Belgium Corporate Taxation

Transcription

1 Introduction Corporate income tax is levied on the worldwide income of resident companies. Belgian-source income of nonresident companies is subject to the income tax on nonresidents. An austerity surcharge is levied on these two income taxes. In addition, companies must pay social security contributions. A VAT system applies. The currency is the euro (EUR). 1. Corporate Income Tax 1.1. Type of tax system The Belgian corporate tax system is a classical double taxation system, modified by an exemption for dividends from qualifying participations held by corporate shareholders (see section 2.2.) and a reduced rate for dividends from participations held by individual shareholders Taxable persons Only entities with legal personality are subject to corporate income tax. According to the Income Tax Code, which governs corporate income taxation, taxable persons include resident companies, associations, cooperatives, establishments and organizations engaged in a business or other profit-making activities. Limited partnerships and partnerships limited by shares have legal personality and are therefore subject to corporate income tax at the level of the partnership. Non-resident entities, with or without legal personality, that have a legal form comparable to the above-mentioned Belgian entities are subject to income tax on nonresidents (see section 6.2.). Resident legal entities not engaged in a business or in other profit-making activities are subject to the tax on legal entities, instead of the corporate income tax. Such entities include the state, provinces, communities, intercommunity organizations and resident non-profit organizations. This special tax falls outside the scope of this survey. The most important forms of legal entities are the corporation (SA/NV) and the limited liability company (SPRL/BVBA) Residence A legal entity is a resident of Belgium if it has its legal seat, main establishment or place of effective management in Belgium Taxable income General Generally speaking, the taxable base for corporate income tax purposes is the worldwide income, less allowable deductions. All income derived by a company constitutes taxable business income (profit). The Income Tax Code describes eight successive steps to determine the taxable base of the company, starting from the financial statements: (1) profit determination (increases in reserves, nondeductible expenses and distributed dividends); (2) classification of the profit according to its source (Belgian-source profit, profit from non-treaty countries, profit from treaty countries); (3) deduction of profit from treaty countries and deduction for certain gifts made and additional staff hired; (4) deduction of intercompany dividends (participation exemption); (5) patent income deduction; (6) notional interest deduction; (7) use of previous losses; and (8) investment deduction Exempt income For exempt capital gains and dividends, see sections 1.4. and 2.2., respectively Deductions Deductible expenses are those incurred or borne by the company during the financial year in order to obtain or safeguard taxable business income. To be deductible, the expenses must be proven by documents. Deductible expenses include financial charges (interest on loans), expenses related to the use of immovable property (rent, maintenance) and to the use of movable property (royalties), remuneration of staff (including social security contributions), etc. The immovable withholding tax (see section 3.2.) and the so-called disguised commissions tax (see section 3.1.) are deductible. Deduction of the following items is disallowed: Belgian direct taxes, such as the corporate income tax itself; the capital gains tax on tax-exempt capital gains derived from shares held for 1 year; certain regional taxes, e.g. environmental taxes; special social security contributions for the closure of companies (see section 3.); certain penalties; 125

2 certain benefits granted by the company (even if those are taxed at the level of the receiving company); non-deductible pensions; capital losses on shares; interest, licence fees and service fees directly or indirectly paid to any foreign company, establishment or individual if, according to the law of the country where they are established, those items are not subject to tax, or are subject to a tax which is considerably more favourable than that in Belgium; 31% of restaurant costs; 50% of entertainment expenses (other than restaurant); and company cars: 17% of 6/7 of the list price of company cars multiplied by a percentage (between 4% and 18%) linked to the car s CO 2 emission rate and type of fuel consumption (gasoline or diesel) Depreciation and amortization Depreciation of business assets must be taken every year, irrespective of the amount of corporate income. Depreciation is taken starting from the financial year in which the asset was acquired or produced. Delayed depreciation is not allowed. Depreciation is calculated on the basis of cost price and the useful life of the asset. The law provides for two methods of depreciation, i.e. the straight-line method and the declining-balance method. The straight-line depreciation is the normal method. Depreciation periods and rates are normally fixed by agreement between the taxpayer and the tax authorities, although for certain assets rates are set by administrative instructions (e.g. commercial buildings 3%; industrial buildings 5%; machinery and equipment 10% or 33%, depending on the type; rolling stock 20%; intangible fixed assets 33.3%, when relating to research and development, 20% in other cases; know-how 10%). The declining-balance depreciation is generally optional. However, intangible fixed assets (except for investments in the audio-visual sector), cars and fixed assets which are depreciated by the owner but whose right to use has been transferred, must be depreciated on a straight-line basis. Self-created goodwill may not be depreciated. Under accounting law, acquired goodwill, in principle, must be depreciated on the basis of the straight-line method in not more than 5 years. Under tax law, however, acquired goodwill must be depreciated in a period longer than 5 years on the basis of the straight-line method (normally 10 years). For accelerated depreciation, see section Reserves and provisions Tax-free reserves and provisions are permitted under certain conditions prescribed by law and administrative instructions. The main conditions are the following: the reserve or provision must relate to a specific cost that is deemed to be deductible for tax purposes; the cost or loss must burden the result; the cost or loss must be probable in light of activities or events that occurred during the financial year and still exist at the end of the financial year; and the formal requirements are fulfilled, e.g. that the costs or losses be booked on separate accounts. The ceilings previously applicable to the provisions for bad debts have been abolished. Small and medium-sized companies may, under certain conditions, set up a tax-exempt investment reserve of up to 50% of the profits with a maximum of EUR 37,500. The additions to the reserve are reduced by capital gains on shares, cars used for business purposes and gains on debt claims on managers, shareholders and their spouses or children and any decrease of paid-up capital. The investment reserve must be invested within 3 years in depreciable (tangible or intangible) assets, for which the company is entitled to an investment deduction (see section ). If the reserve is not used within 3 years, it must be added to the profits Capital gains Capital gains realized on the disposal of business assets are regarded as business income and, therefore, normally subject to taxation at the ordinary rates. Capital gains on shares or participations are exempt if the dividends relating to such shares or participations qualify for the participation exemption (see section 2.2.) at the moment the gains are realized. Note that the minimum participation or holding period requirement for the dividend exemption does not apply to the capital gains exemption, nor is there a requirement of reinvestment. The exemption applies only as far as the gains are higher than previously deducted capital losses on these shares or participations. However, with effect from 1 January 2012, a minimum 1 year holding period applies in order to qualify for the exemption. If this holding period is not met, the gains are taxed at the rate of 25% (25.75% including the 3% austerity surcharge). From tax year 2013 (assessment year 2014), the net amount of fully tax-exempt capital gains derived from shareholdings in other companies is subject to a separate tax of 0,412% (including a 3% austerity surcharge), irrespective of the size of the shareholding. This separate tax does not apply to small and medium-sized enterprises. The tax is due if the shares are held for at least 1 year. Furthermore, it is not possible to reduce the amount of qualifying gains with capital losses or prior tax losses. Rollover relief is granted for gains on fixed assets held for business purposes for more than 5 years and for gains realized in respect of damages, expropriations and similar events. In such cases, the gains will be subject to corporate income tax over the period of depreciation of the reinvested assets if the proceeds are reinvested adequately in depreciable non-financial fixed assets located in Belgium within 3 years (or 5 years for buildings, ships and aircraft). The amount of depreciation taken on the new assets and corresponding to the amount of the capital gain is taxed as income in the same year the depreciation is taken. The untaxed part of the capital gain will only remain exempt if it remains recorded as a liability in a separate account and is not used as a basis for distribution 126

3 Belgium of profits. From assessment year 2012, this tax deferral also applies to reinvestments made in assets located in EEA Member States. If no reinvestment is made within the reinvestment period, the capital gain will be taxed during the year in which the reinvestment period ends. In addition, the taxpayer will be liable for interest on the related corporate income tax Losses Ordinary losses Carry-forward of losses is unlimited in time. However, losses may not be carried forward if there is a change in ownership which does not meet justified financial and economic needs. Carry-back of losses is not allowed. Special rules limit the deduction of losses where the company is involved in certain tax-exempt reorganizations, such as mergers and divisions. In order to counteract transactions whereby a company shifts its profits to a related company (including reorganizations), the law provides that losses are not deductible from the profits to the extent of abnormal or gratuitous advantages received. Companies with activities abroad can set off foreign losses according to a well-defined scheme (see section 6.1.2). A recapture rule allows the tax administration to add foreign losses that were previously deducted from the current Belgian profits if these foreign losses were set off against previous foreign profits under the application of a foreign loss carry-back rule Capital losses In general, capital losses are deductible for corporate income tax purposes. Capital losses on motor vehicles are partly deductible in relation to their emission level. Capital losses on shares or other participations are generally not deductible Rates Income and capital gains Basic rates The basic corporate income tax rate is 33%, increased to 33.99% by the 3% austerity surcharge (see section ). The following progressive rates apply to companies with taxable income up to EUR 322,500: Taxable income (EUR) Rate (%) Up to 25, ,000 90, , , These rates are increased to 24.98%, 31.93% and 35.54%, respectively, by the 3% austerity surcharge. The progressive rates are not applicable to: companies owning participations exceeding certain limits (financial companies); companies whose shares are at least 50% owned by one or more companies; companies whose dividend distributions exceed 13% of the paid-up capital at the beginning of the financial year; companies that do not pay earned income of at least EUR 36,000 to at least one of the directors or active partners (if the taxable income of the company is less than EUR 36,000, the earned income should be equal to the taxable income); and collective investment companies. For taxation of capital gains on shares that do not qualify for the participation exemption, see section Austerity surcharge An austerity surcharge is levied on income taxes due from both resident and non-resident taxpayers. The surcharge is calculated at a rate of 3% on the income tax actually due as computed before the deduction of withholding taxes, advance payments and foreign tax credits and before the application of the increases for insufficient advance payments. The surcharge is subject to the same rules as the tax upon which it is levied Withholding taxes on domestic payments Although corporate income tax is levied on a company s total income by assessment, the tax is levied on certain items by way of withholding. For withholding tax rates on payments to non-residents, see section Dividends With effect from 1 January 2013, domestic dividends are generally subject to a 25% withholding tax. Before 2013, the rate was (reduced to) 21% or to 15% for certain categories of dividends (e.g. dividends from shares issued to the public after 1993 to attract private savings). The withholding tax on dividends resulting from a (partial) redemption of shares is set at 10%. With effect from 30 September 2014, the withholding tax on these dividends will increase to 25%. With effect from 1 January 2012, the rate for income derived from a share buy-back is 25%. The withholding tax is creditable against the recipient s corporate income tax liability and refundable if it exceeds the corporate tax due, provided that the recipient had the full ownership of the shares at the moment of attribution of dividends. However, the withholding tax is not creditable if the dividend distribution gives rise to a writedown of the value of the shares or a capital loss, unless the shares are held for a continuous period of at least 1 year before the dividend attribution. There is no withholding tax on dividends paid by resident subsidiaries to resident parent companies if: both the subsidiary and the parent company are subject to Belgian corporate income tax; the parent company holds at least 10% of the capital in the subsidiary; and 127

4 the parent s minimum shareholding has been held for an uninterrupted period of 1 year. If shares have not been held for a period of at least 1 year when dividends are distributed, the exemption from withholding tax applies provisionally provided the parent company undertakes to maintain its holding until the expiry of the 1-year period. In this case, the subsidiary must still withhold tax, but need not remit it to the tax authorities unless the parent company fails to maintain its holding. Reduced rates apply to dividend distributions in respect of new shares issued from 1 July 2013 by small and medium-sized enterprises (SMEs). For such dividends the following withholding tax rates apply: 25% for distributions in the first 2 years after the shares are issued; 20% for distributions in the 3rd year; and 15% for distributions in the 4th (and subsequent) years. For the above reduced rates to apply, certain conditions must be fulfilled, including: the shares must be held continuously and in full ownership by the same shareholder for 3 or 4 years, respectively; the shares must be issued against cash contributions and the statutory minimum amount must be paid up; if the SME s capital was reduced after 1 May 2013, the reduced rates do not apply to a later capital increase up to the amount of the previous capital reduction. Capitalization of taxable reserves is taxed at a rate of 10% until 30 September 2014 (and at 25% thereafter). Capitalized reserves taxed at 10% can be distributed tax free if distributed after 8 years (5 years for SMEs). If the capitalized reserves are distributed earlier, withholding tax will be due at the following rates: 15% during the first 4 years (2 years for SMEs); 10% in the 5th and 6th year (3rd year for SMEs); and 5% in the 7th and 8th year (4th year for SMEs) Interest In principle, interest is subject to a withholding tax of 25% (21% in 2012). The withholding tax is creditable against the corporate income tax, but only if the company has the full ownership of the capital giving rise to the interest. However, various types of interest are exempt from withholding tax if paid to a resident company that is subject to Belgian corporate income tax, including interest on government bonds, registered bonds, mortgage loans on Belgian immovable property and bond interest paid by non-residents. The 15% rate will remain for government bonds issued between 24 November 2011 and 2 December Royalties Royalties paid to resident companies are not subject to withholding tax but only to corporate income tax on their net amount (i.e. gross amount less expenses). However, a 15% withholding tax applies to income received from authors and neighbouring rights and from legal and compulsory licences Incentives Belgium grants various tax incentives, of which only the most important are mentioned here Accelerated depreciation Accelerated depreciation is available under law or administrative rulings. Qualifying assets include: newly launched sea ships (depreciation in 8 years: 20% in the first year, 15% in the 2 following years and 10% in the remaining years) and other ships (10% per year); plant and machinery, with the exception of buildings used for scientific research (depreciation in 3 years, i.e % per year); qualifying new assets acquired by companies in economic sectors of major importance to the Belgian economy (depreciation in 3 years, i.e % per year); and costs of establishment, including costs related to the creation of a company (immediate depreciation) Investment deduction Under an investment deduction regime, either a normal or special investment deduction may be taken at the option of the taxpayer. The normal investment deduction is equal to a percentage of the cost price of certain investments. The following deductions apply: a deduction of 13.5% (for tax year 2014) may be taken by any company for investments in patents and in research and development of new technology beneficial to the environment as well as for energysaving investments; a deduction of 3% may be taken for investments to encourage the recycling of packaging materials for drinks and industrial products; and a deduction of 30% may be taken for investments in seagoing vessels. The special investment deduction is a deduction based on the depreciation taken on the asset in which the investment is made. The following deductions apply: companies with fewer than 20 employees on the first day of the financial year may take a deduction of 10.5% (for tax year 2014) computed on the annual depreciation taken on the asset in which the investment is made; and for environmentally friendly investments in research and development, any company (regardless of the number of employees) may take a deduction of 20.5% (for tax year 2014) computed on the depreciation taken on the asset in which the investment is made. Small and medium-sized enterprises (SMEs) and the selfemployed may deduct 20.5% (for tax year 2014) of an investment in safety measures either in the year of the investment or the following year. The deduction is available in addition to the depreciation on the investment, which is already allowed under the existing legislation. The safety investment deduction applies to all investment which is in accordance with the recommendations of the 128

5 Belgium local police district regarding preventative measures. For SMEs established as corporations, the deduction is applied together with the tax-exempt investment reserve (see section ). The investment deduction for patents and research and development of new technology beneficial to the environment and spread investment deduction for research and development of new technology beneficial to the environment may not be used by companies opting for a tax credit for research and development (see section ). Unused investment deductions due to insufficient income may be carried forward and are deductible in subsequent years with a limit of EUR 943,760 for assessment year 2015 (EUR 933,350 for assessment year 2014), or 25% of the unused part if it exceeds EUR 3,775,060 for assessment year 2015 (EUR 3,733,390 for assessment year 2014). For companies that opt to replace the application of the investment deduction by the research and development credit (see below), the unused part of the former which may be deducted in subsequent years is further limited to EUR 471,880 for assessment year 2015 (EUR 466,670 for assessment year 2014), or 25% of the unused part if it exceeds EUR 1,887,530 for assessment year 2015 (EUR 1,866,700 for assessment year 2014) Incentives for research and development Companies investing in research and development may opt to apply a tax credit of 33.99% of the invested amount (equal to the general corporate income tax rate increased by the austerity surcharge). For small and medium-sized companies the tax credit is: Taxable income (EUR) Rate (%) Up to 25, ,000 90, , , The credit is calculated on the purchase or investment value of newly purchased or manufactured tangible or intangible assets, which are used for business activities in Belgium. Finally, innovative companies and companies involved in research and development activities only have to remit to the tax authorities 25% of the wage tax that they have withheld from the wages paid to the employees involved in relevant activities (they may keep the remainder) Notional interest deduction (NID) Resident companies whose financial year equals the calendar year may deduct a notional interest expense from their taxable profits. The deduction is correspondingly granted to non-resident companies that are subject to the income tax on non-residents (see section 6.2.) in respect of their Belgian permanent establishment or immovable property (or rights thereon) located in Belgium. The deduction is based on the company s equity i.e. its share capital, subject to certain adjustments (e.g. the exclusion of foreign immovable property, the net value of fixed financial assets consisting of participations and other shares in (related) companies, and of unreasonable assets ) and retained earnings at the end of the preceding financial year. In addition, the base for the NID calculation also includes assets assigned to a foreign PE. The amount of the NID is, however, reduced proportionally with that part of the deduction that relates to a foreign PE asset. The deduction is calculated by multiplying the equity by a fixed percentage, determined by the government on the basis of the average of the monthly reference indices of the interest rate on 10-year linear government bonds in the second year preceding the assessment year. For the assessment year 2014, the rate is capped at 2.742% and for the assessment year 2015 at 2.630%. The rate for small and medium-sized companies (SMEs) is capped at 3.242% for the assessment year 2014 and for the assessment year 2015 at 3.130%. From tax year 2013 (assessment year 2014), it is no longer possible to carry forward the unused part of the notional interest deduction. Previously, a 7-year carryforward was allowed. Under a transitional regime, any unused notional interest deduction available as of 31 December 2011 (or a taxable period ending in assessment year 2012) may still be carried forward for a period of 7 years. The amount of the deduction for each taxable period is, however, limited. Up to a taxable income of EUR 1 million, the amounts carried forward may be set off without restriction. If, however, taxable income exceeds EUR 1 million, only 60% of the excess may be set off. From tax year 2014, the NID will no longer apply to shares which qualify for the participation exemption (see section 2.2.), but which are held as a mere investment Tonnage tax regime Upon request, companies (and private entrepreneurs) may elect to report taxable income for corporate income tax as a certain percentage of the volume transported if they operate sea vessels sailing under the flag of Belgium or another EU Member State for the transport of goods or persons (a) on international sea routes or (b) on routes from and to installations at sea used for the exploration for, or the exploitation of, natural resources and certain related activities. The regime is granted for an initial period of 10 years, with an automatic renewal every 10 years. After the request has been approved, taxable income is determined by applying daily coefficients with reference to the tonnage of the relevant vessel. The notional profits so computed are subject to corporate income tax at the normal rates. A reduced rate is applied in respect of certain vessels. To qualify for the regime, a company must generally own the sea vessel or charter it under a bareboat agreement. Losses from other activities may not be set off against the notional profits of the shipping division. They can, however, be set off against profits of the company taxed outside the tonnage tax regime. Losses from sea vessel transport made before an election to apply the tonnage tax 129

6 regime may only be carried over to years in which the regime is not applied. The following other tax benefits apply in relation to sea vessel transport activities, regardless of whether the tonnage tax regime applies: a special declining-balance depreciation for newly acquired sea vessels exclusively used for sea transport (see section ); an exemption of capital gains on the disposal of sea vessels, provided that they are fully reinvested in another sea vessel; and a special investment deduction of 30% for investments in sea transport vessels (see section ) Patent income deduction Resident companies and Belgian permanent establishments of non-resident companies may deduct 80% of the income derived from patents licensed to a related or unrelated party insofar as the payments are consistent with the arm s length principle. Conversely, only 20% of such income is taxable, resulting in an effective tax rate of 6.8% on such income (20% of 33.99%). The deduction only applies to new patents that have not led to the sale of patented goods or services by the company or a licence-holder before 1 January The patent must be developed or improved by a research centre that constitutes a business department or branch of activities of the company. From 2014, SMEs no longer have to develop or improve the patents in their own research centre. The deduction also applies to payments which would be due to a company if goods have been produced or services have been supplied by the company, or on behalf of the company by a third person based on a licence granted on patents, provided the payments are taxable in Belgium and the conditions agreed between the company and the third person are at arm s length. The deduction does not apply to income from research and development performed under a development contract or a cost-sharing agreement. Specific anti-abuse provisions apply. The deduction for patent income takes place after the deduction for dividends received (i.e. the participation exemption) and before the notional interest deduction. If there is insufficient taxable income left to offset the patent income deduction, the unused part of the deduction is lost and cannot be transferred to a subsequent assessment year Administration Taxable period The assessment is based on the taxable income of a financial year. For the application of the rules on statutory limitations and of new laws, an assessment year is related to each taxable period. If the financial year coincides with the calendar year, the assessment year is the following calendar year (i.e. profits earned in 2014 will be assessed in 2015). If the financial year does not coincide with the calendar year, the assessment year is the calendar year during which the financial year ends Tax returns and assessment A corporate income tax return must be filed before the deadline mentioned on the tax return by the tax authorities. This deadline must be at least 1 month after the date of approval of the financial statements by the annual general meeting of the shareholders, but not later than 6 months after the termination of the company s financial year. An extension of the filing date may be granted by the tax authorities at their discretion Payment of tax Companies must make quarterly prepayments of their estimated income tax liability during the financial year in order to avoid a tax increase. This tax increase is levied on the total income tax liability and is applied to secure the prepayment of tax. The quarterly payments give rise to credits which vary according to the amount and time of payment. The total of the credits is set off against the tax increase and only any outstanding amount is payable. Any excess credit may not be offset against the final income tax liability. The increase is not due by small and medium sized companies (SME). A company is an SME if the following cumulative conditions are met: there are no more than 50 employees; the turnover does not exceed EUR 7 million; the balance sheet total does not exceed EUR 5 million; and the profits do not exceed EUR 322,500. On 13 October 2011, the Constitutional Court held in BV Magotteaux Group v. Belgian State (No. 5061) that the application of the profit criterion for determining whether or not a company is an SME is unconstitutional, because it is incompatible with the equality principle. Final income tax must be paid within 2 months of the date of the sending of the assessment note, however, an extension may be granted by the tax authorities Rulings An advance ruling can be requested by the taxpayer in writing with a special division of the tax authorities. In principle, advance rulings are granted for a period not exceeding 5 years unless, in special cases, a longer period is justified. Taxpayers may request a ruling on all issues regarding the application of the tax law, unless the relevant tax law explicitly provides otherwise. The main purpose of rulings is to provide clarity and legal certainty on the application of tax law provisions. No ruling will, however, be granted if the relevant activity has insufficient economic substance in Belgium, or if the transaction involves a tax haven that does not cooperate with the OECD. A ruling may also be requested if the transaction has already been started but not yet finalized. 130

7 Belgium 2. Transactions with Resident Companies 2.1. Group treatment No fiscal consolidation is possible in Belgium Intercompany dividends Dividends received by resident companies or permanent establishments of non-resident companies from a participation in another resident company are first included in the taxable income. Then 95% of the dividends is deducted from the taxable income, i.e. the amount of the gross profits (excluding exempt income) less tax-allowed deductions and certain non-deductible costs (participation exemption). This calculation method means that no deduction is possible when the profits are insufficient or a company is in a loss position. Dividends that cannot be so deducted can be carried forward indefinitely. The remaining 5% is subject to corporate income tax. The participation exemption is computed on the basis of the dividends received, grossed up by the withholding tax (see section ). To be entitled to the participation exemption, the shareholder must hold a minimum participation of 10% of the capital in the subsidiary on the date of the dividend distribution or hold a participation with acquisition value of at least EUR 2.5 million. The shares must be held in complete ownership for a continuous period of at least 1 year. From 1 January 2010, Belgian banks or other credit institutions, insurance companies, brokerage companies and investment companies must also have a participation with a value of at least EUR 2.5 million (previously no participation requirement applied). In addition, the dividend-paying subsidiary must be subject to Belgian corporate income tax. Dividends from an intermediary company are not exempt, unless at least 90% of the dividends received by the intermediary would qualify for the exemption. This restriction does not apply to dividends from resident quoted companies. 3. Other Taxes on Income 3.1. Disguised commissions tax A special tax is due by companies on certain payments and fringe benefits that constitute earned income in the hands of the individual recipient if the payments are not properly documented. The special tax, the so-called disguised commissions tax, which is levied at the rate of 300%, increased to 309% by the 3% austerity surcharge, is, however, considered part of the corporate income tax regime Immovable withholding tax A levy on income from immovable property is imposed on deemed income from immovable property located in Belgium. Although called immovable withholding tax, this tax is levied by assessment and is a final levy i.e. the tax is not creditable against other income tax due. However, the immovable withholding tax is deductible as a business expense for corporate income tax purposes. The levy is computed as a percentage of the cadastral income, i.e. the annual rental value of the immovable property, which is generally estimated every 10 years (or in the absence of the estimation, it is subject to an annual indexation). The rate varies according to the region in which the property is located. For the Flemish region, the rate is 2.5% of the cadastral income. The rate is 1.25% for the Walloon and the Brussels regions. Municipal and provincial surcharges increase the effective rate to between 25% and 60% or more, depending on the municipality where the property is located Fairness tax From tax year 2014, large companies that do not pay corporate income tax due to the loss carry-forward (see section 1.5.) or the application of the notional interest deduction (NID; see section ) will be subject to a fairness tax on their distributed dividends. The tax applies to the accounting years ending between 31 December 2013 and 30 December Changes to the accounting year after 28 June 2013 will be disregarded. The tax is levied at a rate of 5.15% (5% plus the 3% austerity surcharge; see section ). The tax is due by the distributing company and cannot be shifted to the recipient of the dividends. The fairness tax is not deductible for corporate income tax purposes. The taxable base is generally the positive difference between the gross dividends distributed during the taxable period and the taxable profits (adjusted by certain dividend distributions). This amount is then multiplied by a coefficient including the following items: the amount of losses carried forward and the NID (the numerator) and the amount of taxable profits less tax-exempt value reductions, provisions and capital gains (the denominator). 4. Taxes on Payroll 4.1. Payroll tax There is no payroll tax Social security contributions The most important social security contributions payable quarterly by employers are the general and special contributions, which are levied on the employment income before tax. The employer s general contribution, which is levied at the total rate of 24.77%, consists of the following elements (for 2014): Contribution for Rate (%) Pension insurance 8.86 Health insurance 3.80 Sickness payments 2.35 Unemployment insurance 1.46 Child benefits 7.00 Vocational diseases 1.00 Labour accidents

8 From the first quarter of 2012, an additional levy of 1.5% is due on supplementary pension insurance contributions made by: employers for the benefit of their employees; or legal entities for the benefit of self-employed persons, if these contributions exceed EUR 30,000 per year (indexed annually). In addition, various special contributions apply, inter alia with regard to (temporary) unemployment, holiday pay, education leave and child care. Social security contributions are deductible business expenses for corporate income tax purposes. For the social security contributions payable by employees and the self-employed, see Individual Taxation section Taxes on Capital 5.1. Net worth tax There is no net worth tax Real estate tax There is no real estate tax. For tax on deemed income from immovable property, see section International Aspects 6.1. Resident companies A legal entity is a resident of Belgium if it has its legal seat, main establishment or place of effective management in Belgium Foreign income and capital gains Resident companies are subject to tax on their worldwide income and capital gains. Foreign dividends are, in principle, subject to a 25% withholding tax if received through a Belgian bank, other credit institution or other resident paying agent. However, in normal situations, the dividends are exempt from this tax, provided that certain formalities are complied with. From 31 August 2009, this exemption also applies to dividends derived by Belgian permanent establishments of companies established in EEA countries. The withholding tax remains chargeable on (1) dividends derived by resident investment companies from any nonresident company and (2) dividends derived by resident (ordinary) companies from non-resident investment companies. The participation exemption (exemption from corporate income tax) applies also to dividends derived from nonresident companies; for details, see section 2.2. For foreign dividends, the exemption is computed on the basis of the net amount received after the deduction of foreign withholding taxes. However, the following foreign dividends are not exempt: dividends from a company resident in a country whose tax rules are substantially more favourable than those of Belgium, which is deemed to be the case where the nominal tax rate or effective tax burden is below 15%. Companies established in an EU Member State are not affected by this condition; dividends from a company to the extent its income (other than dividends) has its source outside the state of its residence, if that income benefits from a special tax regime in that state; dividends from a company which derives its profits through a foreign permanent establishment subject to a considerably more favourable tax regime than the one that would apply to such profits in Belgium. This does not apply if Belgium has a tax treaty with the country of the permanent establishment or if the foreign tax actually paid on the profits of the permanent establishment is at least 15% (as computed by Belgian standards); and dividends from an intermediary company, unless at least 90% of the dividends received by the intermediary would qualify for the exemption. This does not apply to dividends from non-resident quoted companies that are resident in a country with which Belgium has a tax treaty and that do not benefit from a special tax regime. Dividends derived from non-resident investment companies, financing companies and treasury companies are excluded from the participation exemption to the extent that such companies benefit in their state of residence from a special tax regime (deviating from the general tax regime of that country). Safe harbour rules are applicable, however. Under the Belgian domestic law implementing the provisions of the EU Parent-Subsidiary Directive (90/435), 95% of dividends received from an EEA company can be deducted from the amount of the resident recipient s profits, in the manner described in section 2.2., provided that the shareholding qualifies under the Directive. Following the decision of the European Court of Justice in Cobelfret (C-138/07), the domestic law has been changed to the effect that the non-deductible part of the foreign dividends can be carried forward indefinitely. This law change currently applies with respect to dividends from EEA countries and from treaty countries (if the treaty contains a clause that dividends paid by the foreign subsidiary are exempt under the condition that the exemption would apply if both companies were resident in Belgium). Carry-forward is, however, not currently possible for dividends received from third countries. On 11 October 2012, the Constitutional Court decided in Agfa-Gevaert v. Belgian State (Case No. 5259) that the non-application of the carry-forward to third countries is compatible with the equality principle of the Belgian Constitution. Capital gains derived by resident companies on shares in non-resident companies are fully exempt, regardless of the level of participation. Correspondingly, capital losses on shares, except for liquidation losses, are not deductible. However, from tax year 2012 (assessment year 2013), the exemption only applies if the shares are held 132

9 Belgium for a minimum period of 1 year. Previously no holding period applied. The rate on these types of gains is 25.75% (including the 3% austerity surcharge). A liquidation gain may be exempt for 95%, under the same conditions as apply to dividends (see above) Foreign losses Companies with activities abroad can set off foreign losses according to a well-defined scheme: losses from a treaty country are set off first against income which is exempt in Belgium under a treaty (provided that it can be proved that the losses were not set off against foreign profits of the same foreign activity or against other foreign profits), second against income from non-treaty countries and finally against domestic income; losses from a non-treaty country are set off first against foreign income from non-treaty countries, second against income which is exempt in Belgium under a treaty and finally against domestic income; and domestic losses will be set off first against domestic income, and second against foreign income from non-treaty countries, and finally against income from treaty countries Foreign capital There is no net worth tax Double taxation relief Unilateral relief Relief from double taxation of foreign-source income may be provided in the form of an exemption, credit or tax reduction, depending on the type of income. Where taxable, foreign income is subject to tax only on its net amount, i.e. after deduction of expenses and foreign taxes. The general rule for foreign-source royalties and interest (and other income from movable capital), not derived through a permanent establishment abroad, is that they are taxed in Belgium for their net amount and a fixed foreign tax credit is granted if the income has been subject to a foreign income tax. For royalties, the fixed credit is equal to 15/85 of the net amount received. The income received is grossed up by the credit. For interest, the credit is equal to a fraction of which the numerator is equal to the foreign tax and the denominator is equal to 100 minus the rate of the foreign tax. In no case may the credit exceed 15/85 of the net amount received. The foreign tax credit is limited by a fraction of which the denominator is equal to the total ordinary gross income (excluding capital gains) and the numerator is equal to the same income minus related financial expenses. The income received is grossed up by the fixed credit. The foreign tax credit in respect of interest is only creditable in full if the underlying assets have been held during the entire financial year. If not, the credit is reduced proportionally. For foreign dividends, other than those attributable to a permanent establishment abroad, received from a company established in any country the only relief available is the participation exemption, which is subject to certain conditions (see section 2.2.). If the dividends are attributable to a permanent establishment abroad, they may also qualify for an exemption under treaty provisions. For dividends from non-resident investment companies, a fixed foreign tax credit of 15/85 may be granted, subject to certain conditions. Any unused part of the fixed foreign tax credit may not be carried forward. Also, no (partial) refund of the credit is granted Treaty relief The tax treaties concluded by Belgium usually provide for credit relief in respect of dividends, interest and royalties. Although under Belgian domestic law the foreign tax credit for dividends is limited to dividends from investment companies, credit relief is available where so provided under a treaty. With respect to other income, double taxation is avoided by the exemption with progression method Non-resident companies Companies, associations, establishments and organizations, whether legal entities or not, which have a legal form comparable to Belgian entities (see section 1.2.) and which do not have their legal seat, main establishment or place of effective management in Belgium, are subject to the income tax on non-residents Taxes on income and capital gains Non-resident companies are liable to the income tax on non-residents: on income and capital gains from immovable property in Belgium (including income from the creation or alienation of certain derivative property rights), whether or not connected with a permanent establishment in Belgium; on income from transactions conducted by foreign insurance companies that habitually sign assurance contracts (except for reassurance contracts) in Belgium, whether or not connected with a permanent establishment in Belgium; on business income derived from activities in Belgium; on income derived from an association in Belgium without legal personality (e.g. certain partnerships), whether or not connected with an establishment in Belgium; and on all income derived through a permanent establishment in Belgium, including foreign-source income connected with the permanent establishment. From tax year 2013 (assessment year 2014), services provided by one or more individuals for a period or periods exceeding 30 days in any 12-month period are regarded as a permanent establishment. 133

10 The computation of the taxable base for the income tax on non-residents is subject to the same rules that apply to the corporate income tax for resident companies. The tax rates for non-resident companies are the same as those for resident companies (see section ). Apart from tax treaty provisions, non-resident companies with a Belgian permanent establishment are granted the same unilateral relief with regard to foreign income as resident companies. Unless a treaty provides otherwise, the system of withholding taxes (see section 6.3.) and the immovable withholding tax (see section 3.2.) also apply to non-resident companies. If the company is liable to the full income tax on non-residents, the withholding taxes are credited against this tax in the same way as for the corporate income tax of residents. In addition, Belgian permanent establishments of non-resident companies are entitled to credit against corporate income tax due on their other income any Belgian withholding tax on dividends received from resident companies if the dividends qualify for the participation exemption (see section ). Non-resident companies are subject to the immovable withholding tax (see section 3.2.) on their immovable property located in Belgium Taxes on capital There is no net worth tax Administration The income tax on non-residents is subject to the same rules that apply to the corporate income tax for resident companies Withholding taxes on payments to nonresident companies Income derived by non-residents, other than income subject to the income tax on non-residents (see section ), is taxed by way of a final withholding tax. For rates under tax treaties, see section Dividends Dividends paid by resident companies to non-resident shareholders are generally subject to withholding tax at a rate of 25%. In 2012, the rate was 21% for certain categories of dividends (e.g. dividends from shares issued to the public after 1993 to attract private savings). The rate is reduced to 10% if the dividends result from a (partial) redemption of shares. With effect from 30 September 2014, the withholding tax on these dividends will increase to 25%. With effect from 1 January 2012, the rate for income derived from a share buy-back is 25%. From 1 January 2007, no withholding tax is levied on dividends paid to a parent company that is resident in a country with which Belgium has an effective tax treaty (including all EU Member States and Switzerland) and that has held at least 10% of the capital of the subsidiary continuously for at least 1 year. Furthermore, the non-resident company must be subject to corporate income tax, or a similar tax levied at the rate of at least 10%. A Circular of 23 June 2011 clarifies that the subject-to-tax test is not met if an entity in its country of establishment is not subject to corporate income tax or a similar tax, but to another specific tax even if the amount of tax due is comparable with the amount that would be due under the corporate income tax. A provisional exemption from withholding tax is granted where shares have not been held for at least 1 year when the dividends are distributed. Under the law implementing the provisions of the EU Parent-Subsidiary Directive (90/435), there is no withholding tax on dividends paid by resident subsidiaries to their parent companies resident in EU Member States if: the subsidiary and the parent have one of the forms listed in the Directive and are subject to a corporate income tax listed in the Directive with no possibility of opting for taxation or of being exempt; the parent company holds at least 10% of the capital of the subsidiary; and the parent s minimum shareholding has been held continuously for at least 1 year. A provisional exemption from withholding tax is granted where shares have not been held for a period of at least 1 year when dividends are distributed. A Circular of 23 June 2011 clarifies that the exemption does not apply to entities which do not have one of the legal forms listed in the Annex to the Directive, even if such entity is established in an EU Member State with which Belgium has signed a tax treaty providing for exchange of information. By virtue of the EU-Switzerland Savings Agreement, Belgium exempts dividend payments to Swiss companies under essentially the same conditions as those of the EU Parent-Subsidiary Directive before the amendments effective from 1 January 2005; thus, a minimum holding of 25% for at least 2 years is required. However, since Belgium has an effective tax treaty with Switzerland providing for exchange of information, the more beneficial general exemption is also applicable Interest Interest payments to non-residents are subject to withholding tax at a rate of 25% (21% in 2012 and 15% before). The following types of interest paid to non-resident companies are exempt: interest on deposits with resident banks; interest on registered bonds issued by resident banks; interest on registered government bonds and loans (issued or guaranteed by the state, a province or a municipality); and interest on registered corporate bonds. Finally, interest paid by a Belgian financial institution or professional investor (i.e. a company or a permanent establishment) to a financial institution established in an EEA country or in a country with which Belgium has a tax treaty is exempt. 134