Please note this information is current as of 1 June 2015.
The National Interest Deduction (NID) rate for tax year 2015 (i.e. accounting years ending between 31 December 2014 and 30 December 2015) is 2.630% (3.130% for small and medium-sized enterprises [SMEs]). The Belgian NID rate for tax year 2016 (accounting years ending between 31 December 2015 and 30 December 2016) is 1.630% (2.130% for SMEs).
In the framework of the federal government agreement of October 2014, a modification to the NID regime for financial institutions was announced. Recently, the Belgian Council of Ministers approved a draft bill on the contribution of financial institutions to state revenue. The measure would come down to a decrease of the NID basis for financial institutions. The details are not clear yet. This measure would be applicable as of tax year 2016 (financial years ending between 31 December 2015 and 30 December 2016, both dates included).
Secret commissions taxation
By the Act of 19 December 2014, the so-called secret commissions tax of 309% (due on account of lack of proper filing of salary slips and fee forms) is now limited to 103%.
The secret commissions tax of 103% can be further limited to 51.5% in cases where 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 does not apply to the extent the hidden profits are the result of a disallowance of professional expenses. The secret commissions tax also does not apply in cases where it can be demonstrated that the beneficiary has properly declared the income. Finally, in cases where the income was not properly declared by the beneficiary, no secret commissions tax will 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 commissions tax itself is, in principle, tax deductible, but it depends on the situation at hand whether or not the underlying cost will be tax deductible.
The measure is applicable as of 29 December 2014 and applicable on all disputes that are not finally settled on that date.
Currently, certain inter-municipal entities, collaborations, and project associations are no longer, by default, exempt by law from corporate income tax (CIT) and, hence, are no longer, by default, subject to legal entities tax. As of tax year 2015, the entities at hand could be subject to CIT or legal entities tax, depending on certain criteria (e.g. whether or not they perform activities with a profitable nature, the way they do business).
The measure is applicable as of tax year 2015 (i.e. accounting years ending between 31 December 2014 and 30 December 2015, both dates inclusive) and is applicable as of financial years that are closed, at the earliest, on 1 July 2015.
Cayman tax (announced, not yet enacted)
The 'Cayman tax' is a taxation of certain income from certain legal constructions, in the hands of Belgian individuals (and Belgian entities subject to legal entities income tax). Income from certain legal constructions becomes subject to personal income tax (PIT) in the hands of the private individual, being the founder or beneficiary of the legal construction.
The legal constructions in scope include, among others, foreign trusts, foundations, undertakings for collective investments or pension funds when not publicly offered, low-taxed or non-taxed entities, etc. to which the Belgian individual (or Belgian entity subject to legal entities tax) is, in one way or another, linked as a founder, an effective beneficiary, a potential beneficiary, etc.
By application of this new measure, the income of certain legal constructions becomes taxable in the hands of the private individual regardless of whether the income has been distributed by the legal construction to the private individual. The constructions are deemed to be transparent.
Generally, a distinction is made between two categories of legal constructions.
The legal constructions of the first category concern the trusts without legal personality. The income realised by these trusts or paid or attributed by these trusts as of 1 January 2015 is taxable in the hands of the Belgian private individual or entity subject to legal entities tax (being the founder or beneficiary of the legal construction), as if the Belgian individual would have realised the income directly.
The second category concerns legal constructions, being foreign entities (with legal personality), which are subject to an effective tax rate of less than 15%. The income realised by the legal constructions are deemed to be realised directly by the Belgian private individual (being the founder or the beneficiary of the legal construction).
Within both categories, the income concerns profits, such as real estate income, movable income (interest, dividends, and royalties), miscellaneous income, and earned (i.e. professional) income.
In January 2014, the Belgian Constitutional Court (BCC) received a complaint regarding the fairness tax. In particular, it is argued that the fairness tax would violate Belgian constitutional law, the Treaty on the Functioning of the European Union (TFEU), and the EU Parent-Subsidiary Directive (PSD). On 28 January 2015, the BCC asked the European Court of Justice (ECJ) to rule whether the fairness tax violates EU law. The request related to whether the fairness tax law complies with the freedom of establishment provisions of the TFEU and the PSD. In addition, the European Commission is also investigating the legality of the fairness tax.
Patent income deduction (announced, not yet enacted)
In the framework of the Belgian government formation and the budget for 2015, a feasibility study (and possible extension) of the patent income deduction regime with regard to software licences has been announced.
Incentives for start-ups (announced, not yet enacted)
In the draft Belgian program law, some measures are foreseen to facilitate start-up SMEs.
A tax reduction is announced for private individuals investing capital (equity in exchange for shares) in a starting SME. The tax reduction would amount to 30% or 45%, depending on the type of SME (small or micro). Exact criteria as regards 'small' or 'medium' enterprises would be determined based on turnover and number of employees. A payroll withholding tax (WHT) exemption for the benefit of starting companies is also announced. The exemption would be 10% for 'small' enterprises and 20% for 'micrò enterprises. This measure would be applicable as of 1 July 2015.
A taxation exemption of the interest income in the hands of the private individual that has granted a loan to a starting SME is foreseen.
A higher investment deduction is foreseen for SME's that plan to invest in fixed assets to support digital payment and billing systems and investments in cyber security assets. This would be applicable to investments as of tax year 2016.
As this only concerns draft measures, it is unclear how these measures will be implemented in practise and whether or not they will be modified.
Carat tax (announced, not yet enacted)
A special taxation for companies in the diamond sector would be introduced. In the diamond sector, a flat tax rate based on the turnover is announced. The taxable result in the diamond sector would be determined on 0.55% of the turnover. This measure would be applicable as of tax year 2016.
Base erosion and profit shifting (BEPS)
The Organisation for Economic Co-operation and Development's (OECD's) Action Plan on BEPS was published in July 2013 with a view to address perceived flaws in international tax rules. The Action Plan identifies actions needed to address BEPS, sets deadlines to implement these actions, and identifies the resources needed and the methodology to implement these actions. The Action Plan contains 15 separate action points with three key themes: coherence, substance, and transparency. The Plan is focused on addressing these issues in a coordinated, comprehensive manner, and was endorsed by G20 leaders and finance ministers at their summit in St. Petersburg in September 2013. Belgium has also been actively involved in this initiative and is likely to endorse and/or implement the outcome of the Action Plan.
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.
Value-added tax (VAT) developments
Incorporated company directors and liquidators
As of 1 January 2015, services rendered by incorporated company directors and liquidators will be subject to Belgian VAT.
Decision on the Skandia case
The Belgian VAT authorities recently published a new administrative decision, applicable as of 1 July 2015, on the impact of the Court of Justice of the European Union (CJEU) court case Skandia America Corp (C-7/13, 17 September 2014) with regard to Belgian VAT legislation.
In the CJEU judgment, it was ruled that the provision of services between a head office and a permanent establishment (PE), not established in the same country and part of a VAT group in that member state, is a supply between two separate taxable persons and therefore subject to VAT because the PE is to be regarded as being part of a single taxable person (the VAT group) different from the head office.
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).