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Taxation of Companies Under Belgian Income Tax Law

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Taxation of Companies Under Belgian Income Tax Law IFA Issue – Articles Eric Osterweil and Marc Quaghebeur* Taxation of Companies under Belgian Income Tax Law This article sets forth the principal features of 2. General Comments Belgium’s income tax system as applied to companies, focusing on selected aspects that With few exceptions, commercial entities that have legal may be of interest to foreign investors. After an personality are subject to the company income tax in introduction and some general comments, Belgium. Thus, entities in the form of a corporation, lim - the article discusses, among other things, ited liability companies and most types of partnerships the computation of a company’s taxable income, are subject to company income taxation. Belgium does the tax rates, withholding taxes and foreign tax not recognize fiscal transparency for any type of com - credits, the general and specific anti-avoidance pany having legal personality except in the case of Eco - rules in Belgian law, the tax treatment of non- nomic Interest Groupings and European Economic resident companies, and Belgian companies in Interest Groupings. international tax planning. Partnerships formed under company law that in other jurisdictions might be transparent for income tax pur - 1. Introduction poses are subject to the company income tax. Their part - ners are taxed only on the distribution of income to This article sets forth the principal features of Belgium’s them. income tax system as applied to companies with empha - sis on selected aspects that may be of interest to foreign Companies that are resident in Belgium are subject to investors. full company income taxation, while non-resident com - panies are generally subject to company income taxation As an EU Member State, Belgium is obliged to comply only on income derived from Belgian sources. Except as with Community law in all respects, including taxation. indicated below (see .), resident companies and non- As regards income taxation, however, the Member States resident companies with a permanent establishment in have few constraints – in contrast to value added taxa - Belgium are subject to virtually identical tax rules. tion, which is governed by detailed EC regulations. Nonetheless, the European Union has adopted various 3. Taxable Income of a Company legislative measures that have a significant impact on company taxation, such as the Merger Directive, the Companies formed in Belgium, as well as companies Parent-Subsidiary Directive, 2 the Savings Directive, the having their principal place of business or place of man - Interest and Royalties Directive, 4 and the Arbitration agement in Belgium and engaged in commercial activi - Convention. 5 Moreover, Belgium, like all the EU Mem - ties, are taxed on their worldwide income. Generally ber States, is bound by decisions of the European Court speaking, the taxable income of a resident company is of Justice (ECJ), which in recent years has decided cases where national tax rules have been deemed to infringe EU law. Income taxation in Belgium is governed by the provi - * © Eric Osterweil and Marc Quaghebeur, 2008. 6 Eric Osterweil, Counsel, Steptoe & Johnson LLP, Brussels; Marc sions of the Income Tax Code of 992 (ITC). The ITC Quaghebeur, Partner, Vandendijk & Partners, Brussels. contains extensive provisions governing the income tax - . Council Directive 90/44/EEC of 2 July 990 on the common system ation of individuals, companies and“other legal persons”, of taxation applicable to mergers, divisions, transfer of assets and exchanges such as charities, that are not strictly speaking engaged of shares concerning companies of different Member States, [990] OJ L in commercial activities. 225/. 2. Council Directive 90/45/EEC of 2 July 990 on the common system The ITC is implemented, sometimes in great detail, by of taxation applicable in the case of parent companies and subsidiaries of dif - ferent Member States, [990] OJ L 225/6, corrigendum in [99] OJ L 2/5. royal decrees. Additionally, interpretations of the law . Council Directive 200/48/EC of June 200 on taxation of savings may be found in administrative circulars and in abun - income in the form of interest payments, [200] OJ L 57/8. dant case law. 4. Council Directive 200/49/EC of June 200 on a common system of taxation applicable to interest and royalty payments made between associated Although Belgium is a federal state, divided into three companies of different Member States, [200] OJ L 57/49. 7 5. Convention 90/46/EEC on the elimination of double taxation in con - regions with fiscal powers of their own, the law on the nection with the adjustment of transfers of profits between associated under - income taxation of companies is determined at the takings, [996] OJ C 26 of January 996. national level. 6. Code des Impôts sur les Revenus 1992/Wetboek van de Inkomstenbelastin - gen 1992 . 7. The three regions are the Flemish and Walloon regions and the region of Brussels-Capital. The Walloon region includes a small German-speaking area in the east of the country. 46 BULLETIN FOR INTERNATIONAL TAXATION AUGUST/SEPTEMBER 2008 © IBFD IFA Issue – Articles the difference between the company’s net value at the Exceptionally, capital gains realized on the sale of partic - beginning of the fiscal year and its net value at the end. ipations qualifying for the participation exemption and capital gains realized on the exchange of shares of a 3.1. Accounting profits and taxable profits company engaged in a merger-type operation are not subject to tax. See 9. A company’s worldwide taxable income is computed on the basis of the profit (or loss) reflected in the annual For capital gains in respect of tangible and intangible accounts. Taxable profits are determined in accordance fixed assets that are realized involuntarily (due, for with the provisions of the accounting law unless the tax example, to damage or expropriation) or voluntarily (if law explicitly deviates from them. 8 the assets were held for more than five years), the com - pany can opt to defer taxation, provided the proceeds are Each year the company’s management prepares an reinvested in depreciable tangible or intangible fixed inventory of assets and annual accounts. The accounts assets. Such gains are then subject to tax at the normal include a balance sheet, a profit and loss account, and an rates over the depreciation period of the reinvested explanatory memorandum. 9 These documents must be assets (Art. 47 ITC). drawn up in accordance with the Companies Code, the accounting law and the various royal decrees imple - 3.3. Computing net taxable income menting these rules, as well as the generally accepted accounting principles as codified by the Belgian A company must divide its taxable income into three Accounting Standards Commission. 0 The annual discrete categories: () Belgian-source income, (2) for - accounts are submitted to the general meeting of share - eign-source income attributable to a permanent estab - holders or members for approval. lishment in a tax treaty country which is exempt from tax in Belgium, and () foreign-source income attributa - Although company groups are required to file consoli - ble to a non-tax treaty country which is taxed at one dated accounts in compliance with the accounting rules, quarter of the normal tax rate of .99%, i.e. generally Belgium does not have a system of consolidated 8.5%. accounts for income tax purposes. Interestingly, a form of consolidation is available under the value added tax The company may then successively deduct the follow - law. ing items: (a) income derived from tax treaty countries; 3.2. Determining the taxable profit (b) tax-deductible gifts; The profit or loss shown in a company’s annual accounts constitutes the basis for computing its worldwide tax - (c) dividends that qualify for the participation exemp - able income. Additionally, to arrive at the taxable tion (see 0..). Specifically, the company may deduct income, the company must add to its accounting profit 95% of the dividends received if it holds a participation or loss distributed dividends, reserves and disallowed that is at least 0% of the subsidiary’s nominal share cap - expenses. ital or if the shareholding is valued at EUR ,200,000, whichever is less. There is also a “subject to tax” require - 3.2.1. Deductible expenses ment which excludes dividends from subsidiaries in tax havens or in countries where they enjoy a substantially Generally, a Belgian company may deduct business more advantageous tax burden than under the Belgian expenses. The ITC defines business expenses as company income tax; see 7.2..; “expenses that the taxpayer has incurred or borne during the taxable period in order to acquire or preserve taxable (d) the patent income deduction. The company may income and which can be supported by appropriate doc - deduct 80% of the patent income from qualifying umentation or other proof permitted under law” (Art. 49 patents or extended patent certificates developed in its ITC). own R&D centre (Arts. 205/-205/4 ITC); see 0.2.; The depreciation of assets is generally based on the (e) the risk capital deduction generally calculated as acquisition or production cost. Companies may use 4.07% of the company’s equity (see 0..). The excess straight-line depreciation or the declining-balance may be carried forward for seven years (Arts. 205bis- method. Accelerated depreciation is permitted in certain 205novies ITC); circumstances. Salaries and social security contributions are major deductible items. Other allowable expenses include 8. Cour de Cassation, 20 February 997, Fiscale Jurisprudentie/Jurispru - charitable contributions, bad debts and reserves. dence fiscale , 97/526. 9. Art. 92 of the Companies Code. 3.2.2. Capital gains 0. See www.cnc-cbn.be. Because the participation exemption may be claimed only after the two In general, capital gains on the sale or other disposal of preceding deductions, the company may not be able to deduct the full 95%.
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