The federal government has recently announced another set of tax measures. Some of these new measures have already entered into force while others remain subject of discussion in Belgian parliament.
1. Notional interest deduction
For current tax year (income/financial year 2012), the applicable rate for notional interest reduction is remained at 3%. The rate of 3,5% applies for small and medium-sized enterprises (SME). However, as from tax year 2014 (income/financial year 2013), a new reference rate will apply; the rate will be calculated according to the average rate of 10 years linear bonds issued by the Belgian State during the third quarter of the penultimate year preceding the tax year. For tax year 2014 (income/financial year 2013), this results in a decrease of the rate to 2,742% (3,242% for SME). The rules to determine the basis of calculation for the notional interest deduction will also change; as from tax year 2014 (income/financial year 2013), it will no longer be possible to combine the benefit of the definitively taxed income deduction (95% exemption of dividends received) with the notional interest deduction for shares that are recorded in the accounts as cash investments.
2. Deduction for patent income
To make this deduction more accessible to SME, a draft bill of 17 April 2013 extends the benefit of the deduction to all patents owned by these companies, regardless if they have a research centre of their own or not. The extension of the deduction will apply as from tax year 2014 (income/financial year 2013).Further, the payment exemption percentage of payroll tax has been increased from 75 to 80%. The increase will apply as from the month following publication of the bill in the Belgian State Gazette. Although the draft bill has already been voted, it remains to be published at the time of writing
3. Withholding tax
3.1. Increase of the withholding tax in case of liquidation
As from 1 October 2014, the withholding tax on liquidation bonuses will rise from 10 to 25%. This measure will have a significant impact on companies of which the shares are held by individuals. The impact on companies held by other companies would be significantly lower, since existing exemptions (for example, the exemption provided by the Parents-Subsidiary Directive) remain applicable. A transitional regime has been adopted; companies will be given the opportunity until 30 September 2014 to convert their reserves, provided that these reserves have been approved by the general meeting of shareholders on 31 March 2013 at the latest, into a capital reserve. Such a conversion would then be taxable at a rate of 10%. The impact with regard to the withholding tax will depend on the size of the company. The draft bill provides a specific anti-abuse measure to avoid that companies change their dividend policy by reducing the amount of dividends generally distributed.
3.2. Reduction of withholding tax for SME
Dividends distributed by SME benefit from a reduced withholding tax rate for newly issued shares provided that following six conditions are met:
- The new shares are issued in exchange for contributions made as of 1 July 2013
- The shares are to be registered;
- Contributions must be done in cash;
- The company of which the capital is increased is regarded as a small company (Article 15 of the Company Code);
- The new shares, which may not be preferential shares, must be fully paid at the time of allocation or distribution of the dividends;
- The reduction can only apply if the shareholders have held the shares in full ownership as from their subscription.
The reduced rate does however not apply to contributions made under the transitional regime for liquidation bonuses (see above) The standard rate for withholding tax of 25% would be reduced to:
- 20% for dividends attributed at the event of a profit distribution during the second fiscal year following that in which the contribution or the constitution of the company took place;
- 15% for dividends attributed at the event of a profit distribution as from the third fiscal year following that in which the contribution or the constitution of the company took place.
A specific anti-abuse measure is provided in order to avoid the reduced rate to apply at the event of a capital reduction followed by a subsequent increase of capital. 3.3. Expansion of the withholding tax exemption for dividends distributed by investment companies A Royal Decree of 30 April 2013 has expanded the scope of the exemption from withholding tax for dividends distributed by investment companies. Previously only public investment companies were entitled to the exemption from withholding tax on dividends distributed to non-resident investors (individuals or non-profit companies). As from 1 January 2013, institutional investment companies are also entitled to this exemption.
4. Regularization procedure for undeclared income
A new procedure for the amnesty settlement for undeclared income and capital is currently being treated in Belgian Parliament. This new procedure would apply to regularization requests introduced in the period starting on 15 July 2013 and ending on 31 December 2013. Tax regularization under the current procedure would remain possible until 14 July 2013. The government has announced that these modifications would be final and that the possibility of regularization will be put to an end as from 1 January 2014. Since the draft bill remains subject of discussion at the time of writing, modifications to the new procedure might still be possible. The new procedure is open to taxpayers in personal income tax, corporate income tax and income tax on legal entities. Regularization can be requested for a wide range of taxes, including amongst others, income taxes, VAT, registration duties and inheritance taxes. Regularization will also be open to the self-employed for social contributions due. The regularization procedure will also be open to certain forms of laundering operations (serious organized tax fraud involving mechanisms or mechanisms with an international dimension, abuse of corporate assets and forgery of documents). Under the new tax regularization rules, tax fraud will be penalized depending on the prescription period for the tax offence being expired or not.
- In case the prescription period for the tax offense has not yet expired, the capital will be subjected to its normal tax regime increased with a penalty of 15% (regular tax fraud) or 20% (severe and organized tax fraud).
- In case the prescription period for the tax offense has expired, the tax payer will be subjected to a tax of 35% to be calculated on the repatriated capital. Once regularized, taxpayers could still be subject to further criminal prosecution in case of certain penal offences.