Taxes on corporate income
Corporate income tax (CIT)
In general, the tax base for CIT purposes is determined on an accrual basis and consists of worldwide income less allowed deductions. The rules are equally applicable to companies and PEs. It is assumed that all income received by a company is, in principle, business income. The income tax base is based on the Belgian Generally Accepted Accounting Principles (GAAP) financial statements of the company.
CIT is levied at a rate of 33% plus a 3% crisis tax, which is a surtax, implying an effective rate of 33.99%. This rate applies to both Belgian companies (subject to Belgian CIT) and Belgian PEs of foreign companies (subject to Belgian non-resident CIT). Capital gains on qualifying shares realised without meeting the one-year holding requirement are taxed at 25.75% (25% plus a 3% crisis tax, which can be offset against available tax losses), provided certain conditions are met (and at 0.412% if this one-year holding period and certain other conditions are met). Non-qualifying shares are subject to the 33.99% rate.
As of tax year 2014, large companies (i.e. not SMEs, see below) are subject to a fairness tax on all or part of their distributed dividends. The fairness tax is a separate assessment at a rate of 5.15% (5% increased by a 3% crisis surtax) borne by the company distributing the dividends.
The tax is only applicable if, for a given taxable period, dividends have been distributed by the company that stem from taxable profit that has been offset against (current year) NID and/or carried forward tax losses. Liquidation bonuses and share buy-back proceeds are not in scope of the fairness tax.
The taxable basis of the fairness tax is determined by the positive difference between the gross dividends distributed for the taxable period and the taxable result that is effectively subject to the nominal corporate taxes of generally 33.99% (there are some exceptions).
This positive difference as determined in the first step will be decreased with the part of the dividends stemming from taxed reserves constituted, at the latest, during tax year 2014. To identify the origin of the reserves, a last in first out (LIFO) method is applied.
The outcome of the above calculation is limited by a percentage, being the result of the following fraction:
- The numerator consists of the amount of carried forward tax losses and NID that has been effectively used in the taxable period at hand.
- The denominator consists of the taxable result of the taxable period at hand, excluding the tax-exempt reductions in the value and provisions.
The fairness tax itself is not tax deductible. The fairness tax due can be offset against prepayments made and tax credits.
Large companies are in scope of the fairness tax, whereas it does not apply to SMEs.
Belgian PEs of foreign companies are also in scope of the fairness tax. For Belgian PEs, 'distributed dividends' are, for the purposes of the fairness tax, defined as the part of the gross dividends distributed by the head office, which proportionally corresponds with the positive part of the accounting result of the Belgian PE in the global accounting result of the head-office.
Note that court cases are pending related to the legality of the fairness tax (seeFairness tax in the Significant developments section).
A progressive scale of reduced rates applies to taxpayers with lower amounts of taxable income. If the taxable income is lower than 322.500 euros (EUR), the following rates apply (including the 3% crisis tax):
A progressive scale of reduced rates applies to taxpayers with lower amounts of taxable income. If the taxable income is lower than 322.500 euros (EUR), the following rates apply (including the 3% crisis tax):
Taxable income (EUR) CIT rate (%)
0 to 25.000 24.98
25.001 to 90.000 31.93
90.001 to 322.500 35.54
Even if their taxable income does not exceed the aforesaid ceilings, certain companies are excluded from the reduced rate and always subject to the normal CIT rate. These companies include, amongst others, companies that are owned 50% or more by one or more companies.
A surcharge is due on the final CIT amount upon assessment (including the crisis surtax). The surcharge can be avoided if sufficient advance tax payments are made (see Payment of tax in the Tax administration section for more information). For tax year 2016 and 2017 (i.e. accounting years ending between 31 December 2016 and 30 December 2017, both dates inclusive), the surcharge is 1.125%.
Secret commissions tax
A special assessment of 103% (100% plus 3% crisis tax) or 51.5% (50% plus 3% crisis tax) is applicable to so called 'secret commissions', which are any expense of which the beneficiary is not identified properly by means of proper forms timely filed with the Belgian tax authorities. These expenses consist of:
Commission, brokerage, trade, or other rebates, occasional or non-occasional fees, bonuses, or benefits in kind forming professional income for the beneficiaries.
Remuneration or similar indemnities paid to personnel members or former personnel members of the paying company.
Lump-sum allowances granted to personnel members in order to cover costs proper to the paying company.
By the Act of 19 December 2014, the secret commissions tax is no longer 309%, but has been limited to 103%. The secret commissions tax can be further limited to 51.5% in case it can be demonstrated that the beneficiary of the income is a legal entity, or that the hidden profits are recorded in later financial accounts, to the extent the taxpayer has not been informed (in writing) of an ongoing tax audit. Further, the secret commissions tax would only apply to the extent the hidden profits are not the result of a disallowance of professional expenses.
The secret commissions tax does neither apply in case it can be demonstrated that the beneficiary has properly declared the income. The payer has to demonstrate that the payments have been reported in the beneficiary's Belgian tax return; when the beneficiary is foreign, the payment also has to be mentioned in their tax return. Finally, in case the income was not properly declared by the beneficiary, no secret commissions tax would be levied if the beneficiary is identified, at the latest, within two years and six months following 1 January of the tax year. The secret commission taxation itself is, in principle, tax deductible, but it depends on the situation at hand whether or not the underlying cost will be tax deductible.
This measure is applicable as of 29 December 2014, and is applicable on all disputes that are not finally settled by that date.
Taxable income of non-residents
Certain income attributed by a Belgian tax resident to a non-resident is taxable in Belgium. A paragraph in the Belgian Income Tax Code functions as a ‘catch all clause’ to tax certain payments made to a non-resident of Belgium.
The catch all clause applies in case the following conditions are all met:
Revenues stem from ‘any provision of services’.
Revenues qualify as benefits or profit in the hands of the non-resident beneficiary.
The services are provided to an individual tax resident in Belgium in the framework of one’s business activity, a corporation, a taxpayer subject to the legal entities tax, or a Belgian establishment.
There are (in)direct links of interdependence between the foreign supplier and its Belgian client.
Such revenues are taxable in Belgium according to a double tax treaty (DTT) or, in the absence of any DTT, if the non-resident taxpayer does not provide evidence that income is actually taxed in the state where the taxpayer is resident.
Given the condition of ‘any direct or indirect links of interdependence’, provision of services between non-related parties should thus, in principle, remain out of scope.
The rate amounts to 33% on the gross fee paid (resulting in an effective tax rate of 16.5%, as a lump sum deduction of 50% as professional expenses is allowed).
Local income taxes
No tax is levied on income at the regional or local level. Note that immovable assets (land, building, and possibly machinery and equipment) situated within the Belgian territory are, in principle, subject to an immovable WHT that is levied locally.
A company is considered to be a resident of Belgium for tax purposes if it has its registered office, its principal place of business, or its seat of management in Belgium.
The seat of management has been defined by Belgian case law as the place from where directing impulsions emanate or the place where the company's effective management and central administration abide, meaning the place where the corporate decision- making process actually takes place.
Permanent establishment (PE)
The definition of a Belgian establishment under Belgian domestic tax law corresponds, but is broader than, the definition of a PE under either the OECD Model Tax Convention or Belgium's DTTs. Since the latter prevail over domestic law, Belgium generally cannot levy tax if a non-resident has a Belgian establishment that does not constitute a PE under the relevant DTT. Although Belgium would not be entitled to tax the profit attributable to the Belgian establishment in such a case, the foreign company should still abide by certain formal tax requirements (e.g. filing a non-resident tax return, responding to requests for information).
Value-added tax (VAT)
Scope of VAT
The following transactions are subject to VAT in Belgium if they are considered to take place in Belgium:
The supply of goods and services effected for consideration by a taxable person acting as such.
The acquisition of services for consideration from outside Belgium between taxable persons.
The importation of goods.
Intra-Community acquisition of goods for consideration by a taxable person acting as such or by a non-taxable legal person (including the transfer of assets).
The self-supply by a taxable person.
Intra-Community supply and intra-Community acquisitions
An intra-Community supply of goods is a supply of goods whereby the goods are moving from one EU member state to another EU member state. In the member state of departure of the goods, the goods can be, under certain conditions, VAT exempt. As a result, the intra-Community acquisition of the goods (i.e. the arrival of the goods in the other member state) will be taxable.
Standard and other VAT rates
The standard VAT rate is 21%. This rate applies to all goods and services not qualifying for one of the reduced VAT rates.
Certain supplies of goods and services have a 12% VAT rate, others are "zero-rated" and others are exempted.
Social security taxes
The base percentage of the employer contribution for white collar workers is currently 30% (consisting of a basic 22.65% and a percentage for salary moderation of 7.35%) calculated on an uncapped salary.
However, the Act of 26 December 2015 (Tax Shift Act) foresees a gradual decrease of the base percentage of social security contributions for employers to 25% (consisting of a basic 19.88% and a percentage for salary moderation of 5.12%) by 1st January 2018.
On top of the basic percentage of the employer’s social security contributions, additional contributions may be due of which the percentages may vary depending on the company and the sector whereto the company belongs.
However, all employers that employ employees, subject to all aspects of the social security regulation, might currently benefit from a structural reduction (which will be abolished from 1 January 2018 for the majority of employees). Therefore, at the moment, the employer social security contributions are rather around 28% of the total gross compensation.
Social security contributions are deductible in determining taxable income both for the employer (CIT) and for the employee (personal income tax or PIT).
For foreign employees with an international employment (i.e. assignment or simultaneous employment) in Belgium who continue to be subject to the social security schemes of their home country, an exemption from subjection to the Belgian social security scheme may be granted, depending on the place of residence and/or nationality of the claimant.
PE profits are subject to the normal tax rate for Belgian corporations of 33.99% (or 25.75% for certain capital gains on shares not meeting the one-year holding period or 0.412% for those capital gains meeting the one-year holding period and the subject to tax test) plus the possible surcharge for absence/insufficiency of advance payments (see the Taxes on corporate income section). Transfers of PE profits to the head office abroad do not give rise to further taxation in Belgium. PEs can benefit from the reduced CIT rates under specific conditions (see the Taxes on corporate income section).
Capital gains realised on real estate located in Belgium by non-resident companies are subject to a professional WHT at the normal CIT rate of 33.99%. The professional WHT is, in fact, an advance payment of the final Belgian non-resident CIT and can be offset against it. Any balance is refundable.
In general, the taxable basis is the difference between the profits actually realised and the tax-deductible costs actually incurred in the hands of the Belgian PE as determined from the separate set of accounts of the Belgian PE. Please note, however, that no legal requirement exists to keep a separate set of accounts in the hands of the PE, in case no legal PE is deemed to exist in Belgium.
Should no separate set of accounts be kept, the taxable basis in the hands of the Belgian PE, in principle, will be determined on the basis of the Royal Decree implementing the Belgian Income Tax Code (BITC). As a result, the yearly taxable basis will be determined on 10% of the gross turnover realised in Belgium with a minimum of EUR 7,000 per employee (the minima vary between EUR 7,000 and EUR 24,000, depending on the kind of business) and an absolute minimum of EUR 19,000. Note that such determination of the taxable basis is often formalised in a written agreement with the local Belgian tax inspector without deviating from the tax law criteria as mentioned.
Belgian accounting law provides for the following four methods of inventory valuation: the method based on the individualisation of the price of each item, the method based on the weighted average prices, the last in first out (LIFO) method, and the first in first out (FIFO) method. All of these methods are accepted for tax purposes.
Capital gains are subject to the normal CIT rate. For tax purposes, a capital gain is defined as the positive difference between the sale price less the costs related to the disposal of the asset and the original cost of the acquisition or investment less the depreciations and write-offs that have been deducted for tax purposes.
Capital gains realised on tangible fixed assets and intangible assets could be subject to a deferred and spread taxation regime, provided that the following conditions are cumulatively met:
The assets realised have been held by the company for more than five years, and depreciations has been claimed on them for tax purposes.
The proceeds of the transfer were reinvested fully in tangible or intangible assets subject to depreciation in Belgium within three years (or five years in the case of reinvestments in buildings, vessels, or aircraft).
If the above conditions are met, the taxation of the net capital gain is spread over the depreciation period allowed for tax purposes of the asset that was acquired to fulfil the reinvestment obligation. Deferred and spread taxation occur at the normal CIT rate.
Capital gains on shares
Net capital gains realised by a large Belgian company (or Belgian PE) on shares are subject to a 0.412% tax, provided the subject to tax condition and the one-year holding period are met. The 0.412% tax is not applicable to SMEs.
If the net capital gain is realised before the minimum holding period of one year was reached and the taxation condition (see below) is met, the net capital gain is taxed at a rate of 25.75% (25% plus a 3% crisis tax, which can be offset against available tax losses). There are some exceptions (e.g. for financial institutions).
Dividends received by a Belgian company are first included in its taxable basis on a gross basis when the dividends are received from a Belgian company or on a net basis (i.e. after deduction of the foreign WHT) when they are received from a foreign company.
Provided certain conditions are met, 95% of the dividend income can be offset by a dividends-received deduction (DRD).
Dividends-received deduction (DRD)
A DRD of 95% of dividend income can be applied under certain conditions (see below). Any unused portion of the DRD from dividends received from a European Economic Area (EEA) subsidiary or a subsidiary from a country with which Belgium has concluded a DTT with a nondiscrimination clause on dividends can be carried forward to future tax years. The same also applies for dividends from Belgian subsidiaries.
The DRD is subject to a (i) minimum participation condition and (ii) taxation condition.
Minimum participation condition
According to the minimum participation condition, the recipient company must have, at the moment of attribution, a participation of at least 10% or an acquisition value of at least EUR 2.5 million in the capital of the distributing company. The beneficiary of the dividend must have been holding the full legal ownership of the underlying shares for at least one year prior to the dividend distribution or commit to hold it for a minimum of one year.
The taxation condition, in summary, means that the dividend income received must have been subject to tax at the level of the distributing company and its subsidiaries if the former redistributes dividends received.
The taxation condition is based on five 'exclusion' rules and certain exceptions to these rules. Basically, the exclusion rules apply to the following:
Tax haven companies, which are companies that are not subject to Belgian CIT (or to a similar foreign tax) or that are established in a country where the common taxation system is notably more advantageous than in Belgium. Countries in which the minimum level of (nominal or effective) taxation is below 15% qualify as tax havens for the application of the regime (a list of tainted countries has been published). The common tax regimes applicable to companies residing in the European Union are, however, deemed not to be notably more advantageous than in Belgium.
Finance, treasury, or investment companies that, although are subject in their country of tax residency to a corporate tax similar to that of Belgium as mentioned in the item above, nevertheless benefit from a tax regime that deviates from common law.
Offshore companies, which are companies receiving income (other than dividend income) that originates outside their country of tax residency and in these countries such income is subject to a separate taxation system that deviates substantially from the common taxation system.
Companies having PEs that benefit globally from a taxation system notably more advantageous than the Belgian non-resident corporate taxation system. This exclusion is deemed not applicable to EU companies with an EU PE.
Intermediary holding companies, which are companies (with the exception of investment companies) that redistribute dividend-received income, which on the basis of regulations mentioned under the items above would not qualify for the DRD for at least 90% of its amount in case of direct holding.
While this is a summary of the exclusion rules, numerous exceptions to these exclusion rules exist and need to be analysed on a case-by-case basis.
Bonus shares (stock dividends)
Distribution of bonus shares to shareholders in compensation for an increase of the share capital by incorporation of existing reserves is, in principle, tax free. The situation may be different if the shareholder has the choice between a cash or stock dividend.
Interest, rents, and royalties
Interest that accrued, became receivable by, or was received by a company, and rents and royalties received by a company, are characterised as business profits and taxed at the general CIT rate of 33.99%. The income can be offset against available tax assets.
A Belgian resident company is subject to CIT on its worldwide income and foreign-source profits not exempt from taxation by virtue of a DTT (see the treaty list in the Withholding taxes section). This income is taxable at the normal CIT rate in Belgium (i.e. 33.99%).
A foreign tax credit may be available for foreign royalty income and foreign interest income. See the Tax credits and incentives section for more information.
Undistributed income of subsidiaries, whether or not they are foreign, is not subject to any Belgian income tax in the hands of the Belgian corporate shareholder (i.e. no controlled foreign company [CFC] rules).
As a general rule, expenses are tax deductible in Belgium if they are incurred in order to maintain or to increase taxable income, they relate to the taxpayer's business activity, they are incurred or have accrued during the taxable period concerned, and evidence of the reality and the amount of such expenses is provided by the taxpayer.
Depreciation and amortisation
Depreciation of an asset is tax deductible to the extent that it results from a devaluation of the asset, and the devaluation effectively occurred during the taxable period concerned. The depreciation methods that are accepted by Belgian tax law are the straight-line method (linear method) and the double-declining balance method. In the latter case, the annual depreciation may not exceed 40% of the acquisition value. The double-declining method may not be used for intangible fixed assets, automobiles, minibuses and automobiles used for mixed purposes, and for assets, the use of which has been transferred to a third party (e.g. operational leasing).
Depreciation rates are based on the expected lifetime of the assets concerned, which are normally agreed upon by the taxpayer with the tax authorities. However, for certain assets, rates are set by administrative instructions as follows:
Assets Depreciation rate (%)
Commercial buildings 3
Industrial buildings 5
Machinery and equipment (depending on the type) 20 or 33
Rolling stock 20
Intangible fixed assets have to be amortised over a period of at least five years for tax purposes (except research and development [R&D] expenses, for which the minimum amortisation period is three years).
For the year of acquisition of an asset, only the proportionate share of an annual depreciation calculation can be accepted as depreciation for income tax purposes (in principle to be computed on a daily basis). This provision, however, applies only to companies that cannot be considered as SMEs (see the Tax credits and incentives section for the definition). In contrast, SMEs can deduct a full year of depreciation in the year of acquisition.
Ancillary expenses incurred at the time of acquisition must be depreciated in the same way as the asset to which they relate (i.e. no full deduction in the year of acquisition, except for SMEs). Alternatively, ancillary expenses relating to the acquisition of land can be written down and such write-downs, if they are justified, may constitute a deductible expense.
Belgian accounting and tax laws allow amortisation of goodwill arising at the occasion of an asset deal. For Belgian tax purposes, the amortisation period, which depends on the elements included in the goodwill, is a minimum of five years, and the straight-line method must be applied. According to the Minister of Finance, 'clientele' (client lists) should be amortised over a period of ten to 12 years. The aforesaid accounting and tax amortisation for goodwill is not available if tax-free mergers or de-mergers occur (i.e. they, among other things, follow the continuity principle from an accounting perspective).
Incorporation costs, at the election of the taxpayer, may be deducted fully in the year of incorporation or can be depreciated over a maximum period of five years.
Interest expenses are, in principle, tax deductible insofar as thin capitalisation limits are respected (see Thin capitalisation in the Group taxation section) and the interest is at an arm's-length rate.
Provisions and bad debt reserves
Provisions and bad debt reserves are tax deductible provided that:
they are set up to cover clearly identified losses and charges (i.e. not to cover 'general' risks) that have been rendered probable by events that took place during the taxable period concerned
they are booked at the end of the financial year in one or more separate accounts on the balance sheet
they are reported on a specific form enclosed with the tax return, and
they relate to losses and charges that are deductible for Belgian tax purposes.
Charitable contributions may not be less than EUR 40 and may not exceed 5% of the total net income of the taxable period, with a maximum of EUR 500,000 to be tax deductible. The law includes an exhaustive list of gifts that are deductible, including gifts in cash to certain social, cultural, or scientific organisations.
The deductibility rate of automobile costs in the hands of Belgian companies (and Belgian PEs) varies in a range between 50% and 120% of the automobile costs, depending on the CO2 emission of the company car and its catalogue value.
Moreover, the deduction for fuel costs is limited to 75%.
Taxes, fines, and penalties
Belgian resident and non-resident CIT, including advance tax payments, any surcharge imposed in case of insufficient advance tax payments, any interest for late payment of the CIT, and any Belgian movable WHT, is not tax deductible in Belgium. Immovable WHT (i.e. real estate tax), secret commissions tax, and foreign taxes, however, are considered as tax deductible.
Regional taxes and contributions, including penalties, increases, ancillary expenses, and interest for late payment, are not tax deductible in Belgium (certain exceptions apply).
Any administrative and judicial fines or penalties (except for VAT proportionate fines) are not tax deductible in Belgium.
The following expenses are not tax deductible in Belgium (this list is not exhaustive):
31% of restaurant expenses.
50% of representation expenses and business gifts (there are exceptions).
Advantages granted to employees for social reasons, with certain exceptions (e.g. hospitalisation insurance premiums, gifts of a small value).
Capital losses on shares (except upon liquidation, up to the amount of paid-up capital of the liquidated company).
Brokerage, commissions, commercial discounts, or other payments allocated directly or indirectly to a person in the form of a Belgian public bribery.
17% of the benefit in kind of company cars (minimum taxable basis).
Net operating losses
Principle: carried forward without limitation in time
Tax losses can, in principle, be carried forward without any limitation in time.
Change of control
If a change of control of a Belgian company takes place (e.g. if the shares of the company are transferred and along with them the majority of the voting rights), the amount of tax losses, investment deduction, and NID carried forward available in that company (before the change of control) can no longer be offset against future profits unless the change can be justified by legitimate needs of a financial or economic nature in the hands of the loss realising company (i.e. evidence must be brought that the change is not purely tax driven).
The condition of legitimate needs of a financial or economic nature is considered to be fulfilled when the employees and activities of the company are maintained by the new shareholder or when the company's control is acquired by a company belonging to the same consolidated group of companies as the former controlling company.
A ruling can be requested from the Belgian tax authorities to obtain upfront certainty on the Belgian tax treatment of the contemplated operation, so as to ensure the losses are not forfeited as a result of a change of control.
Tax-free merger or (partial) de-merger
If a tax-free merger or (partial) de-merger takes place, Belgian tax law provides for a partial transfer/maintenance of the rollover tax losses of the absorbed/absorbing company. The carried forward tax losses of the companies involved are then reduced based on the proportionate net fiscal value of the company (before the restructuring) compared to the sum of the net fiscal values of both the merging entities (before the restructuring).
There is no tax loss carryback provision under Belgian tax law.
Payments to foreign affiliates
A Belgian company can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are at arm's length. However, when such payments are made, either directly or indirectly, to a foreign person, entity, or PE that is not subject to tax or is subject to a tax regime that is notably more advantageous than the Belgian tax regime on such income, there is a reversal of the burden of proof. Such charges will be disallowed unless the Belgian company can prove that the payments are reasonable and that they correspond to genuine and real transactions.
Fees, commissions, etc. paid to beneficiaries located in foreign countries, which are not properly reported on Form 281.50 and Summary Form 325.50, will, in principle, be subject to the secret commissions tax.
Payments to tax havens
Companies subject to Belgian CIT or Belgian non-resident CIT that make direct or indirect payments to recipients established in tax havens are obligated to declare them if they are equal to or exceed EUR 100,000 during the tax year. The reporting has to be made on a special form to be attached to the (non-resident) CIT return.
In the event of non-reporting, the payments will be disallowed expenses for CIT purposes. Where the payments have been reported duly and timely, their tax deductibility will be subject to the ability of the taxpayer to prove that (i) said payments were made as part of genuine, proper transactions and (ii) they were not made to an entity under an artificial construction.
A tax haven is defined as: (i) a jurisdiction where the nominal corporate tax rate is less than 10% or (ii) a jurisdiction regarded by the OECD as not being cooperative concerning transparency and international exchange of information (Eol) (i.e. on the OECD 'black list'). A royal decree containing the list of countries where the nominal corporate tax rate is lower than 10% is published.
Belgium does not apply any tax consolidation mechanism with respect to corporate tax.
The arm's-length principle is formally codified in the BITC. In addition, the tax authorities can make use of other, more general, provisions in the BITC to assess the arm's-length nature of transfer prices (e.g. the general rules on the deductibility of business expenses). The BITC contains provisions that tackle artificial inbound or outbound profit shifting. These are the so-called provisions on abnormal or gratuitous benefits.
If a Belgian tax resident company grants an abnormal or benevolent benefit, the benefit should be added back to the taxable income as a disallowed expense unless the benefit was taken into account to determine the taxable basis of the beneficiary. Even if the abnormal or gratuitous benefit was taken into account for determining the taxable basis of the beneficiary, the tax deductibility of the related expenses can still be denied in the hands of the grantor. Notwithstanding the above exception, the abnormal or benevolent benefit should be added back to the taxable income when the benefit is being granted to a non-resident affiliated company. Such granted abnormal or benevolent benefits can be offset against any tax deductible items (e.g. tax losses carried forward, NID).
If a Belgian tax resident company receives an abnormal or benevolent benefit, and to the extent that such benefit is received from a related company, the benefit received cannot be offset by the Belgian company against its current year or carried forward tax losses or other tax deductions. According to the position of the tax authorities (by the Minister of Finance), the taxable basis of a Belgian company equals at least the amount of the benefit received (however, there is case law deviating from this position).
Belgium has a special transfer pricing investigation unit with a mission to (i) build up and share transfer pricing expertise and (ii) carry out in-depth transfer pricing audits of multinationals present in Belgium through a subsidiary or PE. The number of transfer pricing audits being initiated in Belgium has increased significantly.
There are no specific transfer pricing documentation requirements or rules on the selection of transfer pricing methods included in the Belgian tax legislation. Nevertheless, the Belgian tax authorities adhere to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and the EU Code of Conduct. In the administrative guidelines that were issued, taxpayers are urged to proactively compile a coherent and consistent documentation set, although there is no legal obligation to do so. If information is requested, the taxpayer must provide the data requested within (in principle) one month.
However, following the BEPS project and the OECD's recommendations in relation to transfer pricing documentation and country-by-country reporting (Action Point 13), the Belgian government is assessing the feasibility and benefits of introducing formal transfer pricing documentation requirements given that such a measure would contribute to more transparency and more efficient transfer pricing audits. A feasibility and benchmark study on the introduction of mandatory transfer pricing documentation regulations is already in progress and included as part of the 2015 operational plan of the Belgian tax administration.
Advance pricing agreements (APAs) can be concluded (unilaterally, bilaterally, and multilaterally) via which the taxpayer can obtain upfront certainty.
For the purposes of the thin capitalisation rule, equity is defined as the sum of the taxed reserves at the beginning of the taxable period and the paid-up capital at the end of the taxable period.
For the purposes of the thin capitalisation rule, debt is defined as:
all loans, whereby the beneficial owner is not subject to income taxes, or, with regard to the interest income, is subject to a tax regime that is substantially more advantageous than the Belgian tax regime, and
all intra-group loans.
Bonds and other publicly issued securities are excluded, as well as loans granted by financial institutions.
Interest payments or attributions in excess of the 5:1 ratio are not tax deductible. The thin capitalisation rule is not applicable to loans contracted by (movable) leasing companies and companies whose main activity consists of factoring or immovable leasing (within the financial sector).
In case the loans are guaranteed by a third party or in case loans are funded by a third party that partly or wholly bears the risk related to the loans, the third party is deemed to be the beneficial owner of the interest, if the guarantee or the funding has tax avoidance as main purpose.
To safeguard companies having a centralised treasury function in Belgium, a netting for thin capitalisation purposes is allowed at the level of the interest payments and interest income related to the centralised financing function/cash pool function.
Controlled foreign companies (CFCs)
There are no CFC rules in Belgium.
The assessment is based on the taxable income of a financial year. For the application of the rules on statutory limitations and of new laws, an assessment year is related to each taxable period. If the financial year corresponds with the calendar year, the assessment year is the following calendar year (e.g. financial year closing 31 December 2015 corresponds with assessment year 2016). If the financial year does not correspond with the calendar year, the assessment year, in principle, equals the calendar year during which the financial year ends (e.g. financial year closing 30 June 2015 corresponds with assessment year 2015).
As a general rule, the annual resident or non-resident CIT return cannot be filed less than one month from the date when the annual accounts have been approved and not later than six months after the end of the period to which the tax return refers. For instance, assuming that the accounting year has been closed on 31 December 2015, the corporate tax return needs to be filed, in principle, by 30 June 2016 at the latest (this deadline is often postponed).
Payment of tax
CIT is payable within two months following the issue of the tax assessment. Interest for late payment is charted at the (non-cumulative) rate of 7% per year.
The advance tax payments needed to avoid the CIT surcharge (see the Taxes on corporate income section) can be made in quarterly instalments. In the situation where the company's financial year ends on 31 December 2015, the due dates for the advance tax payments are 10 April 2015, 10 July 2015, 10 October 2015, and 20 December 2015. If the due date is a Saturday, Sunday, or a bank holiday, the payment is due on the next working day. Advance tax payments give rise to a tax credit. The tax credit amounts to 1.5%, 1.25%, 1%, or 0.75% of the advance tax payment made, depending on whether such payment has been made respectively in the first, second, third, or fourth quarter (percentages applicable for tax year 2016 [financial years that close as of 31 December 2015 until 30 December 2016]). If the total amount of credits exceeds the surcharge, no surcharge is due, but the excess is not further taken into account for the final tax computation. The taxpayer can choose to either have the excess reimbursed by the tax authorities or used as an advance tax payment for the next year.
Tax audit process
A tax audit normally begins with a written request for information from the tax inspector. The taxpayer must provide the data requested within (in principle) one month. Any documentary evidence considered relevant to the audit can be requested and reviewed by the authorities. Once the tax inspector has completed the analysis, any adjustment is proposed in a notification of amendment outlining the reasons for the proposed amendment. The taxpayer has 30 days to agree or to express disagreement. The tax inspector then makes an assessment for the amount of tax that the tax inspector believes is due (taking into account any relevant comments of the taxpayer with which the inspector agrees). Thereafter, the taxpayer has six months within which to lodge an appeal with the Regional Director of Taxes. The decision of the Regional Director of Taxes may be appealed and litigated. In a number of circumstances, the intervention of the courts can be sought prior to receiving the decision of the Regional Director of Taxes.
Statute of limitations
Based on the Belgian income tax statute of limitations, the period during which the tax authorities are authorised to perform a tax audit and adjust the taxable basis is three years (except in case of fraud, where the statute of limitations is extended to seven years) starting from the first day of the assessment year, unless the company's financial year does not correspond to the calendar year. The same statutes of limitations are applicable for social security taxes with the difference that the statute of limitations begins to run as from the end of the month following the month for which the social security contributions were due.
Belgian ruling practice
Belgium has a long tradition of providing formal and informal rulings. Currently, a taxpayer may request an advance tax ruling on a wide range of subjects, including, but not limited to, CIT, individual tax, non-resident income tax, legal entity income tax, VAT, customs, and registration duties. The request should cover a 'specific and concrete' operation, which effectively is envisaged to be realised in the foreseeable future. The ruling should be filed before the transaction takes place. In practice, the ruling decision should be granted prior to the filing of the CIT return of the year of the transaction. A ruling is binding upon the Belgian tax authorities for a renewable period of a maximum of five years. Delivery of a requested ruling takes, on average, three months.
The Ruling Office is autonomous from the Belgian tax authorities and has the legal authority to issue decisions, which are binding upon the Belgian tax authorities. The Ruling Office increasingly has adopted a constructive approach towards the taxpayer and is seen in the Belgian tax practice as a powerful insurance instrument in ascertaining the Belgian tax treatment of contemplated operations.