Belgium: Corporate tax measures 2012

In the final agreement for the budget 2012, after several amendments to the draft presented by the Government, various tax measures were adopted by Parliament. Some of these changes are as follows:

Capital gains on shares. While the exemption of 100% of the net capital gains is maintained, exemption itself is granted only if the one year holding requirement is fulfilled. The rules regarding capital losses remain unchanged, i.e. deduction is not allowed, unless there is a winding-up of the company in which the shares are held.

Withholding tax rates. The reduced withholding tax rates of 15% and 10% on dividends will be raised to 21%. In addition, the withholding tax rate on interest and royalties will be increased from 15% to 21%.

Notional interest deduction. The notional interest deduction rate will continue to be determined annually based on the 10-year Belgian Government Bond rate but the current maximum of 6.5% is decreased to 3% for large companies and to 3.5% for SME’s. The possibility to carry-forward excess notional interest deduction will be abolished. However, the current “stock” of notional interest deduction carry-forwards will remain available but its use will be restricted.

The notional interest stock deduction will become the last operation in the corporate tax return to determine the taxable basis. The maximum notional interest deduction stock that a company can use per tax year will be limited to 60% of the taxable base. This limitation will however not apply to the first 1 million euro of the taxable base. The notional interest deduction stock which remains unused further to this limitation can be carried forward to the following tax year.

Thin capitalisation. Under the current legislation, a specific thin capitalisation measure applies in case the beneficial owner of the interest is a person that is not subject to tax or if the income is subject to a tax regime that is significantly more advantageous than the Belgian tax regime. In such a case, interest is not tax deductible to the extent that a debt to equity ratio of 7:1 is exceeded.

Interest will no longer be tax deductible in excess of a debt-to-equity ratio of 5 to 1. Contrary to the current rule, it would also no longer be required that the beneficial owner would be subject to a favorable tax regime.

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