As a general rule, expenses are tax deductible in Belgium if they are incurred in order to maintain or to increase taxable income, they are incurred or have accrued during the taxable period concerned, and evidence of the reality and the amount of such expenses is provided by the taxpayer.
Depreciation and amortisation
Depreciation of an asset is tax deductible to the extent that it results from a devaluation of the asset, and the devaluation effectively occurred during the taxable period concerned. The depreciation methods that are accepted by Belgian tax law are the straight-line method (linear method) and the double-declining balance method. In the latter case, the annual depreciation may not exceed 40% of the acquisition value. The double-declining method may not be used for intangible fixed assets, automobiles, minibuses and automobiles used for mixed purposes, and for assets, the use of which has been transferred to a third party (e.g. operational leasing). The double-declining method will be abolished as of tax year 2021 (financial years ending 31 December 2020 and later).
Depreciation rates are based on the expected lifetime of the assets concerned, which are normally agreed upon by the taxpayer with the tax authorities. However, for certain assets, rates are set by administrative instructions as follows:
|Assets||Depreciation rate (%)|
|Machinery and equipment (depending on the type)||20 or 33|
Intangible fixed assets have to be amortised over a period of at least five years for tax purposes (except research and development [R&D] expenses, for which the minimum amortisation period is three years).
For the year of acquisition of an asset, only the proportionate share of an annual depreciation calculation can be accepted as depreciation for income tax purposes (in principle to be computed on a daily basis). This provision, however, applies only to companies that cannot be considered as SMEs (see the Tax credits and incentives section for the definition). In contrast, SMEs can deduct a full year of depreciation in the year of acquisition. This exception will be abolished as of tax year 2021 (financial years ending 31 December 2020 or later).
Belgian accounting and tax laws allow amortisation of goodwill arising at the occasion of an asset deal. For Belgian tax purposes, the amortisation period, which depends on the elements included in the goodwill, is a minimum of five years, and the straight-line method must be applied. According to the Minister of Finance, 'clientele' (client lists) should be amortised over a period of 10 to 12 years. The aforesaid accounting and tax amortisation for goodwill is not available if tax-free mergers or de-mergers occur (i.e. they, among other things, follow the continuity principle from an accounting perspective).
Incorporation costs, at the election of the taxpayer, may be deducted fully in the year of incorporation or can be depreciated over a maximum period of five years.
Interest expenses are, in principle, tax deductible insofar as thin capitalisation/30% EBITDA limits are respected (see Thin capitalisation in the Group taxation section) and the interest is at an arm’s-length rate.
Provisions and bad debt reserves
Provisions and bad debt reserves are tax deductible provided that:
- they are set up to cover clearly identified losses and charges (i.e. not to cover 'general' risks) that have been rendered probable by events that took place during the taxable period concerned
- they are booked at the end of the financial year in one or more separate accounts on the balance sheet
- they are reported on a specific form enclosed with the tax return, and
- they relate to losses and charges that are deductible for Belgian tax purposes.
As of tax year 2019 (financial years ending 31 December 2018 and later), provisions for risks and charges are only deductible for tax purposes if:
- they correspond to an existing and known obligation at year-end closing (in addition to the other already existing conditions), and
- they result from any contractual, legal, or regulatory obligation (other than those resulting merely from the application of the law on accounting rules and annual accounts). This change does not apply to existing provisions created before tax year 2019.
Charitable contributions may not be less than EUR 40 and may not exceed 5% of the total net income of the taxable period, with a maximum of EUR 500,000 to be tax deductible. The law includes an exhaustive list of gifts that are deductible, including gifts in cash to certain social, cultural, or scientific organisations.
The deductibility rate of automobile costs in the hands of Belgian companies (and Belgian PEs) varies in a range between 50% and 120% of the automobile costs, depending on the CO2 emission of the company car and its catalogue value.
As of tax year 2021 (financial years ending 31 December 2020 or later), the deductibility rate will vary in a range between 50% and 100% (instead of 120%) and depends fully on the CO2 emission of the company and the type of fuel.
Moreover, the deduction for fuel costs is limited to 75%. As of tax year 2021 (financial years ending 31 December 2020 or later), this deduction will no longer be fixed but will also be linked to the CO2 emission of the car.
Taxes, fines, and penalties
Belgian resident and non-resident CIT, including advance tax payments, any surcharge imposed in case of insufficient advance tax payments, any interest for late payment of the CIT, and any Belgian movable WHT, is not tax deductible in Belgium. Immovable WHT (i.e. real estate tax), secret commissions tax, and foreign taxes, however, are considered as tax deductible. As of tax year 2021 (financial years ending 31 December 2020 and later), the secret commissions tax will, however, no longer be tax deductible.
Regional taxes and contributions, including penalties, increases, ancillary expenses, and interest for late payment, are not tax deductible in Belgium (certain exceptions apply).
Any administrative and judicial fines or penalties (except for VAT proportionate fines) are not tax deductible in Belgium.
The following expenses are not tax deductible in Belgium (this list is not exhaustive):
- 31% of restaurant expenses.
- 50% of representation expenses and business gifts (there are exceptions).
- Advantages granted to employees for social reasons, with certain exceptions (e.g. hospitalisation insurance premiums, gifts of a small value).
- Capital losses on shares (except upon liquidation, up to the amount of the loss of the paid-up capital of the liquidated company).
- Brokerage, commissions, commercial discounts, or other payments allocated directly or indirectly to a person in the form of a Belgian public bribery.
- 17% of the benefit in kind of company cars or 40% if the fuel costs are fully borne the company (minimum taxable basis).
Net operating losses
Principle: Carried forward without limitation in time
Tax losses can, in principle, be carried forward without any limitation in time. However, please note that as of tax year 2019 (financial years ending 31 December 2018 and later) a minimum tax base is introduced. There are no limits on certain deductions (such as DRD, innovation income deduction [IID], and the investment deduction). Other deductions may offset only 70% of the taxable amount exceeding EUR 1 million. These deductions include, amongst others, carried-forward losses. The remaining 30% will be fully taxable at the CIT rate (see Minimum tax base in the Taxes on corporate income section).
Change of control
If a change of control of a Belgian company takes place (e.g. if the shares of the company are transferred and along with them the majority of the voting rights), the amount of tax losses, investment deduction, and NID carried forward available in that company (before the change of control) can no longer be offset against future profits unless the change can be justified by legitimate needs of a financial or economic nature in the hands of the loss realising company (i.e. evidence must be brought that the change is not purely tax driven). As of tax year 2019 (financial years ending 31 December 2018 or later), the amount of IID carried forward and DRD carried forward can only be offset against future profits if the change can be justified by legitimate needs of a financial or economic nature as well.
A ruling can be requested from the Belgian tax authorities to obtain upfront certainty on the Belgian tax treatment of the contemplated operation, so as to ensure the losses are not forfeited as a result of a change of control.
Tax-free merger or (partial) de-merger
If a tax-free merger or (partial) de-merger takes place, Belgian tax law provides for a partial transfer/maintenance of the rollover tax losses of the absorbed/absorbing company. The carried forward tax losses of the companies involved are then reduced based on the proportionate net fiscal value of the company (before the restructuring) compared to the sum of the net fiscal values of both the merging entities (before the restructuring). The current limited deduction of prior-year losses in the framework of a tax-neutral reorganisation also applies to the carried forward dividends-received deduction. The amending law provides that this provision is applicable to operations executed as of 1 January 2018.
There is no tax loss carryback provision under Belgian tax law (except for the agriculture sector).
Foreign PE losses
As of tax year 2021 (financial years ending 31 December 2020 and later) foreign PE losses can only be deducted from the profits of the Belgian head office profits if certain conditions are fulfilled.
Payments to foreign affiliates
A Belgian company can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided such amounts are at arm's length. However, when such payments are made, either directly or indirectly, to a foreign person, entity, or PE that is not subject to tax or is subject to a tax regime that is notably more advantageous than the Belgian tax regime on such income, there is a reversal of the burden of proof. Such charges will be disallowed unless the Belgian company can prove that the payments are reasonable and that they correspond to genuine and real transactions.
Fees, commissions, etc. paid to beneficiaries located in foreign countries and not properly reported, will, in principle, be subject to the secret commissions tax.
Payments to tax havens
Companies subject to Belgian CIT or Belgian non-resident CIT that make direct or indirect payments to recipients established in tax havens are obligated to declare them if they are equal to or exceed EUR 100,000 during the tax year. The reporting has to be made on a special form to be attached to the (non-resident) CIT return.
In the event of non-reporting, the payments will be disallowed expenses for CIT purposes. Where the payments have been reported duly and timely, their tax deductibility will be subject to the ability of the taxpayer to prove that (i) said payments were made as part of genuine, proper transactions and (ii) they were not made to an entity under an artificial construction.
A tax haven is defined as: (i) a jurisdiction where the nominal corporate tax rate is less than 10% or (ii) a jurisdiction regarded by the OECD as not being cooperative concerning transparency and international exchange of information (EoI) (i.e. on the OECD ‘black list’). Belgian law provides a royal decree containing the list of countries where the nominal corporate tax rate is lower than 10%.
As of 14 July 2016, the scope is extended to payments to:
- PEs located in a state with a low or zero tax charge
- bank accounts managed or held by one of these recipients or PEs, and
- bank accounts managed or held through credit institutions (or their PE) located in one of those states.
The definitions of ‘non-compliant state’, ‘state’, and ‘state with a low or zero’ tax charge are also enlarged.