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Belgian corporate tax refor

About a year after first presenting his ambitious corporate tax reform plan, the Belgian Finance Minister has now given the green light to implement a general tax reform as from 2018. Most new measures were copied from last year’s memorandum, although several proposals did not make it in the end. Some new incentives have been added as well. The reform is to be implemented in two steps: a first set of measures will come into effect in 2018, while the second phase will have to wait until 2020.

  • Reduction of corporate tax rate

The standard corporate tax rate of 33,99% will be lowered to 29% in 2018 and will be reduced to 25% as from 2020. SME’s would even see a decrease in the rate to 20% as from 2018 for the first tranche of €100,000 (special conditions apply). These rates are still to be increased with a crisis surcharge, which will also be lowered to 1.5% in 2018 and completely abolished in 2020.

  • Minimum salary requirement 

Each company will be required to pay at least € 45,000 per year to (at least one) company manager. If the company does not comply, it will have to pay a special 10% tax on that amount (or the difference between €45,000 and the remuneration paid out). This €45,000 will also be the new minimum remuneration (instead of € 36,000) to be able to keep an SME status and to be able to benefit from the lower tax rate. The first 4 years after setup, companies will be exempt from this requirement.

  • Limitation of deductible losses

The losses carried forward, combined with the notional interest deduction, dividend-received deduction (DRD) and the deduction for innovation income, will together be subject to a maximum allowed deductible amount. The ‘basket’ is € 1 million plus 70% of the amount of those deductions above the million. This means that up to 30% of the deductible amount cannot be deducted effectively (but still carried forward to a subsequent year). As a result, the 30% is the minimum taxable base: the company is still taxed in the situation where there is actually no taxable base because the losses carried forward (or other deductible components) exceed the profit. Hence, the introduction of a ‘minimum tax’ of 7.5% (25% – the new tax rate – of 30% is 7.5%).

The exemption of capital gains on shares is limited by subjecting them to all conditions already applicable to the DRD deduction (especially the participation condition), which is bad news for SMEs investing only in small investments.

  • Tax consolidation

For the first time in Belgian income tax history, tax consolidation would be introduced as from 2020. This measure implies than Belgian companies of the same group could offset their tax losses against profits of another Belgian affiliated company. As a result, only the consolidated tax base would then be subject to corporate income tax.

  • Failure to file 

The penalty for the failure to submit a tax return will also be increased significantly. The minimum lump sum will climb – in two steps – from € 19,000 (now) to € 40,000. Note that, due to the announced reduction of the corporate tax rate, the effective penalty will eventually be less (€19,000 × 34% = €6,640 due compared to €40 000 × 25% = €10,000 tax payable).

  • Late payment interest

The unrealistic interest rate of 7% is finally also abandoned. The rate will now be linked to the OLO rate, with a minimum of 2% for moratorium interest (what is due by the tax office). That is the current level of the legal interest rate. Late payment interest (which the taxpayer has to pay) will always be 2% higher than the moratorium interest. Therefore, it will no longer be possible to overpay taxes with the intention of receiving a higher moratorium interest if the tax is afterwards refunded to the taxpayer.

  • Optional VAT on immovable letting

There is also an agreement on an optional system for VAT-based real estate, largely based on the Dutch model. The Netherlands currently provide an optional system in which rental of real estate can be taxed with VAT when a number of conditions are fulfilled. Probably in Belgium as well, the optional regime will be subject to several conditions.
This new measure will have a significant impact on the real estate market in Belgium. As it will allow the deduction of VAT from the building-, renovation- and restoration works, which can result in considerable savings. Plans are to implement the new regime already in 2018.

  • Draft legislation

The details of these measures still have to be formalized in draft legislation, which must be submitted to the Council of State and be discussed and voted by the Parliament. The draft proposals should normally be available as from October.