This country-specific Q&A provides an overview to tax laws and regulations that may occur in Belgium.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-second-edition/
How often is tax law amended and what are the processes for such amendments?
Belgian tax law can be amended at any time throughout the year. Amendments are in practice often grouped in so-called program laws, which are usually voted at the end of the tax year.
Both the Federal State and the Regions may, within their area of competence, draft and adopt own legislative measures. Provinces and municipalities also have a limited competence to issue certain tax regulations.
The legislative process is public and usually allows institutions, interest groups and academics to comment on the draft bills.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
Belgian corporate entities must file their annual corporate income tax return electronically. Strict deadlines apply to these filings.
Upon request from the tax authorities, Belgian corporate entities also have the obligation to provide all documents that are necessary for establishing the amount of taxable income. They must conserve these documents for a period of 7 years commencing on 1 January of the year following the audited financial year.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The key regulatory authority that is competent for tax matters is the Federal Ministry of Finance, which is hierarchically structured and has authority over the central tax administration and the local tax administrations. The same structure can be found in the three Regions.
The local tax administrations are in general quite available for dealing with standard issues. More complex issues can be dealt with by a higher tax administration, such as the central tax administration. In a pre-tax return filing phase, certainty over the interpretation of tax laws can be obtained by means of a ruling delivered by the advance ruling commission, which falls under the authority of the Federal Ministry of Finance. Obtaining such ruling usually takes two to three months. Tax disputes that are still in the administrative phase (ie that have not yet been brought to court) can be submitted to a tax mediation service.
The time needed for solving standard issues will strongly vary depending on the competent service and the complexity of the issue.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
A taxpayer who disagrees with an income tax assessment by the tax administration must in principle first submit a written tax complaint with the tax administration within a period of six months. The taxpayer may subsequently file a petition before the competent Tribunal of First Instance if the tax administration delivers a dissatisfying ruling or if it altogether fails to issue a ruling on the complaint within six months of its filing. In the event of a dissatisfying ruling, the petition must be filed within three months.
In other words, this administrative phase is in principle a mandatory prerequisite for the taxpayer who wishes to bring his case to the tribunal.
An appeal against the decision of the Tribunal of First Instance may be lodged with the Court of Appeal by either the taxpayer or the tax authority within one month.
Appeals against the judgements of the court of appeal can be brought to the Belgian Supreme Court which regulates the application of the law.
The time required for these proceedings may strongly vary on the basis of an array of factors. The judicial procedure before the Tribunal of First Instance takes in principle one to three years, and may run up to five or seven years if an appeal is lodged with the Court of Appeals.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Corporate tax must be prepaid on a quarterly basis. The prepayments correspond to the estimated current year's income.
Non-deductible surcharges will be imposed if the prepayments are not done, or if they are insufficient.
A late payment interest ("LPI") at an annual rate of (currently) 7% is due on tax that is paid belatedly. If the taxpayer contests the tax assessment and leaves the tax unpaid, the LPI will eventually be due if he loses the tax dispute. Whenever possible in practice, the taxpayer will choose to pay the disputed tax, as this will allow him to avoid the LPI and will even generate a LPI of (currently) 7% in his favor if he wins the tax dispute.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Yes. Civil servants within the Belgian tax authority are required to maintain professional confidentiality and may not disclose, outside of their profession, any information which the civil servants were granted access to by virtue of their professional activity. A violation of that obligation constitutes a criminal offence.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Belgium is a signatory to the Common Reporting Standard and has transposed it into national law by virtue of the Law of 16 December 2015. On 20 July 2017, the Belgian parliament has passed a law introducing a public Register of beneficial ownership, thus implementing EU Directive 2015/849 of 20 May 2015. The Register is however not yet in place and several key modalities still have to be worked out by royal decree.
What are the tests for residence of the main business structures (including transparent entities)?
According to Belgian tax law a corporation is resident of Belgium if it has its legal seat, main establishment or place of effective management in Belgium.
Can the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
There are several factors indicating that the tax authority has increased its scrutiny of intragroup transactions. The number of tax inspectors specialized in transfer pricing has increased importantly, which has resulted in a higher number of transfer pricing audits. Also, new reporting requirements with regard to certain cross-border transactions have been introduced by law during the last several years. Most notably, Belgium has implemented into national law the transfer pricing documentation requirements in accordance with BEPS Action 13 (Law of 1 July 2016). These requirements will allow the tax authority to better monitor intragroup cross-border transactions.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Belgium does not have a CFC regime for corporate entities.
A CFC rule exists for individuals, under which they may be taxed on the income gathered by their holdings (certain foreign taxed entities or legal constructions that are subject to low income tax).
The Belgian government has reached an agreement on 26 July 2017 on a large tax reform ("July Agreement"). In the said agreement, it is reiterated that a CFC-regime will be introduced in compliance with the Anti-Tax Avoidance Directive 2016/1164 ("ATAD Directive").
Belgium has two thin capitalization rules.
A 1:1 debt/equity ratio applies to interest payments made on loans granted by individual directors, shareholders, and non-resident corporate directors. Interest payments will be requalified as non-deductible dividends to the extent that the total debt exceeds the said ratio.
A 5:1 debt/equity ratio applies to loans under which the beneficial owner of the interest income is (i) a group company or (ii) a company not subject to income taxation or subject to a tax regime that is substantially more advantageous than the Belgian tax regime. Loans granted by Belgian or EEA financial institutions are not considered as debt for thin cap purposes. Equity is defined as the sum of (i) the taxed reserves at the beginning of the taxable period and (ii) the fiscal paid-up capital at the end of the taxable period. Interest payments on such loans in excess of the said ratio, is treated as a non-deductible expense.
Belgium generally follows the OECD transfer pricing guidelines. The arm's length principle therefore constitutes a basic transfer pricing principle in Belgium. Advance pricing agreements (whether unilateral, bilateral or multilateral) may be obtained. Clear guidelines to obtain such agreements are made available by the tax authority.
Is there a general anti-avoidance rule (GAAR) and, if so, how is it applied by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only, etc?
A new GAAR was introduced in 2012, after the previous GAAR (introduced in 1993) turned out to be ineffective. Under the current GAAR, a transaction or series of transactions may be disregarded by the tax authority if abuse of law is proven. The latter is proven when a taxpayer either avoids or applies the application of a tax provision that provides resp. for taxation or an exemption, in a way that is contrary to the objective of the provision. In such case, the taxpayer may still avoid the application of the GAAR if he can demonstrate that the transaction was driven by other relevant motives that are not tax-driven. If the taxpayer is not able to provide such non-fiscal objectives, the tax administration may restore the taxable basis as if no tax abuse has taken place.
The current GAAR is relatively recent. It is therefore difficult to gauge how it is generally applied by the authority. The provision hasn't really yet been put to the test in court. It is however often an element that is cleared with the advance ruling commission when a ruling request is submitted.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
Belgium generally supports the BEPS action plan and has already implemented certain recommendations, such as the ones related to transfer pricing documentation (Action 13) and harmful tax practices (Action 5 - introduction of a new IP regime based on a nexus approach). Certain anti-hybrid measures have also been transposed (Action 2 - Hybrids) as an implementation of the amended EU parent-subsidiary directive.
In its July Agreement, the Belgian government has confirmed its intention to transpose other BEPs items that also fall under the ATAD Directive (e.g. introduction of a CFC regime - Action 3; new interest deduction rules - Action 4; and further implementation of anti-hybrid measures - Action 2).
On 7 June 2017, Belgium signed the multilateral convention to implement tax treaty related measures to prevent BEPS.
How will BEPS impact on the government’s tax policies?
It is expected that Belgium will continue to implement BEPS items into its national tax legislation.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
Yes, the Belgian tax system broadly follows the recognized OECD Model.
a) Taxation of business profits
Business profits are taxed at a rate of 33,99% (ie 33% plus a 3% crisis surcharge). A company may benefit from progressive rates if its taxable profit does not exceed 322,500 EUR and if certain other conditions are met.
As a result of the July Agreement, the corporate tax rate should decrease to 29,58% (incl. crisis surcharge) in 2018 and 25% in 2020. A separate rate of 20,40% (incl. crisis surcharge) should be introduced for SMEs on a first income band of 100,000 EUR in 2018. The crisis surcharge should be abolished in 2020.
Business profits and proceeds derived from a liberal profession are taxed at progressive rates, with a top rate of 50% applicable as from 38,830 EUR (assessment year 2018).
b) Taxation of employment income and pensions
Income derived from employment is taxed at progressive rates. This category of income encompasses the entire consideration that an employee receives by way of his/her employment. Taxation of employment is generally levied through employer wage tax withholding.
VAT is applicable on the supply of goods and service. A standard VAT rate of 21% applies, whereas certain supplies may be taxed at a reduced rate of 12% or 6%.
d) Taxation of savings income and royalties
Interest income and royalties gathered by individuals from assets that are not used for a professional activity, usually fall in the category of movable income. If sourced in Belgium, movable income is in principle subject to a 30% withholding tax. The said tax may be final for individuals. If no withholding tax is applied, the 30% will be due by means of an assessment.
The 30% withholding tax also applies to interest income and royalties that are sourced in Belgium and gathered by corporations. Depending on the corporate income tax due and provided that certain conditions are met, a credit or reimbursement can be obtained upon assessment.
e) Taxation on income from land
The tax regime of income derived by an individual from immovable property that is not used for professional purposes, will depend on the use that is made from the property.
The individual will be taxed on a deemed annual rental income if the property is not leased, or if it is leased to a private individual who does not use it professionally. This deemed income is usually lower than the market lease value. The applicable rate will vary somewhere between 30% to 50% depending on the location of the property. The individual will be taxed on the actual rental income (at progressive income tax rates) if the property is leased to a company or an individual who uses the property professionally.
Income from land gathered by a corporation is subject to corporate income tax at the normal rate. Corporations are however also subject to the aforementioned separate tax on the deemed annual rental income. The said tax is deductible for corporate income tax purposes.
Capital gains realized on land are treated infra under f).
f) Taxation of capital gains
Capital gains realized by individuals on assets that are not held for professional purposes are taxed at a rate of 33%. Such gains are however exempt if these result from the normal management of one's private estate. Capital gains on real estate assets may however still be taxed at a rate of 16,5% or 33% depending on the time span between the acquisition and sale of the asset.
Capital gains realized by companies are in principle taxed at the normal corporate income tax rate.
A roll-over regime is however available under certain conditions for capital gains realized on fixed assets, provided that the proceeds of the sale are entirely re-invested within three years (five years if the re-investment is made in a buildings) in depreciable assets located in the EEA.
An exemption is available for capital gains realized on shares by a corporation that qualifies as a SME if (i) the shares pertain to a corporation that meets the subject-to-tax test under the participation exemption regime and (ii) the vendor has held the shares in full ownership for at least one year. There is no minimum participation threshold.
Failure to comply with these two conditions will trigger taxation of the capital gain at the normal corporate income tax rate (if the first condition is not met) or 25.75% (if the first condition is met and the second condition is not met). Corporations that do not qualify as a SME but meet these two conditions, will have their capital gain on shares taxed at a rate of 0,412%. It has been announced in the July Agreement that this 0,412% tax should be abolished as from 2018.
g) Stamp and/or Capital duties
No capital or stamp duties are due upon the formation or the increase of capital of a company or on the transfer of shares.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The taxable income of a corporation encompasses its worldwide income, less allowable deductions. For Belgian corporate tax purposes, the taxable income is determined on the basis of the approved Belgian GAAP annual accounts. The accounting profit is adjusted insofar tax provisions provide for deviations from accounting law.
There is no separate tax balance sheet.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
A company is recognized as an entity subject to Belgian corporate income tax if it constitutes a separate legal entity that carries out a profit-making entity and is deemed to be a Belgian resident.
Under Belgian law, the concept of legal personality generally serves as the main determinating nexus to classify an entity as a taxable entity. Entities without legal personality are therefore in principle treated as transparent for income tax purposes. Belgian tax law also provides for a limited list of entities with legal personality that are deemed not to have legal personality for tax purposes, such as the economic interest groupings and the European economic interest groupings.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Liability to business taxation is based on the concept of fiscal residence. Legal entities that are resident in Belgium are subject to corporate income tax. A corporate entity is a Belgian resident if it has its registered office, principal office or place of effective management in Belgium. The place of incorporation is not taken into consideration.
Non-resident entities can be subject to Belgium income tax if they gather income that is sourced in Belgium or income that is connected with a Belgian establishment.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Aside from a very limited number of tax regimes related to specific industries (eg diamond and port), Belgium does not have such special taxation regimes.
To the extent that a company qualifies as an SME, it may benefit from an important number of favorable tax measures and incentives.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
A new IP regime, the Innovation Income Deduction, recently entered into force as from 1 July 2016 as a substitute for the Patent Income Deduction, which has been abolished because it was inconsistent with, amongst others, the OECD modified nexus approach. A grandfathering regime is foreseen till 30 June 2021.
This Innovation Income Deduction allows companies to deduct 85% of the net income derived from qualifying IP assets, which results in an effective tax rate of a maximum 5.1 percent. As mentioned before, the corporate tax rate should decrease from 33,99% to 29,58% by 2018, which should result in an effective tax rate of maximum 4,44%.
The scope of the beneficial tax regime is broadly defined. Eligible IP rights are eg patents, data and market exclusivity, copyrighted computer programs and orphan drugs. The tax deduction applies to IP income derived from arm’s length license fees, IP income embedded in the sales price or in the production processes and damages received for infringements of IP rights. Capital gains may, subject to certain conditions, fall under the scope of qualifying income. A carry forward of unused deductions is applicable.
The nexus approach ensures that IP income can only benefit from the tax deduction to the extent that expenditures are effectively incurred by the taxpayer to develop the qualifying IP rights.
Subject to certain conditions, a company may benefit from other IP and R&D related tax incentives.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Belgium does not have a fiscal consolidation regime. Neither are there any rules on what can constitute a group for tax purposes.
The Belgian government has announced in its July Agreement that it is examining the possibility of introducing a consolidation regime.
Are there any withholding taxes?
Companies fall under the obligation to withhold a payroll tax on remuneration and pensions paid to both resident and non-resident employees and directors. There are partial exemptions of payroll tax available for the employer in certain circumstances. Payroll tax is deductible in the hands of the employer.
Withholding taxes are levied on income stemming from movable property, such as dividends, interest or royalties. Such withholding tax may be offset by the recipient of the income against its corporate income tax, provided that certain conditions are met.
Are there any recognised environmental taxes payable by businesses?
Yes. Environmental taxes are levied at both Federal level and regional level. Federal environmental taxes include amongst others excise duties levied on certain energy products (petrol, gas, etc) and electricity. At a regional level, environmental taxes are mostly levied on different kinds of waste.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Dividend income received by a Belgian company is in principle subject to a corporate tax at a normal rate. The Belgian participation exemption regime allows for a deduction of 95% of the received dividend amount, which results in an effective rate of 1,7%. The latter rate may be further reduced as the remaining taxable 5% may be offset with other tax deductions.
The following conditions must be met in order to benefit from the participation exemption regime:
a) The shareholding company must hold a participation of at least 10% in the share capital of the distributing company or the said participation must have an acquisition value of at least 2,500,000 EUR;
b) The shareholding company must hold (or commit to hold) the shares in the distributing company for an interrupted period of at least one year;
c) The distributing company must be subject to Belgian corporate tax, or to a similar foreign corporate tax regime.
If the tax base is insufficient in order to allow the deduction of 95% of the dividend, the excess may be carried forward to subsequent assessment years.
Dividends that are paid by a Belgian company or through a Belgian intermediary are in principle subject to a 30% withholding tax. Belgian domestic law provides for reduced rates under certain conditions. Provided that certain conditions are met, a company may credit the withholding tax against the corporate income tax that is due.
The withholding tax can altogether be avoided if the distributing company is a Belgian resident company in which the shareholding company holds (or commits to hold) a participation of at least 10% for an uninterrupted period of at least one year.
From the perspective of an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by the jurisdiction?
Belgium is known for its highly-skilled and multilingual workforce and its comparatively cheap office and housing market. The country has a central location in Europe is therefore easy to reach. Many relevant political institutions have their headquarters in Belgium, such as NATO, the main EU institutions and SHAPE.
Disadvantages can be found in the fact that Belgium has a complex political structure and that employment taxation is rather on the high end.