On 26 July 2017, the Belgian Federal Government announced a major reform of the Belgian corporate tax system as a part of a broader political agreement on the budget, taxation and other measures to improve the competitiveness of Belgium.
Based on the information available at this stage, the corporate tax reform includes the following key measures:
- Reduction of the corporate income tax rate to 25% in 2020: The corporate income tax rate will drop from 33,99% today to 29,58 % in 2018 and 2019 (i.e. 29% with 2% surtax) and to 25% in 2020 (without surtax).
- Improved holding company regime: The 0,412% tax on capital gains on shares will be abolished. Capital gains on shares will be fully exempt, subject to the shareholding requirements provided for by the participation exemption regime (i.e. minimum shareholding of at least 10% or 2.5 mEUR for at least one year). The participation exemption for dividends remains at 95%.
- Tax consolidation: A tax consolidation regime will be introduced as of 2020.
- Tax benefits for innovation: In addition to the new innovation deduction introduced earlier this year, the scope of the payroll tax exemption for researchers will be extended going forward: certain bachelor degrees would also qualify. The R&D investment deduction and the R&D tax credit are maintained.
- As the corporate tax rate decreases, income which qualifies for the new innovation deduction will be taxed at an effective tax rate of only 3,75% in 2020 (i.e. 25% tax on 15% taxable portion of net innovation income).
- Tax benefits for SMEs: A special tax rate of 20% will apply to SMEs as of 2018 for the part of the corporate tax base below EUR 100.000. The investment deduction for SMEs is increased to 20%.
A number of compensating measures are announced to limit certain deductions and to broaden the corporate income tax base:
- Reform of the notional interest deduction: The Belgian notional interest deduction currently applies to the full adjusted equity. As of 2018, the notional interest deduction will only apply to incremental adjusted equity in excess of the average equity of the preceding five years.
- Limitation on the use of certain tax deductions: The use of carried forward tax deductions will be limited to (i) the taxable profit below EUR 1.000.000 and (ii) 70% of the taxable profit in excess of that amount. The limitation will apply to the carried forward participation exemption, the carried forward innovation deduction, the carried forward losses and the carried forward notional interest deduction, as well as to the notional interest deduction.
- Transposition of the EU Anti-Tax Avoidance Directive (ATAD): The measures of the ATAD will be transposed into Belgian domestic law, i.e. the interest limitation rule, the exit tax, the controlled foreign company (CFC) rules and the rules on hybrid mismatches.
- Discourage use of companies by individual taxpayers: As the decrease of the corporate tax rate is feared to increase the use of companies by individual taxpayers, measures are announced to discourage the use of companies and to extend certain tax benefits for companies to individuals.
- Other compensating measures: Various compensating measures are announced, including changes to the rules on interest for late payment, disallowed expenses, provisions, expenses paid in advance, tax prepayments, depreciations, the compensation of losses incurred in PEs outside Belgium, etc.
The current corporate income tax reform is clearly intended to address the concerns regarding the need to reduce the tax burden and to support innovation. The corporate tax reform will create a more business-friendly tax environment and will improve the attractiveness of Belgium for foreign investments.