As we highlighted before, the recent corporate tax reform increased the minimum executive remuneration from € 36,000 to € 45,000 (i.e. salary and benefits in kind). This measure was introduced to prevent individual freelancers and sole traders from transforming into a company for obvious reasons that the individual tax rates are significantly higher.
The current SME tax 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).
SMEs that pay out a lower salary, would initially be subject to a special taxation of 5.10% 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 or managers.
The additional 5% tax increase has now been abolished, as was approved on March 19, 2019 in the federal Finance Commission.
This tax increase was particularly controversial, especially among groups of companies. In the Walloon Region, the measure met with a lot of protest, because SMEs there are on average smaller than in Brussels or in the Flemish Region. This raised several parliamentary questions and the measure was even challenged before the Belgian Constitutional Court.
With the approved proposal, SMEs that do not meet the minimum remuneration requirement will no longer be confronted with the 5% tax increase but will only have to accept a taxation at the standard corporate tax rate of currently 29% (plus a 2% crisis surcharge), which will be 25% in 2020.