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A new bill of Program law was submitted to the Belgian Parliament on 27 May 2025 (NL FR), containing various tax and financial provisions already announced in the Arizona Government Agreement in February.
Not all measures from the Government Agreement have been included in this draft Program law. Measures related to personal income taxes, such as real estate taxation, hybrid cars, the special tax regime for inbound taxpayers and researchers will be addressed in separate legislation covering these various tax measures. Additionally, separate legislation introducing a capital gain tax is being prepared, with government parties working out the specific details. Further information will be provided once the draft law is submitted in parliament (read our Tax alert).
This alert highlights key measures in the draft Program law. Some of these measures will be detailed in separate alerts. Note that, since this is draft legislation, provisions can still be amended during the legislative process.
No increased thresholds to qualify for the dividend received deduction regime
Despite previous communications, the quantitative thresholds to qualify for the dividend received deduction, will remain the same and will not be increased. The 10% participation or 2,5 million Euro acquisition value to qualify for the participation exemption remain in place and the 2,5 million EUR will not be increased to 4 million EUR. However, a new qualitative threshold is introduced when the participation is below 10% but above the 2,5 million EUR acquisition value. Such participations will only qualify for the dividend received deduction if they qualify as “fixed financial assets”. This new condition is however not applicable for shareholders that are “small” companies.
Introducing a new condition of ‘fixed financial asset’ for medium and large Belgian companies - irrespective of the size of the company held - makes the application of the DRD regime becomes more stringent. This new requirement would already apply as from assessment year 2026. Any change to the closing date of the income year after from February 3, 2025, not motivated by reasons other than tax avoidance, will be disregarded.
The parliamentary preparatory works further clarify, by reference to accounting law, which assets can be defined as financial fixed assets, including some specific references for banks and insurance companies.
The same condition has been introduced for the withholding tax exemption applicable to dividends paid to certain foreign corporate shareholders holding a participation below 10% (i.e. the so-called Tate & Lyle exemption included in article 264/1 ITC92). This measure takes effect on July 1, 2025. Given the direct reference in article 192 ITC92 (exemption capital gains on shares) to the conditions embedded in article 202 ITC92 (participation exemption dividends), the abovementioned changes would equally apply to capital gains on shares.
No conversion yet of the dividend received deduction regime into an exemption.
The current Belgian dividend received deduction on qualifying dividends is in fact a deduction of a company’s taxable income basis which does not lead to the same outcome as a full exemption of income.
Although it was originally the intent to replace the deduction by an exemption, this change is according to the parliamentary preparatory works still anticipated but delayed in time as it requires some more technical adaptations of the corporate income tax rules.
Exit tax on migrations and beyond
Although the original intent of the governmental agreement was to treat an emigration of a company as a deemed liquidation for tax purposes, offering a basis for levying withholding taxes, it appears that the legislative change went beyond this intention with a different technical twist
For emigrations, our Belgian income tax code (article 210, § 1, 4° ITC92) already provides for a deemed realization and liquidation fiction when a company relocates its registered office abroad. As a result, the actual value of the company's assets on the date of relocation is treated as a distributed dividend subject to corporate tax unless and to the extent a Belgian permanents establishment remains in place for EU migrations. However, due to the wording of the current article 18, first paragraph, 2°ter, ITC92, there was no clarity on whether this tax fiction also extended to the shareholders of the emigrating company, which would allow them to also be taxed on dividends that were (fictitiously) received by them on the date of the transfer.
To fill this perceived gap in legislation, a new section was added to article 18 ITC92. The new article 18, first paragraph 2° quater creates a group of fictitious dividends. However, this provision is not limited to emigration but can also apply to (cross-border) mergers/demergers, and equivalent transactions.
Since in the case of a fictitious dividend there is no actual distribution of income, there can, as stated by the legislator, be no withholding tax. For this reason, shareholders must declare the dividend in their tax return. It will be up to the distributing company to inform the shareholders of this dividend through a new form. In the absence of such a form, a separate assessment will be levied at the level of the distributing company.
Since the legislator wants to extend the same consequences to corporate shareholders, article 202 ITC92 is also revised accordingly. Thus, for a corporate shareholder, the fictitious dividends will also constitute taxable income that, if the conditions are met, can benefit from the DRD regime.
Since the value represented by the fictitious dividend can later actually leave the company through an actual dividend, a later exemption is provided in order to avoid double taxation. Whether and how the technical implementation of this exemption can be reconciled with the broad scope (e.g., if the company has migrated, how can this be monitored, etc.) remains to be further examined.
Finally, within an EU context, immediate or deferred payment of this new levy (cf. the exit tax) is provided for. The entry into force is foreseen for transactions as of July 1, 2025.
Harmonization of VVPRbis regime and liquidation reserve
As part of the governmental agreement, it was the intention to harmonize both regimes resulting in a waiting period of three years before dividend distributions qualifying for the regime can be made at a combined effective tax rate of 15% (instead of 30%).
In order to align the existing 'VVPR-bis' system with the renewed liquidation reserve, various modifications were made to the tax rates. For a dividend distribution in the second year (if the contribution was made by December 31, 2025, at the latest), the reduced withholding tax rate of 20% would continue to apply. However, for a dividend distribution in the second year (if the contribution occurred after December 31, 2025), a 30% withholding tax rate would apply. From the third fiscal year onward, the rate would continue to be 15%.
To align the liquidation reserve with the VVPR-bis system, the waiting period for benefiting from the full extent of the withholding tax reduction has been reduced from five years to three years.
Taxpayers who will form liquidation reserves on December 31, 2025, at the latest will have the choice to opt for either the 5 year or 3-year regime. In return, the final withholding tax due upon distribution would then be 6,5% (3-year regime) versus 5% (5-year regime). Distribution prior to the elapsing of the waiting period will be taxed at 20% (on top of the already existing anticipatory tax of 10%).
This new regime would be applicable for dividends paid or allocated as from July 1, 2025. Based on the current wording of the parliamentary preparatory works, it cannot be excluded that further reforms would be imminent as part of phase 2.
Specific financial provisions
Annual tax on securities accounts
The Tax on securities accounts remains 0,15% annually for securities accounts with an average value exceeding EUR 1 million. The draft Program Law keeps the rate and threshold, but introduces a new specific anti-abuse rule. The newly proposed specific anti-abuse rule now incorporates a refutable presumption of abuse in specific defined cases whereby the value of the taxable financial instruments on the securities account reaches the threshold value of EUR 1 million.
To ensure the correct application of the SAAR, Belgian intermediaries and responsible representatives (for foreign securities accounts) must notify targeted transactions to the tax authorities ultimately by the last day of the month following the end of the relevant reference period. For the first time, the notification will be due by October 31, 2025.
Further details on the anti-abuse rule and notification requirements are available in our Tax alert.
Carried interests
The draft Program law introduces a specific taxation regime for “carried interest” income received by individual investors.
Carried interest is often attributed in the investment fund industry where profits are distributed via a “waterfall” method. Passive investors share profits proportionally whilst fund managers may receive a disproportionate profit share depending on the return on investment, called ‘carried interest’.
Carried interest has characteristics of different types of income, leading to regular disputes about its qualification and treatment for personal income tax purposes. The draft legislation now proposes introducing a specific taxation regime for carried interest. Carried interest will be taxed as a movable income at a rate of 25 pct.
The new rules will enter into force on the publication date of the Program Law in the Belgian Official Gazette and will in principle apply to carried interest paid or granted from that date. However, the draft Program Law includes several exceptions.
A more detailed tax alert will elaborate on these new rules.
Changed VAT rates
New permanent 6% VAT rate for demolition and reconstruction
The Draft Program Law introduces a significant measure that has substantial implications for the real estate sector, particularly concerning demolition and reconstruction projects. This legislative initiative aims to support the sector by making the sale of new private dwellings in demolition and reconstruction projects also eligible for a 6% VAT rate as from July 1, 2025 (i.e. for VAT due from 2025 onwards).
Exclusion of the 6% VAT rate for environmentally unfriendly heating systems in renovation and demolition and reconstruction projects
The 6% VAT rate for renovation or demolition and reconstruction of private dwelling will no longer cover the delivery and installation of (a portion of) the components that are elements of the specific part of a central heating system that operates on fossil fuels, including the combustion boilers as well as the regulation and control devices connected to the boiler.
These new VAT regulations take effect on July 1, 2025. It is essential to consider the timing of VAT liability in this context.
Further details regarding VAT changes in the draft Legislation will be communicated in a separate alert.
Procedural measure - No application of a 10% tax increase in case of a first offense and good faith
The current legislation provides that a tax increase between 10% and 200% applies in case of a failure to file a tax return, a late return or an incorrect or incomplete return. The applicable tax increase depends on the nature and severity of the offense and the number of corrections incurred during the four previous assessment periods. As a deviation to this rule, the tax authorities can waive a tax increase of 10% in case of a first offence without bad faith.
The draft Program Law reverses this principle. In case of a first offense, a refutable presumption will apply that the taxpayer acted in good faith and therefore no tax increase applies in principle. If the tax authorities wish to impose a 10% tax increase, they must refute this presumption of good faith. Note that this refutable presumption of good faith will not apply in the case of an ex officio tax assessment.
The amended legislation will apply to assessments enrolled as of July 1, 2025.
Other proposed measures, already included in the draft Program law:
- Changed “embarkation tax” rates;
- New regularization procedure
Action points:
Please consult our dedicated Tax reform website to stay up-to-date about the legislation process and all EY initiatives that will be organized in this respect. For questions regarding the discussed points, you can also contact your usual EY contact.