On 26 July 2017, the federal government of Belgium announced a major tax reform for the 2018 budget. The reform will take place in two steps, in 2018 and 2020 along with several major changes.

Corporate income tax rate

The rate of corporate income tax would be gradually reduced. Currently, the normal rate is 33.99%,  and this will be reduced to 29% in 2018 and 2019, and will further reduce to 25% in 2020.

Small and medium-sized enterprises will be entitled to a reduced tax rate of 20% as of 2018 on that part of the taxable profit not exceeding 100,000 EUR, otherwise a 25% tax rate will apply under the current rules.

Surcharge

The rate of surcharge will be reduced from 3% to 2% in 2018 and will cease to apply from 2020.

Tax exemption on capital gains

If certain conditions are satisfied, companies will benefit from a full tax exemption on capital gains realized on shares. This tax exemption will apply if share participation is held for at least 1 year and amounts to at least 10% or has a value of at least 2.5 million EUR.

If these conditions are not met the capital gain will be subject to 25.5% tax from 2018 and 25% from 2020. The 0.412% tax on capital gains on shares will be eliminated and the participation exemption for dividends remains at 95%.

Consolidation

Starting from 2020 a fiscal unity will be introduced for corporate income tax purposes. As a result of such fiscal unity the tax results of the various companies that are part of the same group will be consolidated for tax purposes, and will lead to one unified tax result for the entire group.

Notional interest deduction:

At present the Notional Interest Deduction (NID) applies to the full adjusted equity. From 2018, the NID will only apply to incremental adjusted equity in excess of the average equity of the past 5 years.

Tax credit for start-up companies

Start-up companies will be subject to tax credit up to 30% for a period of 4 years.

Innovation deduction

Income which qualifies for the new innovation deduction will be subject to tax at an effective tax rate of only 3.75% in 2020.

Exemption of wage withholding tax

Scientific research staff of master or PhD level will be entitled to 80% exemption of payment of wage withholding tax and this exemption will be extended gradually to staff with a bachelor’s degree.

Limitation of tax deductions

The carried forward tax deductions will be limited to the taxable profit below 1 million EUR and 70% of the taxable profit in excess of that amount.

Investment deduction

Sole proprietors and the SME sector will receive an increased investment deduction, raised from 8% to 20%.

Risk provisions

Provision for risks and charges will only be subject to tax deduction if at the end of the taxable year an ‘obligation to pay’ actually exists.

Prepayments

The interest rate to compute the penalty for inadequate prepayment of the corporate income tax is increased to 3%.

Anti-Tax Avoidance Directive/CFC

The measures of the Anti-Tax Avoidance Directive (ATAD) will be transposed into Belgian domestic law, namely the interest limitation rule, the CFC rules, the exit tax and the rules on hybrid mismatches. The CFC rule would enter into force as from assessment year 2020 linked to a taxable period that starts at the earliest as from 1 January 2019.

Depreciations

The double declining balance method for depreciation will be discontinued and for the SME sector a pro-rata depreciation method will be applicable as of 2020.

Permanent establishments

The permanent establishment (PE) definition will be extended according to the recommendations of BEPS action plan 1 and 7 as of 2020. Losses of foreign establishments will only be tax deductible in Belgium if in the country of the PE the compensation for the losses is permanently ‘lost’.

Secret commissions tax

As of 2020, the special 50% rate on secret commissions will be eliminated and the secret commissions tax will be considered as a disallowed expense.