When Benjamin Franklin said: "In this world, nothing can be said to be certain, except death and taxes," he wasn't talking about taxes in Belgium.
They're anything but certain.
The Belgian tax system has undergone some significant changes in the past few years.
With the OECD's Pillar One and Two, the cryptocurrency phenomenon, and the EU's ever-tightening crackdown on tax abuse, the landscape is set to shift again.
As a foreign investor, the last thing you want to do is end up in boiling water with Belgium's tax authorities.
Besides, if you want to reduce your tax contributions (legally, of course), you need fundamental knowledge of how the system works in King Phillipe's country.
Gear up to implement an effective tax strategy with the low down on Belgium's corporate income tax and other pertinent tax rules all foreign investors should know.
Belgium's Corporate Income Tax (CIT) Rate
A company with its principal place of business or management in Belgium (i.e., where corporate decisions are made) is a resident for tax purposes.
The CIT tax base generally works on an accrual system with corporate income consisting of worldwide income less any permitted deductions.
The CIT rate is 25% for Belgian companies and Belgian Permanent Establishments (PEs) of foreign companies. The latter is subject to non-resident CIT, though.
A reduced CIT rate of 20% applies to small- and medium-sized enterprises under certain conditions on their first €100,000 profit.
For the 2022 tax year, Belgium's tax authorities levy a surcharge of 6.75% on the final CIT amount upon assessment. You can avoid this surcharge by making sufficient advance payments throughout the year.
The Minimum Tax Base
With the limitation of certain deductions, a minimum tax base applies to companies with a taxable profit exceeding €1,000,000.
Deductions within the basket include:
- Tax losses carried forward
- Innovation income deductions carried forward
- Dividends-received deductions (DRD) carried forward
- Notional interest deductions carried forward and new incremental NID
These deductions can only be claimed up to 70% of profits exceeding the €1 million thresholds. The other 30% is fully taxable at the 25% CIT rate.
Deductions outside the basket are fully deductible, such as:
- Current year tax losses
- Current year innovation income deductions
- Current year dividends-received deductions
- Current year and carried forward investment deductions
Corporate Withholding Taxes
Domestic companies and Permanent Establishments of foreign corporations paying interest, royalties, dividends, service fees, and certain rentals are subject to withholding taxes (WHT).
In terms of Belgium's tax rules, capital reductions are deemed to derive proportionally from:
- Taxed reserves (incorporated or non-incorporated into capital)
- Paid-up capital
- Exempted reserves incorporated into capital
Capital reductions are allocated to the proportion of paid-up capital in the total capital increased by particular reserves. The portion allocated to the reserves is deemed to be a dividend and may be subject to WHT.
A uniform WHT rate of 30% applies to interest, royalties, and dividends. However, certain exemptions exist under Belgian tax law.
Capital Gains Taxes (CGT) in Belgium
In Belgium, capital gains are subject to the standard CIT rate of 25%.
Under specific conditions, capital gains realized on intangible or fixed assets may be subject to a deferred or spread taxation structure.
Net capital gains on shares are entirely tax-exempt when the subject-to-tax condition, participation condition, and one-year holding period are fulfilled.
These conditions align with the requirements to benefit from the dividends-received deduction (DRD).
For individuals, capital gains are exempt from tax when such gains are realized in the "normal management" of one's private estate.
Non-Residents' Taxable Income
Certain payments made to a non-resident of Belgium are taxable. A "catch-all" clause exists in the Belgian Income Tax Code, applicable in conditions where:
- Revenues incurred from the provision of any service
- Revenues qualify as profit or benefits for the non-resident recipient
- Services are provided to an individual tax resident in Belgium within the scope of a corporation, a Belgian establishment, one's business activity, or a taxpayer responsible for the legal entities tax
- Revenues are taxable in Belgium per a double tax treaty (DTT)
- No DTT exists, and a non-resident taxpayer doesn't provide proof that income is taxed in their country of residence
- (In)direct links of interdependence exist between a foreign supplier and its Belgian client
A rate of 25% applies to the gross fee paid. A lump deduction of 50% as "professional expenses" is permitted, effectively reducing the tax rate to 12.5%.
Corporate Tax Deductions in Belgium
Generally, expenses are tax-deductible if they're:
- Incurred to maintain or increase tax income
- Accrued or incurred during the taxable period concerned
- Proven evidence of the amount is provided
Common corporate tax deductions include:
Depreciation and Amortization
The expected lifetime of an asset helps determine the depreciation rate, typically agreed upon between the taxpayer and the Belgian tax authorities.
Some assets are determined by the authorities, such as:
- Industrial buildings: 5%
- Commercial buildings: 3%
- Machinery and equipment: 20% or 33% (depending on the type)
- Rolling stock: 20%
For tax purposes, fixed assets must be amortized over a minimum of five years. This excludes R&D expenses, which carry an amortization period of three years.
Incorporation Costs
A taxpayer can choose to fully deduct incorporation costs in the year of incorporation or opt for depreciation over a five-year period.
Goodwill Deductions
Belgium's tax laws allow amortization of goodwill from an asset transaction.
The applicable amortization period depends on the components of the goodwill but must be a minimum of five years. Client lists should be amortized over a 10–12 year period.
Mergers or de-mergers don't qualify for goodwill deductions.
Interest Expenses
In principle, interest expenses are tax-deductible, so long as the 30% EBITDA (thin capitalization), limits are taken into consideration. The interest must also be at an arm's length.
Tax Incentives and Tax Credits
Belgium's tax laws are known to attract foreign investment and business into the country. Here are a few pertinent incentives and tax credits:
Notional Interest Deductions (NID)
Corporate taxpayers can claim notional interest deductions for tax reasons. Such deductions must reflect the economic use of capital equal to the cost of long-term, risk-free finance.
For the 2022 tax year, the NID tax rate amounts to -0.16% and 0.34% for SMEs. Negative values equal zero per cent, as confirmed by the Belgian Parliament.
Excess NID can be carried forward for seven years. However, applicable NID in a given year is capped at 60% of taxable profits.
Investment Deductions
Belgium's investment deduction is an additional deduction (after-tax depreciation) on investments including but not limited to:
- Qualifying patents
- Energy-saving investments
- Environmentally-friendly R&D investments
A company in Belgium can get a once-off investment deduction of 13.5% of the acquisition value of certain qualifying investments for the 2022 tax year.
For qualifying environmentally-friendly R&D investments, a spread investment deduction of 20.5% of the depreciation value is available for the 2022 tax year.
R&D and Patent Tax Credits
Instead of an investment deduction for R&D and patents, a company can choose a tax credit.
The rates for the 2022 tax year correspond with the investment deduction, namely 13.5% once-off and 20.5% for a spread investment deduction, multiplied by the CIT rate of 25%.
While the investment deduction implies a taxable deduction, a tax credit is a reduction of tax due. If this tax credit isn't used for five years, a company can get a refund.
The tax credit amount must be deducted from the NID basis.
Innovation Income Deductions (IID)
The Belgian patent income deduction (PID) was abolished in 2016.
Under the new innovation income deduction (IID) regime, qualifying innovation or patent income is calculated on a net basis. The deduction percentage amounts to 85% for an effective tax rate of 3.75% of the lifetime of the intellectual property (IP).
Subject to certain conditions, a company or branch with full or co-ownership, usufruct, right to use, or license of the following can apply the IID to such derived income from:
- Patents
- Supplementary protection certificates
- Breeders' rights
- Certain drugs
- Data and market exclusivity granted after 30 June 2016
- The intellectual property of copyrighted software
This benefit becomes available on the date the patent is requested, provided the patent is granted after that.
The following income is considered "derived income" from qualifying intellectual property as long as it's included in the Belgian taxable result of the company:
- License fees
- IP income derived from innovation
- IP income embedded in the sales price of manufactured goods
- Proceeds from an insurance or amicable settlement
- Proceeds from an arbitral or court ruling
Net innovation income in the first taxable period with the IID must be decreased by overall expenditure incurred during any previous taxable periods ending after 30 June 2016.
A company can also elect to spread the recapture over a seven-year period (maximum).
Foreign Tax Credits
Relief from double taxation of foreign-sourced income may be available as a tax reduction, exemption, or credit.
Taxable foreign income is taxed on the net amount after foreign taxes and expense deductions. Royalty and interest income also fall under this category, each with specific conditions.
Social Security Contributions (SSC)
Under Belgium's tax laws, an employer's social security contributions amount to 25%, calculated on an uncapped income.
This rate includes the base rate of the employer's contribution (19.88%) and the wage moderation (5.12%). Additional contributions to the sector-specific fund for subsistence, etc., must also be calculated.
For white-collar workers, the average employer's contribution is estimated at around 27.50%. SSC rates for blue-collar workers are significantly higher.
Exact rates depend on the specific sector in question.
A reduction on the employer's SSC applies for low wages after specific target group reductions. A structural reduction with a low or high wage element may also apply.
An employee's SSC has a fixed rate of 13.07%, also calculated on an uncapped income. Employees with a monthly gross salary of €2,600 and below are entitled to an automatic reduction of personal contributions.
Social security contributions are tax-deductible for employers and employers (corporate and personal income tax returns).
Foreign employees temporarily stationed in Belgium may be exempt from paying social security contributions if employed by a foreign legal entity or in terms of a bilateral or multilateral agreement.
Taxes on Property
Immovable property (real estate) is subject to an immovable withholding tax (WHT) (also known as the "real estate tax"). It's due annually to the region where the property is located.
Belgian tax authorities calculate this tax as a percentage of the "deemed" rental income, called the "cadastral income" of the property.
The calculation constitutes an annual average net income. But the cadastre hasn't been updated since the late 1970s. The amount won't match the actual income an immovable property generates, so it's considered a "presumed income."
Property taxes in Belgium consist of regional, provincial, and communal taxes. As such, the tax rate depends on the property's location.
In some cases, equipment and machinery can be defined as immovable property—under certain conditions.
Registration of Property Duties
Transfers and purchases of real estate in Belgium are generally subject to registration duties of 12.5% of the fair market value or transfer price—whichever is highest.
This excludes the Flemish region, where the rate is 10% or 6% for the purchase of one's own home.
If the transfer or purchase of land is subject to VAT, no registration duties apply. Similarly, new buildings are subject to VAT and not registration duties.
Provided the conditions are met, investors may be considered professional real estate sellers. This regime allows for the acquisition of properties at a lower RETT rate.
For capital contributions, a fixed fee of €50 applies instead of a registration duty.
Value-Added Tax (VAT) Rates in Belgium
VAT applies to transactions considered to take place in Belgium, such as:
- Self-supply by a taxable person
- The supply, acquisition, and importation of goods and services
- Intra-community acquisition of goods (including asset transfers)
Belgium's standard VAT rate is 21% and applies to all goods and services excluded from reduced VAT rates.
A reduced VAT rate of 12% applies to various goods and services, including (but not limited to):
- Combustible materials
- Phytopharmaceutical products
- Public and private social housing initiatives
- Certain renovations done on immovable property
A reduced VAT rate of 6% applies to an assortment of goods and services, including (but not limited to):
- Copyrights
- Contract farming
- Housing in the social sector
- Goods and services supplied by social organizations
- Supplies of certain medical equipment and therapeutic-use devices
- Renovations on immovable property (under strict conditions and time limitations)
Zero-rated and VAT exemptions without credit are also available for certain goods and services.
Excise Duties
Belgium's tax rules divide excise goods into two groups, namely:
- Community excise products: Alcoholic
beverages, manufactured tobacco, and energy products.
These excise products are defined as such at the EU level with uniform procedures applicable in all EU member states.
- National excise products: Non-alcoholic
beverages (water and soda) and coffee.
Belgium has identified these excise goods voluntarily as an EU member state. The excise duty rates fall within the minimum and maximum thresholds determined by the European Union.
Import Duties
Goods imported to Belgium from outside of the EU are subject to import duties, determined by:
- Classification: All products traded worldwide are classified according to the tariff nomenclature laid down in the Combined Nomenclature (CN) rules and the six General Interpretation Rules (GIR).
- Origin: A preferential (or lower) import duty rate may apply to products imported to the EU in terms of international trade agreements, where goods meet the applicable criteria from the benefitting country of such an agreement.
- Valuation: The six rules in the Union Customs Code (UCC) are used to determine a customs value. Article 70 of the UCC is the most commonly used rule, concerning the "transaction value."
Knowledge is Power But Action is Paramount
Belgium's tax system is intricate, nuanced, and at times, downright confusing.
From corporate income tax and social security contributions to VAT and foreign tax credits, it can be tricky to determine which tax applies when and what deductions you're eligible for.
With an in-depth understanding of Belgium's corporate tax regime, you can implement a tailor-made strategy to optimize your contributions and maximize your benefits. Learn more here.
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Sources:
https://taxsummaries.pwc.com/belgium/corporate/tax-credits-and-incentives
https://business.belgium.be/en/investing_in_belgium/tax_benefits
https://www.expatica.com/be/finance/taxes/corporate-tax-in-belgium-136650/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.