Belgian Prime Minister Guy Verhofstadt and Finance Minister Didier Reynders on March 4 announced that the government has finalized its plans to introduce a fictitious, or notional, interest deduction to encourage companies to self-finance their investments and to strengthen their capital structure.

The new measure, which also would reduce the discrimination between equity and borrowed funds, is intended to replace the tax regime for coordination centers, which will expire at the end of 2010. Under the current regime, the interest paid on borrowed funds is a tax-deductible expense, and the withholding tax on that interest is limited to 15 percent. However, the return on equity contributed to shareholders in the form of share capital is not guaranteed, and distributed dividends are not tax-deductible for the company and are fully subject to corporate income tax. Moreover, the company must withhold tax at source at a rate of 25 percent. (Read the article …)

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