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2018-2020 Belgian corporate tax reform decreases corporate tax rate to 25% and introduces tax consolidation rules

On 22 December 2017, the Belgian Federal government has reached an important agreement on a large tax reform package, already taking effect on 1st January 2018. We hereafter summarize the most important measures for Belgian or foreign company groups active on Belgian territory, also with a focus on international tax measures taking effect in 2019. 

Reduced corporate tax rate

As most important measure, the Belgian corporate tax rate is gradually decreasing from 33% to 29% as from 2018 and to 25% by 2020. Small and medium-sized enterprises (SME) can even benefit from a reduced rate of 20% as from 2018 up to € 100,000 of taxable profit. However, a minimum director’s salary of € 45,000 (instead of € 36,000) is required (sometimes € 75,000 in aggregate suffices for company groups) for benefitting from this reduced SME rate.

100% Belgian dividend participation exemption

The Belgian participation exemption for dividend income was up till 2017 limited to 95%. As from 2018 Belgian holding companies can benefit from a 100% deduction on dividend income received. This measure should increase Belgium’s attractiveness for setting up holding companies.

Some budgetary measures as from 2018

In order to finance the above significant decrease of the corporate tax rate, the corporate tax reform will imply some budgetary measures. For companies active abroad, following measures may be of utmost importance to follow-up:

  • Tax losses and certain tax deductions (such as the dividend income exemption, carry-forward notional interest deduction) can still be deducted fully for taxable profits not exceeding 1 million euro. The deduction will however be limited to 70 percent on taxable profits of more than 1 million euro. The remaining 30 percent will therefore constitute a minimum taxable result.
  • The Belgian notional interest deduction regime (a fictitious interest deduction calculated on adjusted net equity) will be thoroughly amended (only ‘additional’ share capital will be taken into account in order to calculate the NID calculation base).
  • The current 0.412% capital gains tax on shares held for a minimum duration of 1 year has been abolished. On the other hand, a minimum participation threshold of 10% or € 2,5 million has been introduced in order to benefit from the capital gain tax exemption. As a result, portfolio shares will no longer benefit from a capital gain tax exemption.

Tax consolidation opportunities as from 2019

Starting from 2019, the concept of tax consolidation between Belgian group entities will be introduced for Belgian corporate tax purposes. This may have a significant impact on corporate tax optimization opportunities (or threats) within the group. Belgian tax consolidation rules will take the form of a so-called “deduction for group contribution”. This deduction will allow the transfer of current year tax losses (not carry-forward losses) between Belgian and PEs of foreign companies.

This may allow businesses to more easily use their tax losses as these can be offset by other profitable companies or branches within the same Belgian group. Specific conditions apply such as a minimum participation of 90% throughout 5 consecutive years. Or both (sister) companies are held for at least 90% of their capital by a common Belgian or foreign company. A group contribution agreement will have to be concluded in order to benefit from this regime, foreseeing in payment of compensation to avoid the transfer of equity.

Tax consolidation may simplify tax optimization of acquisitions schemes (loan interest at loss-making holding level could be offset against operational income of the subsidiary by means of a group contribution).

Other international tax measures already enacted as from 2019

  • A more economic approach of the concept of ‘permanent establishment’ will be introduced into Belgian tax law, in line with OECD recommendations. Foreign entities doing business in Belgium on construction or assembly sites, or by means of sales agents, may more easily trigger a taxable presence in Belgium. This may result in a higher risk of taxable exposure in Belgium. Belgian and foreign group entities should get prepared in reviewing contractual arrangements with clients, employees and subcontractors already in place.
  • Tax deductibility of losses made by foreign branches or permanent establishments of Belgian companies will be specifically limited. These losses will only remain deductible if the losses can in all respects no longer be used to offset the profits abroad (for instance if the foreign loss-making branch is being closed).
  • Further to the implementation of the European Anti-Tax Avoidance Directive (I and II), specific CFC-legislation will be introduced. Hereby certain low-taxed income of a ‘Controlled Foreign Company’ (subsidiary or branch) could still be taxable in Belgium, although the income is not actually being distributed to the Belgian parent company. The Belgian government will also install specific exit taxation measures upon the transfer abroad of certain assets, special provisions in order to avoid hybrid mismatches and tax residency mismatches, as well as a limitation of interest deductibility rules based on EBITDA.
  • The current threshold for mandatory filing of transfer pricing documentation (Master, Local File and Country-by-country reporting requirements in line with OECD ‘BEPS’ requirements) remains in place. The thresholds of 50 million euro of operational or financial revenue, balance sheet total of 1 billion euro or 100 FTE employees for filing Master and Local Files with the Belgian corporate tax returns, are to be looked at on a stand-alone basis for each Belgian group entity or PE separately (for financial years starting from 1 January 2016). Question remains whether the Belgian government will not lower the current thresholds or consider it on a consolidated basis for the coming years.

Our international tax advisory team is available to provide you with more in-depth information, and to assess the exact impact of the Belgian corporate tax reform on your specific business  and group structure. Also stay tuned for our corporate tax reform seminar coming up in February – March 2018.

Publication date: 9 januari 2018