On 26 July 2017, the Belgian Government announced that an agreement on new budget measures had been reached that could see wealthy tax payers foot the bill for cuts to corporation tax.
The changes include a long-awaited corporate income tax reform which is to be introduced in the coming months intended to stimulate economic growth and attract foreign investment as well as foster job creation.
Contemplated regime
As of 2018, the standard corporate income tax rate will be reduced from 33.99% to 29%, before falling to 25% in 2020.
Furthermore, the rate for small and medium companies will be cut to 20% on profits up to €100,000 (£90,406, $118,065).
Compensatory measures
Lawmakers from all four ruling parties have insisted that any revenue lost in corporate taxes must be offset by increases elsewhere.
For this reason, the government is still discussing various compensatory measures that will impact both corporate and private taxpayers with the aim of making the reform budget-neutral.
Measures falling on companies’ shoulders include restrictions on certain tax deductions, notably tax loss carryforwards – a tax policy that allows an investor to use capital losses to offset the taxation of capital gains in future years – and the loss of the exemption on capital gains on shares.
Individual taxpayers
Most importantly for financial advisers and their clients, individual taxpayers will also be hit with with changes to both income tax and capital taxation.
These include the introduction of an annual tax of 0.15% on securities accounts, the taxation of reimbursements of share capital and the extension of the so-called “Cayman tax”.
The proposed measures “will affect high net worth individuals and family owned businesses”, which are poised to bear most of the brunt of the changes, Dutch law firm Loyens & Loeff said in a report.
The measures are still subject to change after the public parliamentary debate.
Securities account tax
The new taxes for individuals include the introduction of an annual levy applicable to high-value securities’ accounts.
Belgian residents holding securities, such as shares, bonds and units of undertakings for collective investment (UCI) exceeding €500,000 on securities accounts, will be charged an annual subscription tax of 0.15% on the full balance of the securities account.
This tax will not apply to pension savings and life insurance products, however. Nominative shares will in principle also be excluded.
Withholding tax
New taxes will also be imposed on reimbursed share capital. Currently, when a company distributes its share capital, no withholding tax or personal income tax is due.
The budget announced by the government introduces a proportional allocation of the capital reduction to the company’s taxable reserves, so withholding tax will be due to the extent taxable reserves are deemed to be distributed.
This means that a company’s share capital cannot be reduced without triggering withholding tax if the company has taxable reserves.
“Cayman tax” extension
Lastly, the so-called “Cayman tax” – the look-through taxation of income received by trusts, foundations and other entities established in low-taxed jurisdictions – is to be extended to cover “legal constructions that could otherwise slip through the net”, such as multi-layer structures, Loyens & Loeff said.
Good news
Fears of a general capital gains tax and of a “departure tax” on capital gains, to be levied in case emigrants sell assets after leaving the country, did not materialise.
Therefore, capital gains realised on shares within the normal management of private wealth remain free from tax.
Also, no tax will be levied when a Belgian resident emigrates.
Reform timing
The announced measures will now be translated into draft legislation, which must be submitted to the Council of State.
After the latter’s report has been issued, the bills are submitted to the Federal Parliament, where they are discussed and voted, adopted and published in the Belgian State Gazette for them to become law.
Most of the measures are intended to come into force in 2018, although some may take effect in the second half of 2017.
Other measures are expected to start as of 1 January 2020.
Long time coming
Belgian lawmakers announced a corporate tax overhaul as part of budgetary control initiatives as early as January 2016, when Belgian finance minister Johan Van Overtveldt first announced a reform that would gradually reduce the country’s high corporate income tax rate from 33.9% to 20% in 2020.
“The capital gains tax has been discussed for years by the socialist government and will continue to be discussed,” Brian Dunhill, IFA and chief executive of Brussels-headquartered advisory firm Dunhill Financial told International Adviser.
Need for clarity
Dunhill explained that the reform doesn’t affect so-called “Branch 23” bonds, which are insurance funds classified as offshore bonds whose return is linked to that of one or several investment funds specialised in shares, bonds, liquid assets or offering a mix of these products.
According to the American adviser, the proposed corporate tax reform “mostly impact traders” in a bid to “slow down speculation”, which has been the case for years.
“The one big difference this year is that [the proposed reform] also applies to funds, which we haven’t received clarity on how it will be done for non-Belgian providers such as ours in the US,” Dunhill said.
