If you are a business owner, you might wonder what the tax implications are if you decide to actively invest your earnings instead of keeping your money in a savings account.
While private investors in Belgium can – under certain conditions – benefit from a tax exemption on their capital gains, this is not the case for companies. The general rule is that all income realized by a company is taxed as business income, either at the standard corporate tax rate of 25% or the reduced SME rate of 20% (on the first € 100k of taxable profit). For certain types of investment income, a different tax treatment applies.
If your company is an SME, you will lose the benefit of the reduced tax rate if it is considered to be a so-called ‘financial entity’. A financial entity is every company of which the total investment value of the stock it holds exceeds half of the company’s paid-up share capital, taxed reserves and recorded capital gains, at the end of the accounting year.
Debt instruments like fixed-income securities (e.g. debentures, cash bonds, capitalization bonds, or zero coupon bonds) are subject to a different tax regime. The interest earned is taxed at the standard rate of 25%. The taxable base is the gross interest amount. That amount is deemed to have been paid or made payable on the last day of the period to which it relates, even if your company did not actually receive anything. Capital gains from fixed-income securities are taxable, while capital losses are consequently tax-deductible.
Dividend income is also subject to a separate tax regime. In general, the gross amount is taxable at 25%. There is an important exception: the so-called ‘Dividends-Received Deduction’(DRD). No corporate tax will be due if the conditions for the DRD are met. The DRD is subject to a (i) minimum participation, (ii) permanence, and (iii) taxation condition. Your company should own at least 10% of the shares or (ii) have a shareholding with an acquisition value of € 2,500,000 or more. Because of these strict conditions, the DRD regime seldom applies for any individual shares within your company’s investment portfolio. Your company should also own the stock for at least 12 months to be able to benefit from the DRD deduction. The same rules apply for any capital gains realized on shares. If the conditions of the DRD regime are not met, any capital gains will be taxed as business income. Capital losses are, in general, not tax-deductible.
The only exception is when you invest in so-called ‘DRD-SICAVs’ (Investment company with Variable Capital). These are special investment companies that can generally benefit from the DRD regime on their dividends. If the dividends paid out by a DRD-SICAV are eligible for the DRD deduction, any realized capital gains will also be fully tax-exempt.
Any Belgian withholding tax deducted at source on your earnings will be set off against the corporate tax due and will be refunded to you if the amount withheld exceeds the total tax due.
TAXPATRIA® can assist you with your corporate tax planning and business accounting.