Belgium: Domestic Corporate Taxation
Belgium has a corporate income tax rate of 33.99% (including a 3% so-called 'crisis surcharge') and has never been considered a financial center. However in order to attract the headquarters of foreign multinational companies Belgium accorded favorable tax treatment to entities known as "co-ordination centers" (these have now been phased out). Belgium offers a low-tax regime to expatriate employees with specialist skills, and has a relatively benign holding company taxation regime.
A 'notional interest deduction', introduced in January 2006, effective in tax year 2007, allows all companies subject to Belgian corporate tax (including Belgian branches of foreign companies) to deduct from their taxable income an amount equal to the interest they would have paid on their capital in the case of long-term debt financing.
The calculation of the tax deduction begins with the ‘equity capital’ as stated in the company’s opening balance sheet of the taxable period. Based on Belgian accounting law, ‘equity capital’ includes capital, share premiums, revaluation gains, reserves, carry-forward of profits or losses and capital investment subsidies. The notional interest rate was set in the 2012 budget at 3% for large companies and 3.5% for SMEs. The new rates apply from January 2013. Prior to this the rates were 6.5% and 7% respectively.
The notional interest deduction does not discriminate between companies and complies fully with existing Belgian and EU law. Discussions with EU authorities have taken place and the measure is compatible with EU State Aid rules and the Code of Conduct.
The 2013 Budget
The Belgian government announced a number of measures in the 2013 budget to help achieve a reduction in the deficit. Provisions to reduce spending and increase certain taxes are contained in the budget:
- Capital gains exemption applies to SMEs that meet holding period requirements, capital gains realised by companies other than SMEs and meeting holding period requirements are subject to a 0.412% (inclusive of 3% crisis tax) withholding tax, if the minimum holding period has not been met, the tax rises to 25.75%, this rises to 33.99% if taxation requirements have not been met;
- The reduced withholding tax rate on dividends is increased from 21% to 25%;
- Notional interest deduction remains at 3% for large companies and 3.5% for SMEs; as of the 2014 tax year, the rate will be calculated based on the average ten year government bond rate, resulting in an effective rate of 2.742% for large companies and 3.242% for SMEs.