BRUSSELS: The Belgian Government has agreed to tax reform legislation that will substantially reduce the rate of corporate tax but widen the tax base.
Under the proposals, corporate tax, currently 33.99 percent including the solidarity contribution, will be lowered to 29 percent in 2018, and to 25 percent in 2020. In addition, the solidarity contribution will be phased out. The levy will be reduced from three percent to two percent next year, and to zero percent in 2020.
The agreement also includes cuts to corporate tax for small businesses, which will pay 20 percent income tax on the first EUR100,000 (USD116,400) of income from 2018, instead of 25 percent tax under current rules. However, small companies would have to pay one director remuneration of at least EUR45,000 per year in order to qualify for the reduced income tax.
The corporate tax rate reductions are to be offset by limitations to the basket of deductions that companies can claim against income. As a result, these deductions will be restricted to 70 percent of the portion of income exceeding EUR1m. Furthermore, the proposals apply restrictions to the notional interest deduction (NID) regime, under which companies are permitted to deduct a fictional, or notional, rate of interest based on their adjusted equity, at a level equal to the average rate of 10-year government bonds. Under these changes, the NID will be available only in respect of increases in company equity rather than total equity.
The tax reforms also include Belgium’s commitment to transpose the European Union anti-avoidance directives into Belgian law.
However, the dividends-received deduction will be increased from 95 percent to 100 percent under the reforms, a move designed to ensure that Belgium remains an attractive holding company jurisdition.
The Government said that the proposals will be submitted to parliament, which is expected to vote on them by the end of the year.
