Belgium

Federal Government Agreement

On 31 January 2025, Belgium presented a new federal government agreement announcing major tax policy changes that will affect entrepreneurship and competitiveness. Some key highlights:

• Competitiveness: labour costs for low and middle incomes will be reduced, but the impact might be mitigated due to updated compensation practices related to certain tax shift measures that could affect employee net pay. The phased implementation requires careful analysis regarding overall cost & competitiveness.
• Investor Attractiveness: changes to taxes on capital gains and carried interest as well as incentives for eco-friendly investments and measures to encourage people to invest their savings in the economy may prompt a review of investment strategies.
• International Talent & innovation: an improved expat regime aims to attract global talent, crucial for fostering innovation. The R&D sector may benefit from announced reduced administrative burdens and an intention for a more stable legal framework.

The announced reforms aim to balance the budget through structural changes and contributions from various stakeholders.

Some of these measures are being implemented through a draft Program Law . Additionally, other measures are part of a draft “law containing various provisions”, which is currently progressing through the legislative process. The federal government is also working on a new capital gains tax. After reaching a final agreement in the Council of Ministers, the proposal will be submitted to the Council of State for advice and afterwards to Parliament for a vote. The remaining tax measures of the federal government agreement will be enacted through separate future legislation.

Draft Program Law

In July, a draft Program Law has been adopted by Belgian Parliament aiming to implement a first wave of tax measures as foreseen in the federal budget agreement 2025, such as:

• Participation exemption regime (so called ‘dividends received deduction’ or ‘DRD’): for companies claiming the participation exemption on the basis of an investment of EUR 2.5 million (because the participation does not reach 10%), the draft Program Law would introduce an additional requirement from tax year 2026: the participation needs to qualify as a financial fixed asset for the investor, unless the investor is a small company.
• Exit tax: this new tax introduces the concept of a ‘deemed dividend’ (representing the latent capital gains) for shareholders when a company emigrates or restructures in a way that transfers assets abroad. Shareholders will be taxed on this deemed dividend as if they received an actual dividend, subject to applicable personal or corporate income tax rates. A tax credit mechanism is available to prevent double taxation when these gains are eventually realised and distributed.
• Liquidation reserves and VVPRbis regime: alignment of both regimes with, for the liquidation reserve, a reduced waiting period from 5 to 3 years and a new rate at 6.5%. The draft law would provide for a regime depending on the date of creation of the reserve and the date of distribution. For the VVPRbis regime, the rate of 20% applicable to dividends allocated or distributed during the second financial year after the cash contribution would gradually phase out.
• Carried Interest: the draft law would introduce a new regime for individuals or related persons receiving carried interest from Belgian/foreign AIFs (alternative investment funds). The income would be treated as investment income, taxed at a flat 25% rate (via withholding & income tax). This measure would apply to carried interests paid or attributed as from the date of enactment of the law.
• Tax on securities accounts: a new anti-abuse measure aiming to prevent taxpayers from circumventing the tax on securities accounts through artificial conversions or transfers of financial instruments will be introduced (with a rebuttable presumption of abuse for conversion or transfer that surpasses a certain threshold).
• The reduced VAT rate on demolition-reconstruction projects of residential houses would be reinstated and extended. Real estate developers will be able to apply the 6% VAT rate for demolition-reconstruction projects on the sale of residential houses. This would apply to sales to private individuals who will live in the residential houses (as their only residential house) and to investors who rent the residential house to private individuals who will live in it, provided the surface does not exceed 175 m². This would be a significant improvement compared to the old rules. 
• Vat on the installation of fossil fuel boilers would increase to 21%.
• The airplane tax would be increased from EUR 2 to 5 for flights of more than 500 km in the EEA.
• Tax procedure.The 10% tax increase for a first-time offense committed in good faith would be waived. The good faith is presumed, except in case of an ex officio assessment.
• A tax amnesty regime would be reintroduced.

Law of 12 May 2024 on various tax provisions (Official Gazette of 29 May 2024)

On 29 May 2024, the law of 12 May 2024 containing various tax provisions was published in the Belgian Official Gazette. This law implements several changes to the regime of the investment deduction and the innovation income deduction (IID).

The new regime is organised around three 'tracks':

• The general track: Ordinary investment deduction (10% or 20% [qualifying digital investments, Royal Decree still to be published]). This is only applicable to individuals and small and medium-sized enterprises (SMEs).
• The targeted track: An increased 'thematic' investment deduction (replacing the specific categories of qualifying investments) (40% [SME] or 30% [non-SME]). A list of eligible investments for this investment deduction was published by the Royal Decree of 20 December 2024 (Official Gazette of 31 December 2024) and will be reviewed/updated periodically. The increased thematic deduction will only be applicable to fixed assets for which no regional aid is requested (exceptions to be determined by the King).
• The technology track: The so-called ’technology‘ deduction applies in relation to qualifying investments in patents and fixed assets that are used to support research and development (R&D) of new products and future-oriented technologies that have no impact on the environment or that aim to minimise the negative impact on the environment of existing products and technologies (13.5% [one-off] or 20.5% [spread, not applicable to patents]). Taxpayers could opt to apply a tax credit for this category of investments.

The law provides for fixed investment deduction rates. Hence, going forward, these rates will no longer be subject to the yearly indexation mechanism.

A taxpayer can only choose one of the above-mentioned types of investment deduction per fixed asset.

The general conditions to benefit from the investment deduction remain the same.

The new regime, as well as the correction related to the (partial) professional withholding tax (WHT) exemption regime to determine the investment deduction basis, will be applicable for investments made as of 1 January 2025.

In addition, the law of 12 May 2024 provides for the following modifications to the IID and tax credit for innovation income:

• As of tax year 2025, taxpayers will have the option not to offset part or the full amount of IID against the taxable basis but to convert it into a non-refundable tax credit for innovation income.
• The tax credit for innovation income can be carried forward and offset against corporate income tax (CIT) of (one of) the following taxable periods. Taxpayers will have the choice for each taxable period whether or not to apply this tax credit.
• From 2026 onwards, the effect of the tax credit for innovation income will be evaluated on a yearly basis, paying special attention to the budgetary cost of the measure and Belgium’s competitive position compared to neighbouring countries.