident individual income tax)
What is it about?
The taxable result generated in income year 2019 (tax assessment year 2020) can be exempt from tax up to the (estimated) professional losses to be suffered in income year 2020 (tax assessment year 2021).
To avoid a double deduction of the same professional losses, the exemption is withdrawn during income year 2020.
How to apply for the exemption
Since the tax returns for individual income tax or non-resident individual income tax have already been published, the request for this exemption must be submitted via a separate form.
On this form, the taxpayer must justify, among others, the amount of the expected professional losses. The exemption request (including the amount) is final and irrevocable.
Taxpayers excluded from the measure
Taxpayers entitled to flat-rate tax bases or companies that were already in difficulty at the start of the crisis are not eligible for the exemption.
Penalty if the claimed exemption exceeds the amount of the estimated losses
If, during income year 2020, the taxpayer does not suffer any loss or if the loss is less than the amount of the exemption claim, a non-deductible tax increase will be applied.
2° Temporary exemption of potential losses (corporate income tax and non-resident corporate income tax)
What is it about?
The taxable result for tax assessment year 2019 or 2020 (taxable period ended between 13 March 2019 and 12 March 2020) may be exempt from tax up to the (estimated) potential professional losses to be incurred during the subsequent tax assessment year.
The exempt amount cannot exceed the period’s taxable result nor exceed EUR 20 million.
The exemption in question is claimed by the constitution of a temporary exempt reserve which is deducted from the total amount of reserved profits taxable at the end of the taxable period which ends during the period from 13 March 2019 to 12 March 2020.
To avoid double deduction of the same losses, this exempt reserve will be withdrawn during the subsequent tax year.
How to claim the exemption
The exemption is claimed through the corporate income tax return or the non-resident corporate income tax return.
If the tax return has already been submitted but the tax has not yet been assessed, the taxpayer can request an amendment to the tax return.
If the tax has already been assessed, the taxpayer can request a revised figure (by filing a tax reclamation letter).
Taxpayers excluded from the measure
Certain companies are excluded from this measure given their specific tax regime. These are mainly (i) certain investment companies, (ii) cooperative participation companies, (iii) maritime companies, (iv) companies that were already in difficulty at the start of the pandemic crisis and (v) companies directly participating in a company established in a tax haven or making payments to companies established in a tax haven (except payments for legitimate financial or economic needs).
Further, this measure does not apply to a company that (i) allocates or distributes dividends, (ii) buys its own shares and/or (iii) carries out a capital reduction during the period from 12 March 2020 to the date of introduction of the tax return relating to tax assessment year 2021.
Penalty if the applied exemption exceeds the amount of the losses
The purpose of the measure is to ensure that the amount exempted for tax in tax assessment year 2019 or 2020 is as close as possible to the amount of losses for the next tax assessment year.
If the amount of the exemption is more than 10% of the losses actually incurred, a penalty will be applied in the form of a separate tax.
3° Reconstitution reserve (companies)
What is it about?
The purpose of the reconstitution reserve is to ensure favourable taxation for future profits for tax assessment years 2022, 2023 and 2024 by using the reserve to exempt taxable results.
The maximum amount of the reconstitution reserve is in principle limited to the operating losses for the accounting year ended in 2020 up to a maximum of EUR 20 million.
How to claim the exemption
The reserve must be recorded and maintained in a separate account on the liabilities side of the balance sheet (exemption subject to intangibility).
Taxpayers excluded from the measure
Certain companies are excluded from this tax measure given their specific tax regime (see above in the second tax measure section (first paragraph)).
In addition, this tax measure does not apply to a company that (i) allocates or distributes dividends, (ii) buys its own shares, (iii) carries out a capital reduction and/or (iv) significantly cuts its salary costs (compared with previous years).
Penalty
The reconstitution reserve becomes partially taxable if the company subsequently distributes a dividend or buys its own shares or carries out a capital reduction or significantly reduces its salary costs.
For more information on these tax measures, please feel free to contact one of the authors.
Olivier Querinjean, Partner, Brussels Member of the Tax group
Arnout Vaninbroukx, Senior Associate, Brussels
Yi Lei Zheng, Associate, Brussels
