Laws, bills and new plans
Yesterday, 30 June 2013, the government reached an agreement on new budgetary measures for the second half of 2013 and for the following years.
Only last week, a new law containing miscellaneous tax provisions was published in the Belgian Offical Gazette and a new bill of program law was approved by the Chambre of Representatives.
What is law today and what will be law tomorrow ? … an overview.
Bill of program law approved
A bill of program law was adopted in the House of Representatives on 27 June 2013 (please click here for the full text of the adopted bill).
The withholding tax on liquidation bonuses increases from 10% to 25% as from 1 October 2014.
However, companies will be given the opportunity until 30 September 2014 to distribute their reserves included in the last annual accounts approved before 1 April 2013, at a tax of 10%, provided the distributed reserves are immediately contributed into the statutory capital of the company. This part of the capital will be treated as fiscally paid-up capital when it is retained within the company for at least 8 years (4 years for SME’s) after its contribution, thus not giving rise to withholding tax upon any later distribution to the shareholders. In case of a capital reduction before the end of the applicable period, an additional tax will be due on those reserves, the rate of which depends on the time between the contribution into capital and the distribution (please click here for an overview of the rates of the additional tax).
It should be noted that the amount of the existing reserves that can be distributed and incorporated in the capital of the company is limited. The legislator takes into account the dividend policy applied during the 5 prior years in order to avoid companies excessively resorting to this transitory regime instead of distributing profits as usual. The Explanatory Memorandum to the bill contained examples of how this is applied (click here).
This rule encourages equity funding of Belgian companies but seems in first instance to affect SME’s held by individual shareholders since in a group context in case of liquidation, an exemption of withholding tax can often be claimed.
It is expected that a number of taxpayers will decide to liquidate their company before 30 September 2014. By liquidating the company before that date, the accrued profits of 2012 until September 2014 (33 months in total) are subject to a 10% tax rate. As of 1 October 2014, the rate is 15% higher on the same profits during 2 years.
Taxpayers considering liquidating their company should be reminded that the legislator made company law simplifications to the liquidation procedure in 2012.
Reduced dividend withholding tax for SME
A reduced dividend withholding tax rate will apply for dividend distributions by SME’s on newly issued shares as from 1 July 2013 provided the shares are held in full ownership for more than 2 years. This applies both to capital increases and to incorporations of new SME’s.
Dividends from nominative shares issued as from 1 July 2013 in exchange for a contribution in cash into SME’s will only be subject to the 25% withholding tax in the first two years. Provided the shareholder holds on to the full ownership of the shares, the withholding tax due on the dividends from these shares will drop to 20% in the third year and to 15% as from the fourth year.
Roll-over measures for the holding period requirement apply to the following types of alienation of the shares:
- The transfer of the shares between spouses or to a descendent or ascendant as a result from a donation or an inheritance;
- The exchange of shares in the framework of certain tax-neutral restructurings.
Moreover, the shares are deemed not to have been transferred for the application of the full ownership requirement in case of a transfer due to an inheritance by law (“wettelijke erfopvolging/succession dévolué légalement”) or a division between ascendants (“ascendentenverdeling/partage d’ascendant”).
It should be noted that this beneficial treatment only applies to contributions in cash and not to contributions in kind. The capital increases must be paid-up in full and no preference shares may have been issued by the distributing company. The reduced rate will not apply to capital increases to the extent of capital decreases performed as from 1 May 2013 by the same company or by a connected or associated company in the sense of the articles 11 and 12 Companies Code.
Exlusion of DRD-entitled shares from NID-basis
The computation basis for the notional interest deduction will be further reduced by the exclusion of shares that are not accounted for as financial fixed assets but as treasury investments (“geldbeleggingen/placements de trésorerie”), when the dividends on these shares already qualify for the dividends received deduction. This way, the application of both the dividends received deduction and the notional interest deduction for the same shares is excluded. The current legislation already provides for the exclusion of the shares recorded as financial fixed assets and the shares in investment companies of which the dividends qualify for the dividends received deduction.
This applies as from tax year 2014.
- The registration duty on the establishment of long lease rights and superficie on real estate increases from 0.2% to 0.5% for nonprofit organizations and to 2% for other taxpayers (as from 1 July 2013).
- The fixed registration duty increases from EUR 25 to EUR 50.
- The excise duties on tobacco increases as from 1 July 2013.
Law containing miscellaneous tax provisions published
The law of 17 June 2013 containing miscellaneous tax provisions was published in the Belgian Official Gazette of 28 June 2013. This law provides (among other) for:
- The increase of the attractiveness of some of the incentives for research and development;
- The modification of the calculation of the NID rate;
- Changes to the tax shelter regime;
- A clearer legal framework relating to the exceptions to the secret commissions tax.
Moreover, there are miscellaneous measures in the field of personal income taxation, value added tax, tax procedure and miscellaneous taxes.
For more details on these measures, we refer to the Tax Alert of 21 May 2013 regarding the adoption of this law (please click here for the full text of that Tax Alert).
Yesterday’s governmental agreement
This morning the government presented the results of the new budgetary agreement, concluded yesterday night.
The key points of this agreement are:
- Decrease of the salary costs for SMEs (via the withholding tax on salaries);
- Introduction of the Fairness Tax : companies that in a certain year do not effectively pay corporate tax (due to losses carried forward or the application of notional interest deduction) but that nevertheless pay dividends for that year, will be subject to a 5% tax rate applied on the amount of those dividends. The measure would only be applicable for large companies. Moreover, in as much as the profits are exempted due to investment deduction or the patent box deduction, this tax will not be due.
- A general increase of the excises but not on fuels
- Association of communes (so-called intercommunales) will become subject to some kind of income tax;
- Taxation of capital gains on shares in investment funds (bevek/sicav) investing more than 25% in debt instruments: currently this was only the case for investment funds with a European passport.
- Withholding tax on Belgian dividends received by Belgian investment funds (bevek/sicav) can no longer be set of against the corporate tax.
- Abolition of the VAT exemption for lawyers;
- Increase of the crisis tax for financial institutions (abonnementstaks/taxe d’abonnement);
Our specialists are currently preparing a more detailed alert on these new proposals.
The Belgian government continues with continuously imposing tax increases.
The transitory regime for the increase of the withholding tax on liquidation bonuses is very complex and requires taxpayers to trust that the system will be maintained over a period of 8 years (4 years for SME’s). Since this period is very long in a time of budgetary restraints in which the government continues to look for additional income in the form of taxes, many entrepreneurs may choose for the certainty of tax treatment of the immediate liquidation prior to 1 October 2014.
Ernst & Young Tax Consultants will follow-up on further developments and inform you via our Tax Alerts.