Belgian corporate tax rate cut will impact your director salary.
For small and medium-sized companies (hereafter: “SMEs”) a reduced corporate tax rate of 20.40% (that is 20% plus the 2% crisis surcharge) will apply to the first tranche of € 100,000. Any taxable income exceeding this amount will be subject to the standard corporate income tax rate of 29.58%.
This reduced rate of 20,40% is subject to the condition that a minimum annual salary is paid out to at least one of the company’s directors. The annual remuneration should at least be € 45,000 (if the company’s taxable income exceeds € 45,000) or an amount equal to the company’s taxable income (if it is less than € 45,000).
The minimum remuneration is not required during the first four years after the company is established, to be able to benefit from the reduced tax rate.
A special taxation will also apply if no minimum annual salary is paid out to one of the directors.
Irrespective whether a company qualifies as an SME, all companies (including large ones) should pay a minimum annual salary to at least one of the company’s directors of at least € 45,000 or an amount equal to the company’s taxable base, under the same conditions as explained before.
If no such remuneration is paid out, or if it is below the minimum, then a special taxation of 5.10% will be applied to the company on the difference between (i) € 45,000 (if the company’s taxable base exceeds € 45,000) or the companies taxable base (if the company’s taxable base is below € 45,000), and (ii) the highest remuneration paid by the company to one of the company’s directors. This special taxation is a tax-deductible expense and subject to the requirement to make advance tax payments.
As from 2020, the special tax rate will be increased from 5.10% (incl. crisis surcharge) to 10%.
For ‘related’ companies, 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 salary has been paid. However, for related companies, the minimum annual remuneration is increased to € 75,000.
A decrease in the Belgian corporate tax rate will certainly stimulate our economy and increase the competitiveness of Belgian businesses. While start-ups are not immediately required to comply, most SMEs will have to pay a salary of at least € 45,000 per year to their manager, which will obviously impact their personal income tax and social security situation. By way of alternative, you can still decide to draw a smaller salary and let your company pay the 5.10% special tax on the difference.