Reform of the corporate income tax (CIT) regime in Belgium
At the end of 2017 the CIT regime has been reformed by the Corporate Tax Reform Law of 25 December 2017, which has been amended and supplemented by the Reparation Act of 30 July 2018. The tax reform in Belgium introduces several tax measures spread out over a period of three years. The tax measures that are applicable as of tax year 2019 (financial years ending 31 December 2018 and later) include a lower CIT rate, a minimum tax base, a 100% participation exemption, modified conditions in order to claim the exemption of capital gains on shares, reimbursement of paid-up capital subject to withholding tax (WHT) to the extent that taxable reserves are deemed to be distributed, modified calculation of the notional interest deduction (NID), etc. The European Anti-Tax Avoidance Directive (ATAD) measures (30% earnings before interest, taxes, depreciation, and amortisation [EBITDA] rule, controlled foreign company [CFC] rules, hybrid mismatches, and exit taxation) and the tax consolidation have entered into force as of tax year 2020 (financial years ending 31 December 2019 and later). Finally, as of tax year 2021 (financial years ending 31 December 2020 and later), a further reduction of the CIT rate and a new, more economic permanent establishment (PE) concept will come into play. The distinct taxation for insufficient director's fee has been retroactively abolished.
Reform of Belgian company law and related tax adjustments
The Act of 23 March 2019 replaces the Belgian Companies Code with a new Belgian Companies and Associations Code. This law reduces the number of types of companies while providing for the abolition of the notion of capital (except for the “société anonyme”/“naamloze vennootschap”). It also consolidates the switch from the “head office” theory (effective place of management) to the “registered seat” theory, i.e. the seat as set down in the company’s articles of association. The Belgian Companies and Associations Code is implemented by a new Royal Decree of 29 April 2019, which contains among others the accounting rules Belgian companies should apply.
The Act of 17 March 2019 adapts certain federal tax provisions to the new Companies and Associations Code. The objective is to ensure the fiscal neutrality without changes to substance (save for exceptions).
This Act identifies companies with corporate capital (such as the “société anonyme”/“naamloze vennootschap”) and companies without capital. It also includes a new definition of the notions of capital and paid-up capital. The notion of “capital” will refer to a company’s equity as it is determined under the Belgian or foreign legislation to which the company concerned is subject to the extent that it is formed by contributions in cash or in kind other than industrial inputs.
As regards the company’s nationality, from a tax point of view, the rule will remain the “real seat” theory whereas the general rule in company law will become the “registered office” (“siège statutaire”/“statutaire zetel”) theory. Consequently, new definitions of “companies”, “resident companies” (combined with a rebuttable presumption to avoid situations of double non-residence) and “foreign companies” are introduced in the Belgian Income Tax Code. Changes are also brought with regard to repurchases of own shares, mergers, demergers and other restructuring operations. Foreign companies or any taxable person receiving profits via a Belgian establishment will also incur new accounting obligations (exemptions can be provided for by Royal Decree).
Most of the new provisions will enter into force on 1 May 2019. Transitional provisions are also provided.
Implementation of the tax consolidation regime
The tax consolidation regime has been introduced in the Belgian corporate income tax code as from assessment year 2020 (i.e. financial years starting on 1 January 2019 or later) and is also known as "group contribution". Under this tax consolidation regime, Belgian companies (and Belgian permanent establishments of foreign companies) may compensate taxable profits with current year tax losses, if certain conditions are fulfilled, such as amongst others:
- a 90% direct shareholding between the group companies (or via the EEA parent company) is required, limiting the scope to the parent, subsidiary and sister companies and their Belgian permanent establishments;
- the measure is limited to group companies that have been affiliated for at least the last five successive financial years;
- some companies such as investment companies and regulated real estate companies are excluded.
The group companies must compensate each other for the tax burden of the group contribution, as a result of which the tax consolidation is financially neutral on a group level. Transferred taxable profits can only be offset against current-year tax losses and not against carried forward tax losses which have been generated in the past. The scope of the tax consolidation regime is limited to certain qualifying companies and subject to various conditions. In order to benefit from the tax consolidation regime, the group companies concerned have to conclude a so-called “group contribution agreement” that meets several conditions.
Implementation of DAC6 (pending)
On 25 May 2018, the Council of the European Union has formally adopted Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (also known as DAC6). DAC6 aims at bridging the information gap between taxpayers and tax authorities by installing a mandatory disclosure obligation for cross-border arrangements/transactions that fall within one of the hallmarks. Under DAC6, the reportable information will be disclosed to the national tax authority, shared between the tax authorities of the EU member states, and will also be (partly) accessible by the EU Commission.
Cross-border arrangements of which the first step was implemented on or after 25 June 2018 and the date of application of this Directive (1 July 2020) will be reportable by 31 August 2020. However, there is no implementation in Belgium law yet.
Reform of the Cayman Tax
The ‘Cayman Tax’ is a taxation regime that was introduced as of 1 January 2015 in the Belgian income tax code. The regime introduces a tax transparency of certain legal constructions that have been set up or that are being held by Belgian private individual tax residents (and Belgian entities subject to legal entities income tax). Concerning the legal construction, a distinction is made between three categories: (i) trusts and other structures without legal personality (type 1), (ii) foreign entities with legal personality that are subject to an effective tax rate of less than 15% calculated according to the rules of Belgian income tax law (type 2), and (iii) a type 1 or type 2 legal construction wrapped up in an agreement (type 3). Regarding the type 2 legal constructions, two Royal Decrees with additional guidance were published dated 18 December 2015 (exhaustive list of entities within the EEA) and 23 August 2015 (non-exhaustive list of entities outside the EEA). The aforementioned Royal Decrees were recently amended due to which the scope of application of the Cayman tax is broadened.