Stricter rules for reduced dividend taxation in 2022
Belgian companies currently pay a 25% corporate tax on their earnings (or 20% on the first €100,000 of taxable profit if they qualify as an SME), and an additional 30% withholding tax if they decide to distribute those after-tax profits as a dividend.
Under certain conditions, the 30% tax rate is reduced to 20% or 15% for dividends from so-called ‘VVPR-bis’ shares. The reduced withholding tax rate applies if a distribution is made either in the second or in the third accounting year following that of the incorporation or capital increase.
Several conditions need to be met in order to benefit from the lower dividend tax rate:
- the dividend comes from newly issued shares (incorporation or capital increase);
- the shares represent a cash contribution done after 1 July 2013;
- the shares have been continuously in full ownership by the taxpayer since the capital contribution;
- the company qualifies as an SME in the taxable period in which the contribution was made;
- the share capital is fully paid up at the moment of dividend distribution.
With the new Belgian Company Law introduced in 2019, the concept of ‘share capital’ was abolished for the private limited liability company (BV/SRL). Any company established after 1 May 2019 is automatically considered to be ‘fully paid up’, so no issues for those entities.
The problem lies with SMEs that were incorporated before May 2019, like the BVBA/SPRL for which the minimum share capital was €18,550. If the company is established between 1 July 2013 and 1 May 2019, and the share capital was not fully paid up, the latter normally does not qualify for the VVPR-bis regime.
The company could choose to update its articles of incorporation to the new company law, but not every company has done this already as this is only mandatory by 31 December 2023. For those companies that choose not to, it was unclear whether their share capital must be fully paid up to benefit from the lower dividend tax rate.
The Belgian Ruling Commission indicated that those companies could benefit from the VVPR-bis regime if they decide to waive the requirement ‘of fully paying up’ and consequently reduce their capital to €1 (Rulings Nr. 2020.0114 and 2020.0178, dd. 21 April 2020). However, the Finance Minister did not approve this approach.
A strict reading of the VVPR-bis rules indeed requires a ‘fully paid up’ capital. The two- or three-year waiting period currently starts as from the accounting year following the year in which the contribution was made. Initially, the payment in full only had to be made right before the general meeting that decided on the dividend distribution, so it was not necessary to do this immediately.
For example, if your company (BVBA/SPRL) was established in March 2018 and your first financial year ended on 31.12.2018, you have time to pay up the share capital until your general shareholders meeting in spring 2022 that decides on the dividend distribution over 2021. In that case, the VVPR-bis regime results in a 15% flat tax.
A new amendment will make these ‘waiting period rules’ more strict. As of 1 January 2022, the waiting period will only start as from the moment the share capital was fully paid up. Making the payment right before the general shareholders meeting no longer works. This means that if you were patiently waiting to distribute a 15% taxed dividend next spring, but have not yet paid up your capital, you would need to take immediate action. Quickly paying up the capital would be essential.
At the same time, you should consider granting an (interim) dividend before 1 January 2022 in order to still benefit from the reduced tax rate. Evidently, dividends can only be distributed if the company’s liquidity and solvency remain at a sufficient level, which needs to be confirmed by your accountant.
Furthermore, the new amendment also stipulates that companies who ‘waived’ the requirement to fully pay up, will be required in 2022 to bring their capital back to the same level as before the decision to waive. This requires them to schedule another visit to the notary.