Belgian accounting law provides for the following four methods of inventory valuation: the method based on the individualisation of the price of each item, the method based on the weighted average prices, the last in first out (LIFO) method, and the first in first out (FIFO) method. All of these methods are accepted for tax purposes.
Capital gains are subject to the normal CIT rate. For tax purposes, a capital gain is defined as the positive difference between the sale price less the costs related to the disposal of the asset and the original cost of the acquisition or investment less the depreciations and write-offs that have been deducted for tax purposes.
Capital gains realised on tangible fixed assets and intangible assets could be subject to a deferred and spread taxation regime, provided that certain conditions are met.
Capital gains on shares
As of tax year 2019 (financial years ending 31 December 2018 and later), net capital gains on shares are fully exempt provided that the subject-to-tax condition, the one-year holding period, and the participation condition are fulfilled. The conditions to benefit from the capital gains exemption are, as such, entirely aligned with the conditions to benefit from the DRD. Indeed, the participation condition implies a minimum participation threshold of at least 10% or an acquisition value of at least EUR 2.5 million in the share capital of the company concerned.
As of tax year 2019 (financial years ending 31 December 2018 and later), the net capital gain is taxable at a rate of 25.50% (25% plus a 2% crisis tax) if the minimum holding period of one year is not reached but the taxation condition and the participation condition are met (as of tax year 2021 [financial years ending 31 December 2020 and later], the tax rate will be 25%). If the taxation condition or participation condition is not met, the net capital gain is subject to the standard effective tax rate of 29.58% (29% plus a 2% crisis tax) (as of tax year 2021 [financial years ending 31 December 2020 and later], the tax rate will be 25%).
Dividends received by a Belgian company are first included in its taxable basis on a gross basis when the dividends are received from a Belgian company or on a net basis (i.e. after deduction of the foreign WHT) when they are received from a foreign company.
Provided certain conditions are met, 95% of the dividend income could, in the past, be offset by a DRD. As of tax year 2019 (financial years ending 31 December 2018 and later), the participation exemption has increased to 100%.
Dividends-received deduction (DRD)
A DRD of 100% (applicable as of tax year 2019 [financial years ending 31 December 2018 or later]) of dividend income can be applied under certain conditions (see below). Any unused portion of the DRD from dividends received from a European Economic Area (EEA) subsidiary or a subsidiary from a country with which Belgium has concluded a DTT with a non‑discrimination clause on dividends can be carried forward to future tax years (taking into account the possible limitations introduced by the basket). The same also applies for dividends from Belgian subsidiaries.
The DRD is subject to a (i) minimum participation condition and (ii) taxation condition.
In addition, a rule against hybrid instruments has been introduced into Belgian law. Under this rule, dividends received by the parent company will no longer be tax exempt whenever the distributed profit is tax deductible in the jurisdiction of the subsidiary (e.g. hybrid loans). Further, a general anti-abuse rule (GAAR) has been introduced into Belgian legislation. As a result, the DRD will be denied whenever the dividends originate from legal acts or a whole of legal acts that are artificial (i.e. no valid business reasons that reflect economic reality) and merely in place to obtain the DRD exemption.
Minimum participation condition
According to the minimum participation condition, the recipient company must have, at the moment of attribution, a participation of at least 10% or an acquisition value of at least EUR 2.5 million in the capital of the distributing company. The beneficiary of the dividend must have been holding the full legal ownership of the underlying shares for at least one year prior to the dividend distribution or commit to hold it for a minimum of one year.
The taxation condition, in summary, means that the dividend income received must have been subject to tax at the level of the distributing company and its subsidiaries if the former redistributes dividends received.
The taxation condition is based on seven ‘exclusion’ rules and certain exceptions to these rules. Basically, the exclusion rules apply to the following:
- Tax haven companies, which are companies that are not subject to Belgian CIT (or to a similar foreign tax) or that are established in a country where the common taxation system is notably more advantageous than in Belgium. Countries in which the minimum level of (nominal or effective) taxation is below 15% qualify as tax havens for the application of the regime (a list of tainted countries has been published). The common tax regimes applicable to companies residing in the European Union are, however, deemed not to be notably more advantageous than in Belgium.
- Finance, treasury, or investment companies (as defined by the tax legislation) that, although are subject in their country of tax residency to a corporate tax similar to that of Belgium as mentioned in the item above, nevertheless benefit from a tax regime that deviates from common law.
- A Belgian real estate investment trust or foreign regulated investment trust that benefits from a substantially more advantageous tax regime than the Belgian tax regime.
- Offshore companies, which are companies receiving income (other than dividend income) that originates outside their country of tax residency and in these countries such income is subject to a separate taxation system that deviates substantially from the common taxation system.
- Companies having PEs that benefit globally from a taxation system notably more advantageous than the Belgian non-resident corporate taxation system. This exclusion is deemed not applicable to EU companies with an EU PE.
- Intermediary holding companies, which are companies (with the exception of investment companies) that redistribute dividend-received income, which on the basis of regulations mentioned under the items above would not qualify for the DRD for at least 90% of its amount in case of direct holding.
- Companies that have deducted these dividends from their profit or are able to deduct these dividends from their profit.
- Companies that distribute dividends who are associated with a legal act or a set of legal acts of which the tax administration has demonstrated that this act or set of acts is artificial and was set up with the main objective (or one of the main objectives) to claim the deduction on dividends (envisaged by the DRD law), to waive from the collection of WHTs on this type of income, or to claim any other advantage of Directive 2011/96/EU in another member state of the European Union.
While this is a summary of the exclusion rules, numerous exceptions to these exclusion rules exist and need to be analysed on a case-by-case basis.
Bonus shares (stock dividends)
Distribution of bonus shares to shareholders in compensation for an increase of the share capital by incorporation of existing reserves is, in principle, tax free. The situation may be different if the shareholder has the choice between a cash or stock dividend.
Interest, rents, and royalties
Interest that accrued, became receivable by, or was received by a company, and rents and royalties received by a company, are characterised as business profits and taxed at the general CIT rate of 29.58% as of tax year 2019 (financial years ending 31 December 2018 or later) (25% as of tax year 2021 [financial years ending 31 December 2020 or later]). The income can be offset against available tax assets.
A Belgian resident company is subject to CIT on its worldwide income and foreign-source profits that are not exempt from taxation by virtue of a DTT (see the treaty list in the Withholding taxes section). This income is taxable at the normal CIT rate in Belgium (i.e. 29.58% as of tax year 2019 [25% as of tax year 2021]).
A foreign tax credit may be available for foreign royalty income and foreign interest income. See the Tax credits and incentives section for more information.
Undistributed income of subsidiaries, whether or not they are foreign, will be subject to Belgian income tax in the hands of the Belgian corporate shareholder as of tax year 2020 (financial years ending 31 December 2019 and later) if certain conditions are met (see Controlled foreign companies [CFCs] in the Group taxation section).