Finally………an agreement reached on the reformation of Belgian corporate income tax

The Belgian federal government reached an agreement on the long overdue and much anticipated corporate tax reform.

What changes?

It was clear that the corporate income tax system required a substantial overhaul (amongst others a substantial decrease in the statutory corporate income tax rates). At present the statutory corporate income tax rate is very high (33,99%) not at least when compared to the EU average (+/- 20%).

The reformation of the Belgian corporate income tax system will be carried out in two phases, i.e. in 2018 and 2020. Due to the absence of officially available draft legislation we only summarize the most relevant changes.

2018 changes

• Corporate income tax rate/surcharge: reduction of the statutory rate up to 29% and up to 20% for the SME rate on the first 100 000 EUR and 25% over the excess. The surcharge (now 3%) is reduced to 1,5%.
• Exemption capital gains on shares: today capital gains on shares are for non-MNE’s taxed at 0,412% (0,4% plus 3% surcharge). This tax will be abolished in 2018.
• Notional interest deduction: no abolishment but a different (read more restrictive) determination of the basis for the calculations. Note that this restriction does not apply to MNE’s.
• Minimal tax base: a minimal tax base will be introduced as a result of which companies with a profit in excess of 1 million EUR will be restricted in applying certain deductions. Note however that investments and innovation are still deductible.
• Discourage the use of management companies: in order to obtain a reduced corporate income tax rate for SME’s an annual salary of 45 000 EUR is required (was 36 000 EUR).
• Increase of the investment deduction for SME’s (20%).

2020 changes

• Corporate income tax rate is further reduced to 25%.
• Introduction of fiscal consolidation is one of the most important changes in the 2020 changes. Fiscal consolidation means that a group of companies will be taxed on the basis of a consolidated result. This means that an individual company within the group will no longer be taxed on the basis of the fiscal result obtained by each company individually. By taxing the group on its consolidated result intra group transactions are neutralized. A fiscal consolidation scheme also allows loss allocations within the consolidated group. The losses of certain companies can be offset with the profits of other companies within the group. Belgium is one of the few countries within the EU which does not have a fiscal consolidation system for corporate taxpayers (it does exist for Belgian VAT purposes).
• Introduction of measures limiting the interest deductibility on debt in accordance with Directive 2016/1164 in order to prevent thin capitalization.
• Tax deduction of losses of foreign permanent establishments against head office profits will be limited and amendments to the notion of permanent establishment.

As soon as final texts are available we elaborate further on this subject.

Frank De Langhe – Hans Decleir