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Government Announces New Tax Measures
 
Following its budget review, the Belgian government said March 30 that it will implement several tax measures, including an extension of the transitional regime for liquidation gains, a 1.69 percent withholding tax on dividends paid to qualifying parent companies in European Economic Area member states, and incentives for start-up companies.

Following its budget review, the Belgian government said March 30 that it will implement several tax measures.

Liquidation Reserve

In October 2014 the withholding tax rate on liquidation gains was raised from 10 percent to 25 percent. There was a transitional regime allowing a company to pay out a dividend at a rate of 10 percent subject to the dividend being used to pay for an issue of new shares.

In December 2014 a similar regime for small and midsize enterprises (as defined in article 15 of the Company Code) was introduced as of tax year 2015, which normally corresponds to financial year 2014. An SME can transfer up to 100 percent of its after-tax profits to a separate account (the liquidation reserve). That transfer to the liquidation reserve is subject to a separate tax of 10 percent, which is nondeductible for the company and collected as an additional company income tax.

The advantage of that tax is that on liquidation, no withholding tax will be due on the money in the reserve. If, however, the company decides to distribute the liquidation reserve, an additional withholding tax of 15 percent will be due. If the distribution is made after five years, the withholding tax will be only 5 percent; if the company is wound up within the first five years, no withholding tax will be due.

The government has decided to extend the benefits of that regime to the profits from tax years 2013 and 2014 (financial years 2012 and 2013) because the transitional regime (in which the dividend was paid out and used to subscribe new shares) was in principle applicable only to reserves existing as of December 2011. The budgetary advantage is that the treasury receives 10 percent tax now rather than 25 percent in the future.

Withholding Tax on Dividends Paid to EEA Companies

The government announced a measure to implement a July 2012 decision by the Court of Justice of the European Union in Tate & Lyle Investments Ltd. v. Belgische Staat (C-384/11). It would introduce a 1.69 percent withholding tax on dividends paid by a Belgian company to a company in the European Economic Area that holds less than 10 percent of the share capital, worth more than €2.5 million, of the Belgian company.

In Tate & Lyle, the CJEU held that the Belgian regime on deemed dividends distributed by a resident company to a nonresident company that holds a participation of less than 10 percent in the capital of the resident company but with a purchase value of at least €1.2 million is not compatible with EU free movement of capital. (Prior coverage.)

Under Belgian tax law, Belgian corporate shareholders that hold less than 10 percent of the capital of a Belgian subsidiary can credit the dividend withholding tax against the company income tax, with any excess refunded. If the acquisition value of the participation is higher than €2.5 million (€1.2 million when Tate & Lyle was decided), the Belgian shareholder is also entitled to the participation exemption for the dividend received. That means that a Belgian parent company that qualifies for the participation exemption for the dividend received effectively pays 1.69 percent tax. Shareholders resident in another member state who hold the same participation aren't entitled to either form of compensation.

The CJEU held that providing a mechanism to reduce the tax effect for only Belgian resident shareholders with acquisition values of at least €1.2 million (now €2.5 million) but less than 10 percent was an infringement of the free movement of capital. The tax authorities agreed to reimburse the full withholding tax.

The government is implementing Tate & Lyle by introducing a new withholding tax rate of 1.69 percent on dividends paid to qualifying parent companies in EEA member states.

Incentives for Start-Ups

The government will introduce tax incentives to encourage investments in Belgian start-up businesses to give them easier access to financing and to bring money from savings accounts into the economy. Those tax measures are reminiscent of the Cooreman-Declercq Act from the 1980s (see Royal Decree No. 15 (Mar. 9, 1982)).

Individual taxpayers would be entitled to a tax credit of 45 percent of investment in shares of new microenterprises and a credit of 30 percent for investments in shares of new SMEs. The individual must hold those shares for
four years.

Another tax measure would encourage investments via regulated crowd funding platforms, either in the form of an investment in the equity (capped at €7,500) or in the form of a loan to a starting company (limited to €15,000). Individuals will be entitled to a tax credit for equity investments and no withholding tax will be due on interest paid on a loan. For Belgian resident shareholders, for whom the withholding tax is the final tax, that would mean a tax exemption for the interest received.

The salary cost for start-ups will be reduced in the first four years in the form of an exemption of wage withholding tax (20 percent for microenterprises and 10 percent for SMEs).

Finally, those companies shall be able to set off against profits an investment deduction of 13.5 percent of their investments in digital assets, such as payment systems and cybersecurity.

Transparency Tax

When the current coalition formed the government, one of the tax measures announced was a transparency tax on legal arrangements such as trusts and foundations, called a "look-through" or "Cayman" tax. In July 2013 a reporting obligation was introduced for the settlor of a legal arrangement or his heirs or beneficiaries to encourage tax dodgers to come clean regarding hidden wealth during the 2013 voluntary disclosure program. (Prior coverage.)

The government has agreed on the text of that transparency tax. Tax will be due on the income of a low-taxed entity or trust as if it were held directly by a Belgian resident shareholder or settlor even if the income is not distributed to the individual. More details on the tax aren't available yet, but it's anticipated that a Belgian resident founder or settlor of a foreign legal arrangement, or the sponsor of that legal arrangement, would be taxed as if he was the owner of the assets, rights, and funds owned by the arrangement that he set up or financed. He also would be deemed the owner of the income derived from those assets, rights, and funds.

The tax would normally be 25 percent for dividend and interest income, but earnings that are accrued in a foreign legal arrangement would also be liable for Belgian income tax as if they had been received by the individual shareholder at the progressive rates, up to 50 percent.

Higher Tax for Banks and Insurance Companies

The federal government has approved an increase of the company income tax for banks and insurance companies. The increase results from a limitation on the reduction of the dividends-received deduction, the notional interest deduction, or the tax losses carried forward.

The tax must be paid by credit institutions and insurance companies established in accordance with Belgian law and recognized in Belgium, as well as by any other banks and insurance companies active in the Belgian territory. Only companies that have a license to act as an administrator of a recognized centralized system for securities lending are exempt.

For credit institutions, the deductions will be reduced by a percentage of the bank's "debts to clients." The percentage is calculated as 3.23 percent multiplied by the rate of the notional interest deduction to which the company is entitled. For insurance companies, the deductions will be reduced by a percentage of the company's "technical provisions." That percentage is 2.22 percent multiplied by the rate of the notional interest deduction. Those percentages are for tax year 2016 (accounting year 2015); for future tax years, the percentage will be determined by Royal Decree.

The limitations will be imputed on the tax losses carried forward, the dividends-received deduction, and on the notional interest deduction. There also will be measures to ensure that the limitation of the dividends-received deduction increases the notional interest deduction or the carryforward of the notional interest deduction. While the dividends-received deduction and the deduction of losses carried forward are limited, the balance will be carried forward.

De Broeck Van Laere & Partners, Brussels
Marc Quaghebeur
Partner




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