Reduced dividend withholding tax under new Belgian Company Law.
The new Code will automatically apply to companies and associations incorporated as from 1 May 2019. As to already existing companies and associations, the new Code will enter into force on 1 January 2020, unless they would decide to opt-in sooner to the new regime.
While the previous Belgian Companies Code required a minimum share capital amount of EUR 18,550 in order to incorporate a private limited liability company (BVBA/SPRL), the new Code abolished this requirement. It replaced the existing BVBA/SPRL with a flexible company without capital: the BV/SRL.
Instead of paying up a minimum share capital amount, the founders now need to make sure the company has sufficient equity in view of its planned activities. This must be supported by a more extensive financial plan. Instead of share capital, the BV/SRL’s equity now consists of (i) shareholder contributions; (ii) reserves; and (iii) profit carried forward that will serve as protection for creditors.
As was the case before, three types of dividends will in principle be available for distribution: (i) annual dividends; (ii) intermediary dividends; and (iii) interim dividends.
Due to its increased flexibility to distribute equity and in the absence of share capital, a new safety-mechanism has been introduced for dividend distributions by the BV/SRL: the ‘solvency test’ and the ‘liquidity test’. No dividend distribution may occur when the net assets of the company would become negative as a result of that and is only possible, based on reasonable expectations, if the company will be able to continue to fulfil its payments obligations after the distribution.
A dividend distribution would in principle be subject to a 30% domestic withholding tax rate.
However, SME’s can pay dividends at a reduced rate after a certain waiting period in the context of the so-called ‘VVPRbis regime’. This rate can be 20% or even 15%, depending on whether a profit distribution is made the 2nd or 3rd financial year following that of the contribution.
We will clarify this with an example: if your company was established early 2016 and the first financial year ended on 31 December 2016, a dividend payment in 2019 (profit distribution for the 2018 financial year) would be subject to a 20% withholding tax. A dividend payment in 2020 (profit distribution for the 2019 financial year) or later, would be taxed at only 15%.
The idea is based is on delaying dividend distribution after setup. This regime has been in place for several years already and applies to dividends from registered shares in respect to contributions made from 1 July 2013 onwards.
Although there are several conditions that companies need to consider before they can benefit from this reduced dividend tax rate, the tax code explicitly stipulates that companies with no minimum share capital are excluded from this favorable regime. The shares also have to be fully paid up at the moment the general meeting decides on the actual dividend distribution.
As the new Company Law abolished this minimum share capital requirement, it is not clear how the above conditions for the reduced withholding tax regime will continue to apply. In principle, every SME should be able to benefit from the ‘VVPRbis regime’ for cash contributions made after 1 May 2019.
While we consider it obvious that any BV/SRL established after 1 May 2019 would be able to benefit from the reduced withholding tax regime under VVPRbis, this would apparently not be the case for ‘old’ shares issued before, for which the minimum share capital amount of EUR 18,550 continues to apply. For the company types that were not required to have a share capital already before (i.e. the VOF/SNC or the CommV/SComm), the benefit of the VVPRbis regime is likely to be prorated for shares issued after 1 May, but this has not yet been confirmed.
It is also not clear if this will change after 1 January 2020 when the new Code will apply to the already existing companies or in case a currently existing company would decide to opt-in to the new regime before that. A Parliamentary Question would be published in the near future, which will hopefully further clarify things.