BELGIUM: TAX AND INVESTMENTS INCENTIVES FOR HOLDING COMPANIES
- Notional Interest Deduction (NID)
Belgian companies and branches of foreign companies can reduce their taxable income with the fictitious interest cost on their net equity.
Net equity means paid-in capital and reserves, as reported in the Belgian annual accounts, minus certain adjustments, such as shares booked as financial fixed assets and assets and liabilities allocated to a tax exempt foreign permanent establishment.
The NID rate is fixed at 3.442% for tax year 2007 and 3.781% for tax year 2008.
The NID has entered into force as from tax year 2007 (financial years ending 31 December 2006 onwards) and will certainly create multiple planning opportunities (e.g. Cash pooling, Intra-group financing, etc …).
- Dividends Received Exemption
95 % of the amount of dividends received by a Belgian company is exempt. However, no tax credit is granted for foreign taxes.
In order to benefit from the dividends received exemption, the parent company must own (at the time of the payment of the dividend) a participation of at least 10% of the share capital of the subsidiary or a participation with a purchase value of at least 1,200,000.00 EUR. The minimum participation requirement is not applicable to dividends received by insurance companies, financial institutions, stock exchange companies and investment companies, and to dividends distributed by investment companies.
The dividends must also relate to shares that have been held or will be held in full ownership for an uninterrupted period of at least one year and that have the nature of financial fixed assets.
Finally the subsidiary must meet the subject to tax requirement, which means that it must be subject to a “normal” tax regime.
- Exemption of Capital Gains on Shares
Capital gains on shares are fully exempt, if the subsidiary meets the subject to tax requirement.
Write downs and capital losses on shares are not tax deductible, with the exception of capital losses realised upon the liquidation of the subsidiary and to the extent that effectively paid up capital has been lost.
- Withholding Tax Exemptions on Outbound Dividends
Standard withholding tax rate on dividends amounts to 25%, or 15% under certain conditions.
Most tax treaties reduce these rates to between 0% and 15%.
Dividend distributions are exempt from withholding taxes provided the recipient company is located in the EU, both paying and recipient company have one of the corporate forms listed in the annex to the EU Parent - Subsidiary Directive and a minimum participation of 15% is or will be held for a minimum holding period of one year.
A domestic tax exemption extends the exemption under the EU Parent-Subsidiary Directive between the 25 EU-countries to all countries worldwide that have concluded a double tax treaty with Belgium. A more or less similar exemption applies to dividends paid to Swiss corporate shareholders.
- Interest and Expenses Deduction
Provided that the interest is not paid to a beneficiary that is not subject to income tax, or which benefits from a beneficial tax regime, and provided the interest rate is at arm’s length, the interest paid for financing acquisitions of shares is deductible from any taxable income of the holding company.
Other professional costs (i.e. management fees and such) are generally deductible, if their substance can be proven.
- Withholding tax Exemption on Interest and Royalty Expenses
Under domestic legislation, Interest-Royalty Directive or tax treaties, interest and royalties are mostly exempt from withholding tax.
- Capital duty exemption
Setting up a Belgian company or increasing its share capital are not subject to capital duty.
- No CFC-rules
No general CFC or thin capitalization rules exist. In some areas however, specific anti-abuse measures may apply.
- Advance Ruling Practice
The Belgian ruling practice has recently been further enhanced. The Belgian Ruling Authorities have now adopted a more economic approach, in order to find solutions for issues a taxpayer is confronted with. As a consequence, all taxpayers may request an “advance ruling” based on which the Belgian Ruling Authorities determine how the tax law shall be applied to a particular situation or specific transaction that has not yet taken effect from a taxation point of view, thus providing ‘comfort’ to the taxpayer. A ruling can be requested for any tax matter and a decision is normally valid for 5 years.
- R&D Tax Incentives
Companies making qualifying investments in research and development of new (ecological) products and technologies, energy saving investments and patents can benefit from an investment deduction of up to 21,5% of the investment cost or alternatively from a corresponding tax credit. The unused investment deduction can be carried forward without time limits. The unused tax credit can be carried forward for four years and be refunded after five years.
Companies employing qualified researchers are allowed to only pay 50% of the researchers salary tax, thus considerably reducing total employment cost.
- Unlimited Tax Loss Carry Forward
Former and current year tax losses incurred by a Belgian company can generally be carried forward without any limits in time or amount, this in order to be offset against future taxable income.
However, restrictions may apply in specific situations (i.e. if there is a change in the control of the company, a merger, a contribution or a disallowed transfer pricing). In order to exclude this risk in such a situation, an advance ruling can be requested (see below).
- Expatriate Tax Incentives
In order to reduce the employment cost for foreign expatriates, thereby encouraging multinational companies to transfer their employees to Belgium, the Belgian tax authorities introduced a special tax regime for executives and specialists. Provided that both the employer and the employee meet the qualifying conditions for the special tax regime, certain beneficial tax rules will apply.
Given the fact that qualifying expatriates will be considered as Belgian non-residents, they are only taxed on their Belgian source income. Although expatriates are required to declare their worldwide earned income in Belgium, they will not be taxed on the part of their remuneration corresponding to the number of days worked abroad (i.e. travel exclusion). In addition, expatriates will not be taxed on allowances and reimbursed expenses paid to cover the cost of their assignment to Belgium (i.e. costs proper to the employer). Tax-free reimbursement of school fees and non-recurring costs such as moving and installation costs is unlimited taking into account certain conditions. Reimbursement of recurring expenses, such as cost of living allowance, housing allowance, tax equalization and home leave is limited to 11,250.00 EUR or 29,750.00 EUR, depending on the nature of the assignment (i.e. limited tax free allowances).
conclusion: Belgium is an excellent location for Holdings, International headquarters, (intra- group) financing companies and research facilities
Above mentioned measures, especially the dividends received exemption, exemption of capital gains on shares , the generous withholding tax exemptions and the tax treaty network make Belgium an excellent holding company residence.
The Belgian tax law provides multinational organizations with a tax effective vehicle to structure and centralize their investments in Belgium by incorporating a holding company in Belgium. This regime is applicable to holding companies sensu stricto and operational companies owning shares in other companies.
Besides the favourable tax regime for Belgian holding companies, Belgium also has other tax incentives. Especially the NID, the various withholding tax exemptions and the vast treaty network, which favour the creation of financing structures involving a Belgian -highly capitalised- financing or royalty company.
Furthermore, above mentioned measures on expatriate taxation and R & D, the location of Belgium at the heart of Europe, the location of various international organizations in Belgium, the language skills of the Belgians and the renowned education of the Belgian employees benefit greatly to the international operations of multi-national companies/headquarters and research facilities.
For further information, please contact:
The Corporate Village
Da Vincilaan 9 – Box E.6 (Elsinor Building)
1935 Zaventem (Belgium)
Tel. + 32 (0)2 778 01 00
Fax + 32 (0)2 771.56.56
Or your regular BDO Atrio contact person.
BDO Atrio • www.bdo.be •
BDO Atrio is the Belgian Member Firm of BDO International. BDO International is a world wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country.
The information on this leaflet is current at the date of publication, but may be subject to amendment. It is written as a general guide and is not a substitute for professional advice.
© BDO Atrio 2007
Letzte Änderung am 03.04.2007