Over the past years, Belgium has considerably improved its attractiveness towards foreign investors and enhanced its position on the international business scene by introducing a series of tax and legal measures primarily favouring inbound investment. Although Belgian tax resident companies are subject to a Belgian corporate income tax rate of 33.99%, specific tax measures are officially estimated to have reduced the effective tax rate to an average level of 26%, in certain cases much less. These measures have been kept in place in spite of the financial and economic crisis.
Moreover, Belgium offers an attractive income and estate tax regime for certain categories of individuals.
I. ATTRACTIVE HOLDING COMPANIES REGIME
Belgium does not offer tax consolidation except for VAT purposes (« VAT unity »), but presents one of the most flexible holding companies regimes in Europe.
I.I. Participation Exemption
I.I.I. Dividend-received deduction
Dividends received by Belgian tax-resident companies or permanent establishments of non-resident companies on shares held in resident or non-resident companies are 95% exempt from corporate income tax, provided the following (simplified) holding and taxation requirements are met.
• Holding represents at least 10% of the equity of the paying company or has an investment value of at least €2,500,000;
• Holding is held in full ownership; and
• Holding has been or will be fully owned for an uninterrupted period of at least one year.
• Dividends must not be paid or distributed by companies resident in a country whose common tax regime is significantly more favourable than the Belgian tax regime (as a general rule, less than 15% (effective) taxation) or otherwise escape effective taxation.
• The tax regimes of the EU Member States are deemed to fulfil this requirement; as a result of the double tax treaty concluded with Hong Kong, the tax administration considers that dividends paid by a Hong Kong subsidiary qualify under the taxation conditions.
Note that financing expenses – including interest on borrowings for acquiring shares – are as a general rule deductible without limitation, often more than offsetting the 5% taxable fraction of dividends, and that, in the case of dividends from EEA source and several other tax-treaty countries, any excess deduction may be carried forward.
I.I.2. Capital gains on shares
Capital gains on shares are subject to very limited taxation of 0.412% (and are even fully exempt in the case of capital gains realized by small and medium-sized companies) on condition that the dividends relating to such shares would satisfy the taxation requirement for the dividend-received deduction at the time the gains are realized and subject to a one-year holding requirement in full ownership. If the one-year full ownership requirement is not met, the gains are taxed at 25.75%. Realization expenses are disallowed.
Capital losses or reductions of value on shares are not deductible, unless incurred upon full liquidation of the company, and only up to the fiscal capital represented by those shares (the corresponding part of the share capital effectively paid in and not already reimbursed).Shares held as inventory by qualifying financial institutions, investment companies and management companies of collective investment companies are fully taxable; losses are fully deductible.
I.2. Dividend withholding tax exemption
Belgium has extended the dividend withholding tax (WHT) exemption of the EU Parent-Subsidiary Directive to all parent companies established in a country with which Belgium has signed a double tax treaty. The WHT exemption applies to dividend distributions, provided that the company receiving the dividend directly holds at least 10% in the capital of the Belgian distributing company for an uninterrupted period of 12 months.
The exemption does not apply where the receiving company:
• is not subject to corporate income tax as a resident of that country or is subject to an exceptional corporate tax regime in that country;
• has a legal form which is not analogous to one of the forms listed in the annex to the EU Parent-Subsidiary directive; or
• is resident in a treaty country that has not agreed to a full exchange of information clause (that latter condition excludes Switzerland as a fully qualifying location; an exemption however is granted to the Swiss parent company in case of a holding of 25% held during a period of 24 months).
I.3. Interest / royalties distributed by Belgian companies
Interest and royalties paid by a Belgian debtor are subject to 25% WHT in principle.
However, the Belgian Income Tax Code provides for several exemptions, notably for registered bonds held by non-residents. Furthermore various exemptions or rate reductions are available under Belgian double tax treaties.
Interest and royalties paid to EU companies (including Belgian companies) are exempt from WHT, provided that the paying and the beneficiary companies are affiliates. Companies are considered affiliates when one of them holds, directly or indirectly, 25% of the other’s capital during an uninterrupted period of at least one year or when a third company located in the EU directly or indirectly holds at least 25% of the capital of each of these companies during an uninterrupted period of at least one year.
Thin cap rules apply on intra-group or offshore financing exceeding five times the equity.
I.4. No Controlled Foreign Corporations rules
Profits of foreign subsidiaries of a Belgian company can be accumulated in those subsidiaries and reinvested, without triggering any tax in Belgium.
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