Corporate tax reform: the winners and losers

The federal government decided to lower corporate tax. From next year, the standard corporate tax rate will be 29 percent (or 29,58 percent taking into account a 2 percent crisis contribution). From 2020, the corporate tax rate will further drop to 25 percent and the crisis contribution will even expire.

The winners :

As from 2018 SMEs – Companies with an annual turnover of no more than 9 million euros, a balance sheet total of less than 4.5 million euros and less than 50 employees – will be taxed on their first installment of 100.000 euros at a rate of only 20 percent.

SMEs can also deduct 20 percent of their investments from taxes over the next 2 years, compared with 8 percent applicable today.

At the same time, the beneficial scheme “vvpr-bis” – in the jargon –  remains applicable to small companies allowing dividend payments to be subject to a withholding tax of 15 instead of 30 percent.

In addition, the liquidation reserve scheme remains unchanged which allows the company to pay out the  reserves “tax-free” at the moment of liquidation .

But: a company is now required to pay a salary of at least € 45.000 per year to a company manager. If she does not comply, she must pay a special 10% surcharge on that amount (or the difference between € 45.000 and the effective salary if it is lower). The amount of € 45.000 will also be the new minimum remuneration in Article 215 (3), 4 ° WIB 92 (instead of € 36.000). Failure to comply with that rule will not only lead to the levy of the 10% special surcharge but also to the loss of the SME status. It is enough to assign that amount of salary to only one manager. Starting companies remain free from that measure (that is, the first four years after the establishment).

The losers:

Mainly large companies are target of the first share of measures which enter into force as from next year:

  • Profits above the first million euro will be isolated for 30 percent on which the basic rate will be due (minimum tax);
    Costs that cannot be deducted due to the 30% isolation will be transferred to a subsequent year. Only deductions for investment and innovation can be fully charged;
  • Limitation of ‘Notional Interest Deduction’: Currently, the NID is calculated on equity. From next year the base is the growth of capital calculated on average growth over the previous five years. The transfer scheme remains unchanged;
  • The investment reserve disappears;
  • Prepaid costs will no longer be fully charged to the year of payment but will be deductible only in the following years (matching principle) E.g.: it will therefore no longer be possible to fully deduct prepaid rent in the year of payment;
  • Exemption of capital gains on shares becomes more restricted (additional condition as from 2018 in accordance with DBI terms: minimum participation of 10% or 2.5 million). Capital gains on shareholdings that do not comply to this are, in principle, always subject to a tax of 25%;
  • Capital reductions will now be charged pro rata to the paid-up capital and the reserves (whether or not capital incorporated). The possibility of allocating the reduction with priority and solely to the paid-up capital expires with as a consequence a more difficult avoidance of the withholding tax on movable income;
  • The tax benefits for enrollment companies (cfr. double exemption of the growth of taxable profits) are abolished;
  • Additional penalties for non-submission of tax returns: the minimum lump-sum profit that can be taxed in those cases increases – in two steps – from € 19.000 to € 40.000;
  • No deductions (such as losses) can be claimed to reduce the additional taxation imposed by the tax authorities.

The second share of measures expected in 2020 will also target SMEs:

  • Limitation of interest deductions on loans;
  • Fictional interest rates applicable to intra-group loans will no longer be deductible as costs;
  • Abolition of degressive depreciation;
  • Pro rata temporis depreciation for all companies;
  • Reduction of deductibility of certain costs (including stricter deduction of car costs and elimination of 120% deductibility for electric vehicles and safety);
  • Deductibility of both the secret commission assessment and VAT fines is abolished;
  • Abolition of the exemption for complementary and additional staff;
  • Difficulty to channel profits abroad without paying taxes due to the introduction of CFC legislation, which allows that the income of a “controlled foreign company” can still be taxed in Belgium;
  • Deduction of losses made by foreign branches will in most cases no longer be possible.

 

Large companies will again be able to fiscal consolidate from 2020: losses and profits from different group companies will be offset from then on. This would only apply to the future (i.e., no compensation of one company’s profits by transferred losses from another group company dating back to 2020) and predominantly for subsidiaries in the European Union.

In addition, the base rate for prepayments is increased from 1% to 3%. Companies that do not prepay will therefore pay more.

The above input is limited to the broad lines of the proposal since not all details are yet available. We will of course inform you as soon as more information is available about these new measures.

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