Belgium - Agreement on 2013-2014 budget
On 30 June 2013, the government reached an agreement on new budgetary measures for 2013 and 2014, including . Once again, the budgetary exercise involves a range of new a number of additional taxes and tax increases.
More details have become available on many of the measures that have been agreed upon, although the information below is based on preliminary proposals and it cannot be excluded that certain elements will have changed in the final Bill. The additional measures were required to keep the original 2013 budget on track, even after the recent Program Law (gazetted on 1st July) and the law of 17 June 2013 containing miscellaneous tax provisions (published in the Belgian Official Gazette of 28 June 2013).
The government introduces an additional tax for non-SME (as defined in article 15 of the Belgian Company code) on the occasion of a dividend distribution. The taxable base is determined by the difference between the amount of distributed dividends and the final taxable result that has effectively been subject to tax in the course of the same taxable period. In a next step, the additional taxable base is reduced by the amount of taxed reserves that have been retained prior to (calendar) year 2013 and are included in the dividend distribution. Finally, the resulting amount is reduced by a factor :
- the numerator of which is the final taxable result that has effectively been subject to tax increased by the applied notional interest deduction and loss carried-forwards;
- the denominator of which is equal to the taxable result following the first operation of the calculation of the normal corporate income tax liability, which is more or less equivalent to the operational income.
As a result of this factor, the redistribution of profits that have benefited from the dividend received deduction, notional interest deduction, and exemption regimes for foreign branch and real estate income will decrease the proportionality factor and, thus, reduce the taxable base for the additional fairness tax assessment. On the other hand, these types of exempt income are only partially excluded from the additional ‘fairness’ tax basis and are, arguably, no longer fully exempt from Belgium income taxation.
The fairness tax of 5,15% applies to resident companies and an equivalent form of taxation is introduced for corporate taxpayers subject to the non-resident income tax. SMEs will not be subject to the tax.
|‘Operational’ result (following the first operation)||1600|
|Dividend received deduction||300|
|Notional interest deduction||800|
|Final taxable result(code 112)||450|
|‘Ordinary’ CIT assessment||150|
|Basis additional tax assessment||150||600 dividends – 450 final tax base|
|Proportionality factor or percentage of the profits derived from non-exempted income||81,25%||(450 + 50 + 800) / 1600 = 1300 / 1600|
|Additional "Fairness" Tax assessment||6,28||5,15% x 81,25 % x 150|
The minimum tax will not be deductible and will have to be taken into account in the calculation of the tax prepayments under the penalty of tax increases for insufficient prepayments. The ‘fairness’ tax measure will apply as from tax year 2014. Changes made to the accounting year of a company as from 28 June 2013 can be ignored by the tax authorities for the purposes of this measure. Objections have already been raised against this additional ‘fairness tax’ from an EU law perspective. In situations where the Parent-Subsidiary Directive applies, the new tax may be prohibited for two distinct reasons. First, it is a type of ‘source taxation’ because the tax is only due upon a dividend redistribution and the amount of the tax is commensurate with the amount of the dividend distribution. Second, as the proportionality factor only partially excludes dividends received from the its calculation basis, the additional fairness tax also leads to a partial taxation of dividends received while the Parent-Subsidiary Directive requires that these are exempt.
Dividends received deduction
In order to apply the dividend received deduction (Belgian participation exemption), the Belgian shareholder had to own at least 10% of the share capital in the distributing entity or shares in the distributing entity with a total acquisition value of at least EUR 2.5 million. The latter may be abolished and as a result a 10% shareholding threshold will be required to apply the Belgian dividend received deduction (aside from other conditions).
Payroll tax exemption for SME
As from 1 January 2014, SME and individuals/employers will be granted a payroll tax exemption for a total worth of EUR 50 million. This measure is portrayed as a counterpart measure for the fairness tax aiming to stimulate SME.
Investment companies will no longer benefit from a withholding tax exemption for Belgian-source dividends received and will not be entitled to a credit or refund of this withholding tax. However, a withholding tax exemption will be introduced for investment companies that establish a compartment exclusively for pension funds. The withholding tax exemption will be restricted to that compartment.
Moreover, as from 1 July 2013, capital gains on investment funds not having a EU passport, investing more than 25% of their funds in debt instruments will no longer be exempt in personal income tax but will become subject to the general 25% withholding tax. This will also apply to a certain extent (still to be determined) to the past on a lump sum basis.
Increase of the bank tax
The tax on the savings accounts of banks (abonnementstaks/taxe d’abonnement) will increase in order to generate an additional EUR 40 million of revenue.
Association of communes (intercommunales)
The tax rate on dividends distributed by intercommunales (mentioned in article 225, 6th indent ITC 1992) will increase from 15% to at least 25%.
VAT for lawyers
Services performed by lawyers become subject to VAT at the normal 21% rate as from 2014. On the other hand, lawyers will become entitled to the deduction of input VAT.
- The maximum amount for the non-recurring result-tied bonuses will be aligned with social security law and increased to EUR 2,695;
- The tax reduction for service vouchers will be capped at EUR 1,350 per taxpayer per year;
- Excises on tobacco will increase;
- The excise rate will be actualized (except for excises on fuel and diesel);
- The excise quota applicable to diplomatic staff will be reduced;
- The use of datamining will be stimulated;
- Accomplices to fraud will be tackled harder;
- A notification procedure and more transparency relating to off-shore operations will be introduced.
The proposed changes might require a review of the tax position of many companies in Belgium in order to assess their actual impact. EY will follow-up on further developments and will further inform you about changes as more details become available.