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, in the past, the double-declining balance method. In the latter case, the annual depreciation may not exceed 40% of the acquisition value.
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 must 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).
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.
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.
As from 2020 the deductibility of car costs and fuel costs is calculated based on the following formula: 120 – (0.5 x coefficient x number of grams CO2/km), whereby the coefficient equals:
- 1,00 for diesel cars;
- 0,90 for natural gas cars (with less than 12 fiscal horsepower);
- 0,95 for petrol cars and other fuel types (including diesel hybrid cars).
- The maximum deductibility percentage is limited to 100% and the minimum amounts to 50% (or 40% if the grams CO2/km are at least 200 gr/km).
- The 120% cost deduction for CO2 neutral cars has been abolished.
- Special rules apply to plug-in hybrid cars, with a distinction whether they were bought or leased after 31 December 2017.
- As from 2026 onwards, only zero emission company cars will be able to benefit from a tax deduction. Zero emission company cars, purchased before the first of January 2027 will remain 100% tax deductible. For zero-emission cars purchased after this date, this percentage will be gradually reduced to 67,5% by 2031. For polluting cars (i.e. any car with a CO2-emission higher than 0g/100km) purchased before the first of July 2023, the current tax regime will remain unchanged. For polluting cars purchased after the first of July 2023 a cool down period is foreseen whereby the deduction will be gradually reduced to zero by 2028.
- As for the deduction of fuel costs, a maximum deduction of 50% for the costs related to fossil fuel will be introduced if the car is purchased or leased as from 2023. Electricity for powering the vehicle will continue to be tax deductible at 100%.
- Investments in public charging stations made by companies between the first of September 2021 and 31 December 2022 are incentivized by allowing an increased tax deduction of 200%. Investments in public charging stations made by companies between the first of January 2023 and 31 August 2024 will be incentivized by allowing an increased tax deduction of 150%.
Taxes, fines, and penalties
The following taxes and penalties are not tax deductible in Belgium:
- 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;
- the secret commissions tax;
- regional taxes and contributions, including penalties, increases, ancillary expenses, and interest for late payment (certain exceptions apply);
- any administrative and judicial fines or penalties.
Immovable WHT (i.e. real estate tax) and foreign taxes, however, are considered as tax deductible.
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, a minimum tax base should be taken into account. 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, NID carried forward, IID carried forward and DRD 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).
A ruling can be requested from the Belgian tax authorities to obtain upfront certainty on the Belgian tax treatment of the contemplated operation, 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.
There is no tax loss carryback provision under Belgian tax law (except for the agriculture sector).
However, in response of COVID-19, a so-called temporary 'loss carryback' regime or 'reserve COVID-19' has been introduced to strengthen the solvency and the equity of companies. Under certain limits and conditions, companies that expect to incur losses during the COVID-19 pandemic period are entitled to claim a temporary exemption of all (or a part of) their taxable result of a financial year preceding this period, up to the amount of such losses (other limitations apply). This temporary exemption of profits is only applicable to tax years 2019 or 2020 (corresponding to an accounting year ended in the period between 13 March 2019 and 31 July 2020) and is granted through the creation of a temporary tax-exempt reserve to be deducted from the taxable reserves in that financial year.
The temporary tax-exempt reserve can be created for only one taxable period closed/ended during the period between the 13 March 2019 and 31 December 2020. This tax-exempt reserve should be reversed in the subsequent financial year, which is the financial year in which the losses have been incurred ('the COVID year'). The maximum amount of the exemption is limited to the amount of the result of the financial year (taxable result from the first operation not considering the impact of this temporary exemption itself and reduced by the dividends-received deduction, innovation income deduction, and the patent income deduction) and is, in any case, limited to EUR 20 million.
Certain companies are excluded: (i) companies that have executed share buybacks, dividend distributions, and/or capital reductions (ii) companies not subject to the common Belgian tax regime, (iii) companies that were already 'companies in difficulties' before the crisis, and (iv) companies with a shareholding in a company located in a tax haven country and companies that have made payments to tax haven companies unless these payments can be justified based on specific grounds.
Finally, this loss carryback regime includes an anti-avoidance scheme in case the tax-exempt reserves are overstated by more than 10% (compared to the actual loss) and/or in case rate arbitrage benefits would apply.
Specific procedures are in place to recover tax already paid or prepayments made in relation to the year in which the temporary exemption is claimed. Also, certain formalities need to be applied to benefit from the measure.
Foreign PE losses
Foreign PE losses can only be deducted from the profits of the Belgian head office profits if certain conditions are fulfilled. As from 2020, the deduction has been limited to definite PE losses. In addition, the recapture rule only comes into play if the losses were set off in any taxable period against Belgian profits or against treaty-exempt profits.
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 at the time the payment is made 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 a jurisdiction:
- included on a list of states with no or a low level of taxation (e.g. a jurisdiction where the nominal corporate tax rate is less than 10%), provided for by royal decree; or
- regarded by the OECD as not being cooperative concerning transparency and international exchange of information (EoI) (i.e. on the OECD ‘black list’ of non-compliant states and as from tax year 2022 also the partially compliant states for payments made as from 1 January 2021); or
- included in the EU list of non-cooperative jurisdictions.
The reporting concerns direct or indirect to payments made to:
- persons or PEs situated or located in a tax haven,
- 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.