• Who is liable to corporate income tax? Open or Close

    Resident companies are subject to corporate income tax on their profits irrespective of the source they are derived from.

    Non resident companies are liable to corporate income tax on the profits made by their Belgian branch office if it qualifies as a permanent establishment under the Belgian income tax code or the double tax treaty or if they have income from real property.

  • When is a company resident? Open or Close

    A company is resident in Belgium 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 in case law as the place from where direction is given or where the company's effective management and central administration are located, that is the place where the corporate decision-making process actually takes place.

    The most common forms of corporate taxpayers are companies limited by shares, such as the public limited company or the private limited company. Belgium does not recognize fiscal transparency for any type of company having legal personality except in the case of Economic Interest Groupings and European Economic Interest Groupings.

    Non-profit organisations may be liable to corporate income tax as well if they are engaged in a business or profit making activity.

  • When is a non resident company liable to corporate income tax? Open or Close

    Belgian domestic tax law has a definition of "establishment" that more or less corresponds to the notion of "permanent establishment" under the double tax treaties.

    Certain situations may qualify as an "establishment" but not as a "permanent establishment. Because the double tax treaty has precedence over domestic law, the foreign company may not be liable to corporate income tax income but it would have to file a tax return as a non-resident company to declare it has no taxable income. 

    Foreign company that provide services in Belgium through one or more individuals (who are present in Belgium) for more than 30 days during any period of twelve months may be liable to income tax. It is not possible anymore the split contracts over two or more companies of the same group to avoid having an establishment in Belgium ; the duration of the project is counted at the group level. However, it is possible to prove that there are justifiable reasons to provide similar services by different companies of the group, and not just to avoid have an establishment in Belgium.

  • Computing the taxable income Open or Close

    Generally speaking, the taxable income of a resident company is the difference between the company's net value at the beginning of the fiscal year and its net value at the end.

    A company's worldwide taxable income is computed on the basis of the profit (or loss) reflected in the annual accounts. Taxable profits are determined in accordance with the provisions of the accounting law unless the tax law explicitly deviates from them.

    Each year the company's management prepares an inventory of assets and annual accounts. The accounts include a balance sheet, a profit and loss account, and an explanatory memorandum. These documents must be drawn up in accordance with the Companies Code, the accounting law and the various royal decrees implementing these rules, as well as the generally accepted accounting principles as codified by the Belgian Accounting Standards Commission. The annual accounts are submitted to the general meeting of shareholders or members for approval.

    Although company groups are required to file consolidated accounts in compliance with the accounting rules, Belgium does not have a system of consolidated accounts for income tax purposes. Interestingly, a form of consolidation is available under the value added tax law.

    When declaring its taxable income, the company must start with the profit or loss shown in its annual accounts. To this the company must any increase in retained earnings, any dividends distributed and all disallowed expenses.

  • ... what expenses are disallowed? Open or Close

    Generally, a Belgian company may deduct business expenses. The Income Tax Code defines business expenses as "expenses that the taxpayer has incurred or borne during the taxable period in order to acquire or preserve taxable income and which can be supported by appropriate documentation or other proof permitted under law".

    Deductible expenses include 

    • expenses related to the use of real property (rent, maintenance, the annual real property tax) and to the use of movable property (rent, royalties) ; 
    • financial charges (interest on loans) ;
    • salaries and social security contributions ; 
    • the so-called concealed commissions tax ; 
    • charitable contributions ;
    • bad debts and reserves.

    Investments in assets are not tax deductible ; only depreciation is allowed.

    The following expenses are disallowed for tax purposes :

    • Belgian direct taxes, such as the corporate income tax ; 
    • the capital gains tax on tax-exempt capital gains derived from shares held for one year ; 
    • certain regional taxes, e.g. environmental taxes ;
    • capital losses on shares ; 
    • certain benefits granted by the company, even if the company receiving them is taxed on these benefits ;
    • interest, royalties or service fees directly or indirectly paid to any foreign company, establishment or individual if in accordance with the laws of the country where they are established, such income is not liable to tax ; 
    • special social security contributions for the closure of companies ;
    • certain penalties ;
    • pensions and contributions to pension schemes over a certain limit. 

    The deduction of other expenses is partly disallowed : 

    • 31 % of restaurant costs ;
    • 50% of entertainment expenses (other than restaurant costs) ;
    • 17% of 6/7 of the list price of company cars multiplied by a percentage (between 4% and 18%)linked to the CO2 emission rate and type of fuel consumption (gasoline or diesel).
  • ... business assets must be depreciated Open or Close

    Business assets must be depreciated, starting in the year in which the asset was acquired or produced; delaying depreciation is not allowed.  Depreciation allowances are computed on the basis of their original acquisition or manufacturing cost and their estimated economic life.

    Belgian law allows both the straight-line method and the double declining-balance method.  Accelerated depreciation is permitted in certain circumstances.

    The straight-line method is generally used.  Depreciation periods and rates are normally fixed by agreement between the taxpayer and the tax authorities, although for certain assets rates are set by administrative instructions (e.g. commercial buildings 3% ; industrial buildings 5%; machinery and equipment 10 or 33%, depending on the type; rolling stock 20%; intangible fixed assets 20%; intangible fixed assets relating to R&D 33.3%;  know-how 10%).

    Taxpayers who opt for the double declining-balance method may switch to the straight-line method when that is more favourable.  However, intangible fixed assets (except for investments in the audio-visual sector}, cars and fixed assets which are depreciated by the owner but whose right to use has been transferred (e.g. leased cars), must be depreciated on a straight-line basis.

    Acquired goodwill must in principle be depreciated over a period of five years, but normally for tax purposes a period of ten years is allowed.

    Accelerated depreciation is available under law or administrative rulings for :

    • newly launched sea ships : depreciation : 20%, 15%, 15% and five years at 10%) ;
    • equipment and machinery used for scientific research : depreciation in 3 years  ;
    • qualifying new assets acquired by companies in economic sectors of major importance to the Belgian economy : depreciation in 3 years ;
    • the cost of setting up, including the creation of a company : immediate depreciation.
  • ... tax free provisions and reserves Open or Close

    A company can set up tax-free provisions and reserves if :  

    • the provision of reserve must relate to a specific cost that is tax deductible ;
    • the cost or loss must burden the result ;
    • the cost or loss must be probable in the light of activities or events that occurred during the financial year and still exist at the end of the financial year; and
    • the costs or losses must be recorded on a separate accounts.

    There is no maximum anymore for the deduction of a provision for bad debts?

    Small and medium-sized companies may, under certain conditions, set up a tax-exempt investment reserve of up to 50% of the profits with a maximum of € 37,500.

    The additions to the reserve are reduced by capital gains on shares, cars used for business purposes and gains on debt claims on managers, shareholders and their spouses or children and any decrease of paid-up capital. The investment reserve must be invested within three years in tangible or intangible assets that can be depreciated, for which the company is entitled to an investment deduction. If the reserve is not used within 3 years, it must be added to the profits.

  • Capital gains are taxable profits Open or Close

    For tax purposes, a capital gain is the difference between the sale price (minus the cost of sale or disposal) and the original cost of acquisition or investment minus depreciation and/or write-offs that have been deducted for tax purposes.

    In general, capital gains on the sale or other disposal of business assets are not liable to corporate income tax until they are realized. When realized, capital gains are treated as profits and therefore subject to the company income tax at the normal rates.

  • ... deferred taxation of capital gains Open or Close

    The taxation of capital gains realized on tangible fixed assets and on intangible assets can be deferred and spread in time over the deprecation period of the assets in which the sales price has been reinvested.

    To this effect, the company must have held the assets in question of more than five years, and taken depreciation for tax purposes. Moreover, the company must reinvest the proceeds of the disposal in tangible or intangible assets for which it will claim depreciation in Belgium (or in another Member State of the European Economic Area, within three years (five years if reinvested in real property, vessels or aircraft).  

    The same regime applies to capital gains on tangible and intangible fixed assets that are realized involuntarily (e.g. due to damage or expropriation).

    If the company has met the conditions, the taxation of the net capital gain is spread over the depreciation period of the asset in which it has reinvested the proceeds. Such gains are then subject to tax at the normal rates over the depreciation period of the reinvested assets.

     If no reinvestment is made within the reinvestment period of three or five years, the capital gain is taxed during the year in which the reinvestment period ends. In addition, the taxpayer will be liable for interest on the related corporate income tax.

  • ... capital gains on shareholdings Open or Close

    Capital gains realized on the sale of shares or shareholdings qualifying for the participation exemption are tax exempt, provided that the shares produce dividends qualifying for the participation exemption. The exemption applies only insofar as the gains are higher than previously deducted capital losses on these shares or shareholdings. 

    Contrary requirement to the participation exemption, there is no minimum shareholding percentage for the capital gains exemption. 

    There is, however, a one year minimum holding period to qualify for the exemption. If this holding period is not met, the gains are taxed at the rate of 25.75% (that is 25 plus the 3% crisis tax ).

    Large companies also pay a separate tax of 0,412% (0.4% plus a 3% crisis tax) on the net amount of fully tax-exempt capital gains derived from shareholdings in other companies. This separate tax does not apply to small and medium-sized enterprises

    Capital gains realized on the exchange of shares of a company engaged in a merger-type operation are not subject to tax.

  • Computing the net taxable income in eight steps Open or Close

    The Income Tax Code sets out eight steps to determine the taxable base of the company, starting from the annual accounts :

    1. Determine the profit of the year ;
    2. Classify the profits according to their source 
    3. Deduct profits from treaty countries and donations 
    4. Deduct the ParticipatioExemption  ;
    5. Deduct the Patent Income Deduction ;
    6. Deduct the Notional Interest Deduction ;
    7. Deduct losses carried forward ;
    8. Deduct the investment deduction.
  • . . . 1. determine the profit of the year Open or Close

    In the first place, the company must determine tis taxable profit ; that is  

    the profit or loss of the year

    + any increases in reserves during the year

    + the disallowed expenses

    + the dividends distributed during the year

    this makes  the taxable profit of the year before corrections under steps 2 to 8

  • . . . 2. classify the profits according to their origin Open or Close

    The company must then classify the profits according to their source :

    1. Belgium : profits from Belgium
    2. Treaty countries : profits originating in a country with which Belgium has signed double tax treaty are tax exempt in Belgium and will taken out in step 3.
    3. Non treaty countries : profits originating in a country with which Belgium has not signed double tax treaty are taxable in Belgium but Belgium applies a reduced tax rate : that is a quarter of the normal tax rate (33.99%, i.e. generally 8.5%).
  • . . . 3. deduct exempt profits Open or Close

    In this step, the company deducts 

    1. Profits from treaty countries that are exempt ;

    2. Exempt donations ; the company can deduct up to 5% of its profit with a maximum of €500,000.
  • . . . 4. deduct the Participation Exemption (or Dividend Received Deduction) Open or Close

    A resident company or a permanent establishment of a non resident company may deduct from their profits 95% of the amount of the dividends that they receive. 

    A minimum shareholding of 10 percent (or alternatively a shareholding with an acquisition value of at least or € 2,500,000) is required. In addition, the shares must be held in full ownership for at least one year. 

    This participation exemption cannot be used to offset specific items of the taxable base such as gifts, car, restaurant and entertainment expenses.

    There is a "subject to tax" requirement which excludes dividends from subsidiaries in tax havens or from subsidiaries that enjoy a substantially more advantageous tax regime. The participation exemption is excluded if the subsidiary is not subject to Belgian corporate income tax or a similar tax regime abroad.  The participation exemption is excluded for dividends paid by: 

    • Tax haven companies : these are companies that are not liable to Belgian corporate income tax or a similar tax abroad, or companies that are established in a country where the common taxation system is notably more advantageous than in Belgium. In practice this means that the country must have a minimum level of taxation of 15%, 15% being either the nominal or the effective tax rate. The tax authorities have published a list of countries where no company or some companies are liable to a similar tax.

      Companies that are resident in a Member State of the European Union are, however, not deemed to have a notably more advantageous tax regime than in Belgium.

    • Finance, treasury, or investment companies : these are companies that are liable to a similar tax as the company income tax, but that benefit from a taxation system that is more favourable than the common tax regime. 

    • Offshore companies that receive income (other than dividend income) that originates outside the country where they have their tax residency and that pay substantially less tax on such income that they would under the common tax regime.

    • Companies having branches that benefit globally from a tax regime that is notably more advantageous than the Belgian non-resident corporate tax regime.

      This exclusion does not apply to companies in another Member State of the European Union that have a branch within the European Union.

    • Conduit companies : these are intermediate holding companies (with the exception of investment companies) that redistribute dividend income, that comes from a company that would not have qualified for the participation exemption under one of the four categories above for at least 90% if it was directly held.

    Any part of the Participation Exemption from dividends received from a subsidiary in the European Economic Area or in a country with which Belgium has concluded a double tax treaty with a non‑discrimination clause in respect of dividends can be carried forward and set off in later tax years. As for dividends from subsidiaries outside the European Economic Area (or from Belgian subsidiaries) should be allowed in accordance with a practice note dating back to October 2009 following a decision of the Court of Justice of the European Union. 

    Please note that capital gains realized on the sale of a shareholding that qualifies for the participation exemption are normally not subject to tax. There is no minimum participation requirement, but the the subsidiary must have been subject to a normal income tax regime. Moreover, there is a one year holding requirement.

  • . . . 5. deduct the Patent Income Deduction Open or Close

    A Belgian company or permanent establishment can deduct 80% of qualifying patent income if they are involved in the development or further improvement of patents in an in-house R&D center. 

    This R&D center must be a a division of an entity that can operate autonomously. It must have sufficient substance to perform and supervise R&D activities, but it may use subcontractors in its development of the patents or extended patent certificates. The R&D center can be located outside Belgium but must be owned by a Belgian legal entity. This condition does not apply to small and middle sized enterprises.

    The company must be either the owner, the licensee, or have the usufruct of the patents or extended patent certificates as a result of its own patent-development activities in its R&D center in Belgium or abroad. SMEs can also benefit from the PID even if the patents are not developed or improved within a R&D center that forms a branch of activity.

    A Belgian company can also claim the deduction for patents or extended patent certificates it acquired from a related or unrelated party, in full ownership, joint ownership, usufruct, or via license agreement, provided it has improved the patented products or processes in the company’s R&D center.

    The deduction is calculated at 80% of the relevant (gross) patent income for patents licensed by the Belgian company or permanent establishment to any party, related or not, to the extent the income does not exceed an arm’s-length price. 

    Therefore, only 20% of gross patent income will be taxable at the normal CIT rate (33.99%), which means that the effective tax rate is 6.8%.

  • . . . 6. deduct the Notional Income Deduction Open or Close

    Belgian corporate income taxpayers can claim a Risk Capital Deduction, also labelled Notional Interest Deduction, as a percentage of the company's equity. NID for tax purposes, reflecting the economic cost of the use of capital, equal to the cost of long-term, risk‑free financing.

    An SME is a company that does not exceed more than one of the following criteria during the two foregoing financial years when evaluated on a consolidated level: a yearly average number of employees of 50, a turnover of EUR 7.3 million (excluding VAT), or total asset value of EUR 3.65 million.

    The NID rate for tax year 2014 (i.e. accounting years ending between 31 December 2013 and 30 December 2014) is 2.742% (3.242% for SMEs).

    The 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 SMEs).

    The NID rate for tax year 2016 (i.e. accounting years ending between 31 December 2015 and 30 December 2016) is 1.630% (2.130% for SMEs).

    The NID rate for tax year 2016 (i.e. accounting years ending between 31 December 2016 and 30 December 2017) is 1.131% (1.631% for SMEs).

    In the framework of the federal government agreement of October 2014, a modification to the NID regime for financial institutions was announced. The draft bill of 28 November 2014 stipulates that the basis for NID for financial institutions is reduced with the additional equity requirements as a result of the Basel III agreements. This measure would be applicable as of tax year 2016 (financial years ending between 31 December 2015 and 30 December 2016, both dates included).

    A company that employs more than 100 employees on the basis of an annual average workforce is automatically considered to be a ‘large’ company.

    As of tax year 2013, new excess NID can no longer be carried forward, whereas, under the old rules, ‘excess NID’ (i.e. NID that cannot be claimed owing to the taxpayer having insufficient taxable income) could be carried forward for a maximum of seven years.

    However, the ‘stock’ of excess NID (stemming from previous years, i.e. tax years 2012 and before) can still be carried forward for seven years (as was previously the case), though the excess NID that can be applied in a given year is limited to 60% of the taxable profit (i.e. the profit remaining after setting off carried-forward tax losses and other tax deductions). The 60% limit is only applicable to the part of taxable profit exceeding EUR 1 million. The portion of excess NID that cannot be used due to the '60% rule' (i.e. 40% of taxable profit minus EUR 1 million) can be carried forward indefinitely.

    As for determining the basis on which this deduction is calculated, the company's share capital plus its retained earnings, as determined for Belgian GAAP purposes and as per the last year-end date, will have to be taken into account with some adjustment. The accounting equity as per the last year-end date has to be reduced by, amongst others, (i) the fiscal net value of financial fixed assets qualifying as participations and other shares, and (ii) if a company has a foreign PE, located in a jurisdiction with which Belgium has concluded a tax treaty, the positive difference between the net book value of assets attributable to the foreign PE and the liabilities (other than equity). The European Court of Justice confirmed that the latter adjustment is in violation with the EU freedom of establishment if the head office is an EU company (Argenta Spaarbank NV case (C-350/11) of 4 July 2013). Consequently, the NID legislation has been amended in such a way that as of assessment year 2014 (accounting years ending 31 December 2013 or later), the NID basis will be reduced by:

    • the lower amount of (i) the result of the foreign PE or real estate or (ii) the net asset value of the PE or real estate multiplied by the NID rate if it concerns a PE located in the EEA or
    • the net asset value of the PE or real estate multiplied by the NID rate if it concerns a PE or real estate located in a treaty country outside of the European Economic Area.

    The shares qualifying as cash investments and also qualifying for DRD must be excluded from the NID basis.

    In addition, various adjustments should be made in order to avoid abuse.

  • . . . 7. deduct losses carried forward Open or Close

    Losses carried forward from previous tax years may be set off against the profits of the current year, without any limitation in time.  There is no tax loss carry back provision.

    There is a specific successive order for setting off losses against profits depending on the origin of the losses, i.e. from tax treaty countries, from non-tax treaty countries or from Belgium itself.  In 2000, the Court of Justice of the European Union found this rule to be incompatible with the freedom of establishment of Art. 43 of the EC Treaty, but the decision has not yet been implemented in Belgian tax law.

    At arm's length

    Losses may be carried forward indefinitely, but they may not be set off against profits derived from abnormal or gratuitous advantages. 

    Change of control

    Moreover, a company loses its right to carry forward its tax losses if control of the company is acquired or changed during a tax year, unless the change of control can be justified by legitimate financial and economic reasons. The term "control" refers to the authority, in fact or in law, to have a decisive influence on the appointment of the majority of the directors of the company or the orientation of its management.

    The financial and economic reasons justifying the acquisition of a loss-making company can be (1) that some or all of the company's activities continue to be carried out and the company retains some of its employees, or (2) that the change of control results from the transfer of shares or management to a company that is part of the same consolidated group.  

    The company can request an advance ruling on the issue of whether the change of control is justified by legitimate financial and economic reasons.

    Tax-free merger or de-merger

    In the case of a tax-free merger or (full or partial) de-merger, Belgian tax law provides for a partial transfer/maintenance of the rollover tax losses of the absorbed/absorbing company. The tax losses carried forward 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).

     
  • . . . 8. investment deduction Open or Close

    Losses carried forward from previous tax years may be set off against the profits of the current year, without any limitation in time.  There is no tax loss carry back provision.

    There is a specific successive order for setting off losses against profits depending on the origin of the losses, i.e. from tax treaty countries, from non-tax treaty countries or from Belgium itself.  In 2000, the Court of Justice of the European Union found this rule to be incompatible with the freedom of establishment of Art. 43 of the EC Treaty, but the decision has not yet been implemented in Belgian tax law.

    At arm's length

     

    Losses may be carried forward indefinitely, but they may not be set off against profits derived from abnormal or gratuitous advantages. 

    Change of control

    Moreover, a company loses its right to carry forward its tax losses if control of the company is acquired or changed during a tax year, unless the change of control can be justified by legitimate financial and economic reasons. The term "control" refers to the authority, in fact or in law, to have a decisive influence on the appointment of the majority of the directors of the company or the orientation of its management.

    The financial and economic reasons justifying the acquisition of a loss-making company can be (1) that some or all of the company's activities continue to be carried out and the company retains some of its employees, or (2) that the change of control results from the transfer of shares or management to a company that is part of the same consolidated group.  

    The company can request an advance ruling on the issue of whether the change of control is justified by legitimate financial and economic reasons.

    Tax-free merger or de-merger

    In the case of a tax-free merger or (full or partial) de-merger, Belgian tax law provides for a partial transfer/maintenance of the rollover tax losses of the absorbed/absorbing company. The tax losses carried forward 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).

     
  • Corporate Income Tax Rate Open or Close

    The corporate income tax rate is 33.99%. That is a rate of 33 percent increased with an austerity surcharge or crisis tax of 3 percent.

    Under certain conditions, small and medium-size companies may have the benefit of a lower tax varying between 24.98 and 33.99%, calculated as follows:

    Band of taxable profit 

    Rate applicable to the band

    € 0 - 25,000
    € 25,000 - 90,000
    € 90,000 - 322,500

    24.98%  
    31.93%  
    35.50% *

     *even if this tax rate is higher than the standard tax rate of 33,99%, the effective tax rate on €322,500 is a 33.99%

    The reduced progressive rates apply only if the following conditions are met : 

    • the company does not distribute dividends during the year that exceed 13% of the paid-up capital at the start of the year ;
    • the company pays an annual taxable income of at least EUR 36,000 to at least one director ;
    • the profits of the company do not exceed EUR 322,500  ;
    • the company does not belong to a group of companies with an approved Belgian co-ordination centre ;
    • the company is not a holding company ;
    • the company is not 50% or more owned by one or more companies.                                                                               

    Capital gains on shares realized within a year are taxed at the fixed rate of 25.75% (25% + 3% crisis tax), provided certain conditions are met.  When the shares have been held for more than a year, the capital gain is exempt but large companies must pay an separate capital gains tax.

    Since tax year 2014, large companies are liable to a Fairness Tax.

  • Fairness Tax Open or Close

    Large companies are liable to a so-called "Fairness Tax" on the dividends they distribute. 

    The tax is only due if the company has paid out dividends and it has set off the Notional Interest Deduction or losses carried forward against its taxable profits.

    The taxable basis of the Fairness Tax is calculatd in three steps : 

    1. calculate the difference between the gross dividends distributed for the taxable period and the taxable profit that is effectively liable to corporate income tax. Liquidation dividends bonuses and share buy-back proceeds are not in scope of the fairness tax.

    2. Deduct the part of the dividends that are paid out taxed reserves that were built up during tax year 2014 or before. 

    3. Multiply the result with the following fraction : 

         the Notional Interest Deduction and the losses carried forward used during the year        
        the taxable profit of the year minus the tax-exempt capital reductions and provisions

    The Fairness Tax is a separate tax calculated at a rate of 5.15% (5% + a 3% crisis tax).

    The Fairness Tax is not tax deductible. The Fairness Tax can be offset against prepayments made and tax credits.

    Small and Middle Sized enterprises do not pay the Fairness Tax.

    Belgian branches  may have to pay the Fairness Tax as well. In that case, the term 'dividends distributed' is 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 branch in the global accounting result of the head-office.

    The legality of the Fairness Tax is contested.

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