Belgium: New corporate tax measures in force as of 1 January 2023

In Belgium, the omnibus law of 26 December 2022 (published in the Belgian Official Gazette of 30 December 2022) has enacted some amendments relating to the corporate income tax regime applicable to Belgian resident companies and Belgian permanent establishments of foreign entities.

Here are some of the most substantial updates:

  • Abolition of the notional interest deduction (NID) as of taxable periods ending on or after 31 December 2023. This abolition will have a limited impact as most corporate taxpayers are not eligible to benefit from any (substantial) NID for some years now, given the very restrictive computation method following the major corporate tax reform of 2017 and the reduced deduction rate applicable. The stock of carried forward NID remains deductible going forward.

    Thus, as was the case before the adoption of the NID regime, the Belgian taxation system continues to encourage corporate taxpayers to finance their business operations through debts (as the related interest costs are fully tax deductible), rather than through equity contributions (which provide no tax deduction).

    It’s noteworthy, however, that the EU is currently discussing the adoption of a Directive on debt-to-equity bias reduction allowance (DEBRA), providing for a tax deduction of notional interest on the increase in equity and a strengthened limitation of the tax deduction of exceeding borrowing costs.

  • Temporary increase of the minimum corporate taxable basis from 30% to 60% as of taxable periods beginning on or after 1 January 2023. Belgian corporate taxpayers with a taxable profit exceeding EUR 1 million in a given tax year are currently limited concerning the deduction of some of their tax attributes (i.e., dividend received deduction carried forward, innovation income deduction carried forward, tax losses carried forward and NID carried forward) as follows:
    –On the first basket of EUR 1 million of their taxable profit, they are facing no deduction limitation; while
    –Above, they are only allowed to use their tax attributes on a limited portion of their taxable profit, leading to a minimum corporate taxable basis.

This limited portion of the taxable profit above EUR 1 million upon which the corporate taxpayers may use their tax attributes, set at 70% of the said portion under the former regime, now goes to 40%. Accordingly, the minimum corporate taxable basis percentage is now two times greater than the one applicable until last year (60% of the part of the taxable profit exceeding EUR 1 million instead of 30%).

However, the substantial increase in the minimum corporate taxable basis is intended to be temporary. The rates applicable under the former regime will return to force on 1 January 2024 onwards, provided the Belgian legislature has transposed the EU Directive implementing the global minimum tax of 15% as set out by the minimum taxation component (known as Pillar 2) of the OECD’s international taxation reform. Considering that the Member States recently agreed upon the transposition of this Directive in their respective tax laws by the end of 2023, it will likely be the case.

Please note that as opposed to the Belgian “tax basket rule” above, the global minimum tax will only apply to the largest groups of companies, i.e., those with a combined annual turnover of at least EUR 750 million.

  • Amendment of the computation method of the Foreign Tax Credit (FTC) on foreign royalty income as of taxable periods ending on or after 31 December 2023. So far, the FTC pertaining to foreign source royalty income (other than revenues eligible for the innovation income deduction) is determined through a lump-sum approach, applying a factor of 15/85 on the net income. The calculation did not consider any withholding tax effectively levied by the source state.

The new amendment will follow a similar computation method to the one used to determine the FTC related to other types of eligible foreign income. Therefore, the FTC on royalty income shall be determined by taking the effective taxation levied by the source state into account, capped at 15%.

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