Budget control 2013
Withholding tax measures
Last update: 14 August 2013 - 12:15 CET
Budget Control 30/06/2013
Prior to the Law of 30 July 2013, a Belgian investment company was entitled to a refundable tax credit for the withholding tax incurred on dividends and interest received. For non-resident investment companies, however, such option was not available and the withholding tax constituted the final tax. Therefore, the EU Court of Justice decided on 25 October 2012 (Case C-387/11) that the Belgian withholding tax regime for foreign investment companies was discriminatory.
As part of the budget control agreement, the Government has decided that, as of tax year 2014, the withholding tax borne by Belgian investment companies is no longer creditable and refundable.
The Government also announced that, "after analysis", a Royal Decree will introduce an exemption from withholding tax for pension funds.
Budget Control 30/06/2013
As of 1 July 2013, the sale of shares or units so-called capitalisation collective investment undertakings (“kapitalisatie-ICBE’s / OPCVM de capitalisation“), investing more than 25% in debt, is treated uniformly, whether or not the undertaking has a European passport.
Prior to 1 July 2013, these gains were only taxable when the undertaking had a European passport, whereas no tax was due when the gain related to an undertaking without such European passport.
As of 1 July 2013, part of the capital gain realised on the sale of shares or units in undertakings without a European passport is considered tax wise as interest according to Article 19bis ITC and will thus suffer 25% withholding tax. An announcement in this sense was published in the Belgian Official Journal of 1 July 2013 (Dutch | French). A lump-sum calculation has been introduced for undertakings without European passport for the income received from 1 July 2008 to 1 July 2013.
Budget Control 30/06/2013
As of tax year 2014, the withholding tax on dividends distributed by “intercommunales” is increased from 15% to 25% in case of distribution to private (not public) shareholders.
Budget Control 29/03/2013
The current 10% liquidation withholding tax rate will be increased to 25% as of 1 October 2014. Hence, liquidation with application of the 10% withholding rate will, under certain conditions and depending on a company’s year-end closing, be possible until 30 September 2014.
A transitional regime has been introduced, under which taxed reserves can be distributed at the rate of 10%:
- provided these reserves have been approved by the shareholders' meeting at the latest on 31 March 2013;
- provided and to the extent that the amount received is immediately incorporated into paid-in capital;
- provided this incorporation occurs during the last financial year closing before 1 October 2014 (so for calendar year-based financial years, before 1 January 2014);and
- provided this capital increase is maintained by the receiving company during a fixed period of time.
Any changes that are made to the year-end closing as from 1 May 2013 will not have any effect in relation to the transitional liquidation withholding tax regime.
As mentioned above, the receiving company should maintain the capital increase during a fixed period of time for the 10% rate to be the final withholding tax. This period of time, as well as the consequences of an earlier distribution, will depend upon whether or not the company qualifies as an SME under Article 15 of the Companies Code for the tax year during which the capital contribution took place:
- For large enterprises the 10% rate will become the final withholding tax 8 years after the last capital contribution under the transitional regime. If a capital decrease occurs within 8 years, the decrease is considered a dividend and additional withholding tax will be due at the rate of 15% (first 4 years following contribution), 10% (5th and 6th year following contribution) or 5% (7th and 8th year following contribution). After 8 years a capital decrease is no longer considered a dividend.
- For SME's the 8-year period is reduced to 4 years. In case of a capital decrease within 4 years, this decrease is treated as a dividend and additional withholding tax is due at the rate of 15% (first 2 years following contribution), 10% (3rd year following contribution) or 5% (4th year following contribution).
Reduced corporate income tax rate
SME's can also benefit from reduced corporate tax rates but only if the dividend distributions do not exceed 13% of the company's paid-in capital at the beginning of the taxable period. To prevent SME's from losing the benefit of the reduced corporate income tax rate due to dividend distributions under this transitional regime, such dividends are excluded from the calculation basis for the 13% threshold.
In case there is a subsequent capital decrease, the capital will be deemed to originate first from the capital contributed under this transitional regime. In order "to avoid an abnormal dividend policy", a separate, non-deductible tax of 15% applies when:
- The company has produced a positive accounting result for the taxable period during which the capital increase under the 10% transitional regime is realised ; and
- The shareholders' meeting has attributed dividends during at least one of the 5 taxable periods prior to that during which the capital increase under the 10% transitional regime has been executed.
The tax has to be calculated according to the following formula:
- The product of (i) the result of the taxable period in which the capital increase is executed and (ii) the proportion between the sum of the dividends attributed during the 5 preceding taxable periods and the sum of the results of these taxable periods,
- Minus the dividends which are actually attributed to the shareholders as profit of the taxable period during which the capital increase is executed.
The accounting result of the taxable period has to be understood as the positive result as it appears in the financial statements established in accordance with Art. 92 and 93 of the Companies Code, and thus corresponds to the profit (loss) of the financial year as determined in the Royal Decree executing the Companies Code, the Royal Decree of 23 September 1992 on the annual accounts of credit institutions, investment companies and collective investment undertakings or the Royal Decree of 17 November 1994 on the annual accounts of insurance companies.
This 15% tax only applies to the extent that the outcome of the calculation is positive.
These specific anti-abuse measures do not preclude the tax authorities from applying the general anti-abuse measure of Art. 344, § 1 ITC "to challenge other anomalies".
This measure is expected to generate EUR 80 million of revenue for 2013.
Budget Control 29/03/2013
A reduced withholding tax rate will apply to dividends (other than buyback or liquidation dividends) from new registered shares if the following conditions are satisfied cumulatively:
- The company receiving the capital contribution qualifies as an SME based on Art. 15 of the Companies Code for the tax year during which the capital contribution has been made;
- The dividends relate to new registered and non-preferred shares;
- The shares are acquired through new cash contributions which are made as of 1 July 2013;
- These cash contributions cannot originate from the distribution of taxed reserves subject to the special 10% "liquidation" withholding tax rate (see above heading);
- The taxpayer should hold the registered shares in full ownership from the date of the capital contribution;
- The dividends are attributed out of the profit allocation for the financial year following that of the capital increase;
- The capital contribution has been fully paid at the time of the dividend distribution.
The reduced withholding tax rates are as follows:
- 20%: dividends distributed out of the profit allocation of the 2nd financial year following the financial year of the contribution;
- 15%: dividends distributed out of the profit allocation as of the 3rd financial year following the financial year of the contribution.
Companies without minimum paid-in capital are excluded from this measure, except if the new cash contribution equals at least the minimum paid-in capital of a BVBA/SPRL (currently EUR 18,550).
The reduced rate is not only available for capital increases but also for capital contributions in newly created companies.
The benefit of the reduced rate is maintained in the following situations:
- exchange of shares in the context of tax-neutral restructurings;
- certain transfer of shares following an inheritance or a gift (between spouses and in direct line).
Anti-abuse measures exclude the following type of capital increases from the application of the reduced withholding tax rate:
- capital increases realised subsequent to a capital decrease executed as of 1 May 2013, except to the extent that the capital increase exceeds the preceding capital decrease;
- capital increases funded by capital decreases executed as of 1 May 2013 at the level of an affiliated or associated company. Affiliation/association is defined by Art. 11 and 12 of the Companies Code. This anti-abuse measure also applies if the capital increase is not realised by the individual who benefited from the capital decrease but by his/her spouse, parents and children (if the parents are by law entitled to the income of these children).
These above specific anti-abuse measures do not preclude the tax authorities from applying the general anti-abuse measure of Art. 344, § 1 ITC in certain specific cases.
This measure is expected to generate EUR 10 million of revenue for 2013.