Tax alert: Belgian budget control 2013:
Government agreement on additional tax measures
On 29 March 2013, the Belgian government Di Rupo I reached an agreement on additional budget and recovery measures in the framework of the 2013 budget control. The one billion EURO structural budgetary exercise consists of 2/3 in additional savings and 1/3 in taxes.
The following tax measures have been agreed upon:
- The withholding tax on liquidation bonuses will increase from 10% to 25% as from 1 October 2014.
- However, in order to strengthen their equity, companies will be given the opportunity until 30 September 2014 to convert their reserves into a capital reserve. Such a conversion will be taxable at a rate of 10%. This capital reserve will be treated as fiscally paid-up capital when it is retained within the company for at least 5 years after the year of its creation, thus not giving rise to withholding tax upon any later distribution to the shareholders, nor to capital gains tax upon the transfer of the shares of the company by the shareholder/company director, since such capital gains on shares are – in principle – exempt in personal income taxation. Also, no tax will be due when the company is taken over by the spouse of the shareholder/company director, or by one or more of his-her heirs in the direct line.
In case of the liquidation of the company within this 5-year period, the liquidation bonus would become subject to a 15% withholding tax in the first two years as from the creation of the capital reserve, to a 10% withholding tax in the third year and to a 5% tax in the fourth year. It should be noted that these decreasing withholding tax rates and transition periods have been put forward provisionally, pending later confirmation. Taxpayers considering liquidating their company should be reminded that the legislator made company law simplifications to the liquidation procedure in 2012.
This rule encourages equity funding of Belgian companies. Although the currently available information is not clear about the exact scope, this rule seems in first instance to be meant for SME’s held by individual shareholders since in a group context an exemption of withholding tax can often be claimed.
- A reduced dividend withholding tax rate will apply for dividend distributions by SME’s on newly issued shares provided the shares are held for more than 2 years.
Dividends from shares issued as from 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 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.
- 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 treasure 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.
- The registration duty on the establishment of long lease rights on real estate will increase from 0.2% to 0.5% for nonprofit organizations and to 2% for other taxpayers.
- The excise duties on tobacco will increase.
- The fixed registration duty will increase from EUR 25 to EUR 50.
For the budget control the government also took into account the new VAT circular on company cars (on VAT deductibility providing 3 options), that will be applied vigorously.
Proposed measures that have not been withheld, include:
- The increase of the VAT rate (from 12% to 13% and from 21% to 22%);
- The application of VAT to lawyers;
- A minimum tax for corporate income tax purposes;
- The application of the corporate income tax regime to “intercommunales”.
At this time, only the basic principles have been agreed upon. The measures will now have to be translated into legislative texts. As additional information becomes available, we will provide you with more details in our future alerts and in our upcoming seminars and/or webcasts.
EY Tax Consultants can assist you with assessing the impact of these new measures on your business and help you with possible actions to take.