A law introducing a risk capital deduction for Belgian companies has been signed into law, fulfilling a promise made earlier this year by Finance Minister Didier Reynders. The deduction amounts to between 3 percent and 4 percent of a company’s equity (share capital plus retained earnings). The law also provides for the abolition of the 0.5 percent capital duty on contributions to a company’s share capital.
The House of Representatives adopted the bill on 2 June and the Belgian Senate did not opt to review it, clearing the way for King Albert II to sign it into law. The law was published in the Official State Gazette on 30 June 2005, and will enter into force on 1 January 2006.
This new tax regime will replace Belgium’s existing coordination center tax regime, which is set to expire in the next couple of years. However, any Belgian company or permanent establishment can begin operating as a coordination center for a group of companies without being subject to the approval period that used to be in force for coordination centers. If a new coordination center has sufficient capital, it can provide all sorts of preparatory and auxiliary services to a group’s companies. These include insurance and reinsurance, the centralization of financial operations, the hedging of foreign exchange risks and centralization of accounting, administration and data processing, sales promotion and advertising, the collection and distribution of information, scientific research, and relations with national and international governmental institutions.
The cost of those activities can be charged back to the group companies that use the services, and the new coordination center will not be taxed on the proceeds, within the limits of the risk capital deduction. For the most part, the new coordination center regime will be used to finance the companies of a group. In particular, if a parent company finances the equity with borrowed funds, the risk capital deduction can neutralize the interest income, and both the parent company and the subsidiaries of the group can set off the interest paid against their profits.
As under the old coordination center regime, the new coordination centers cannot hold participations in other companies. When a holding company is converted into a financing company, it must transfer its shareholdings to a new holding company. Moreover, before doing that, it would be advisable to reduce the share capital of the subsidiaries to the statutory minimum capital, and to convert the excess share capital into receivables.
In 2003, Belgium introduced a new tax-beneficial investment vehicle, the private PRICAF. Two years later, the private PRICAF has not been as successful as expected, with only two such investment funds having been approved. Consequently, Finance Minister Didier Reynders has now started a round of consultation to revise the private PRICAF legislation.
In a consultation note, Reynders explained that the revisions are needed because of changes in other Belgian legislation, the pending implementation of the new EU Prospectus Directive, and experience that has been gathered in the two years since the private PRICAF legislation entered into force. (More …)
In a royal decree issued 3 July Belgium has granted foreign banks the same exemption from withholding tax as Belgian banks. It is of particular interest to British, French, and U.S. banks, as they now can recover tax that has been withheld during the past two years.
When a Belgian company takes out a loan with a Belgian bank, the bank does not have to withhold tax at source. Until now, however, that exemption did not apply to foreign banks, unless they could rely on the provisions of a tax treaty. (Read the article …)
In a July 13 decision Belgium’s Court of Arbitration has asked the European Court of Justice for a preliminary ruling concerning the compatibility of the extension of the EU money-laundering directive to lawyers with the fundamental right to a fair trial.
The Law of January 12, 2004 implemented Directive 2001/97/EC amending Council Directive 91/308/EEC on preventing the use of the financial system to launder money. In practice it extended the provisions of the Law of January 11, 1993, to lawyers when they assist their clients in the planning or execution of transactions that involve large amounts of cash. (More …)