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Unique TAX INCENTIVES in Belgium

2015

Michela RitondoFiscal Department for Foreign Investments

Federal

Public Service

Finance

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Effective (Average) Corporate Tax Rate (ECTR)

Sources : ZEW, Centre for European Economic Research, Manheim Effect Tax Levels – Report 2013

Especially in Belgium, the ECTR is considerably below statutory tax rates (-7,7%)

ECTR (Effective Corporate Tax Rate)

26,522,3

28,2

34,3

25,1 24,2

36,540,1

0

5

10

15

20

25

30

35

40

45

Belgium Netherlands Germany France Ita ly UK USA Japan

NCTR (Nominal Corporate Tax Rate)34

25

31

37,1

31,3

23

37,9 38,6

0

5

10

15

20

25

30

35

40

45

Belgium Netherlands Germany France Ita ly UK USA Japan

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3

1/ Tax incentive for risk capital : Notional Interest Deduction

PrincipleCompanies are allowed to deduct a fictitious interest calculated on the basis of their shareholders equity

Consequences Reduced effective tax rate

Federal

Public Service

Finance

Federal

Public Service

Finance

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Who?

Companies subjected to

Corporate tax Non-residents / Corporate Tax

Federal

Public Service

Finance

1/ Notional Interest Deduction

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How does it work ?

Annual Tax DeductionAnnual Tax Deduction==

EQUITY EQUITY (in the opening balance sheet of the taxable period)(in the opening balance sheet of the taxable period)X X RATE ( RATE (10-year OLO10-year OLO))

Federal

Public Service

Finance

1/ Notional Interest Deduction

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« Qualifying » equity

Equity = total equity as defined under Belgian GAAP (includes retained earnings)

in the opening balance sheet of the taxable period “adjusted” to avoid double use and abuse.

1/ Notional Interest Deduction

Federal

Public Service

Finance

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Interest Rate RATE = annual average of the monthly published rates

of the long term Belgian Government Bonds (10-year OLO) of the months July, August and September of the penultimate year prior to the tax year (budget law 2013)

Fixed yearly for 2015 (Tax Year 2016):

1,63% (2,13% SME’s)

1/ Notional Interest Deduction

Federal

Public Service

Finance

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(Return on Equity: 4%)

Assets LiabilitiesGroup Financing100 000

Share Capital100 000

1/ Notional Interest Deduction

Example

P&L Account

Profit before tax

N.I.D. (1,63%)

Taxable

Corporate Tax (33,99 %)

Effective Tax Rate

Before N.I.D.

4000

/

4000

1360

33,99 %

With N.I.D

4000

- 1630

2370

806

20,1 %

Federal

Public Service

Finance

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EXAMPLE 2:

Net Result(Return on Equity) Effective Tax Rate

≤ 1,63 % 0 %

4 % (Previous slide) 20,1 %

5 % 22,9 %

6 % 24,7 %

Assets LiabilitiesBusiness Assets100 000

Share Capital100 000

Federal

Public Service

Finance

1/ Notional Interest Deduction

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Other particularities

For SME’s: + 0,5% Rate = 2,13% Permanent measure No ruling nor agreement is needed Suppression of the 0,5% capital duty as of

1/1/2006 EU compliant

Federal

Public Service

Finance

1/ Notional Interest Deduction

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PrincipleThe investor describes the facts to the tax administration, allowing him to know, in advance, how the tax laws are to be applied on a case by case basis

Consequences • Confidence to invest• Legally binding & accurate forecast

Scope of applications

Corporate tax, individuals tax, customs, VAT, Transfer pricing, Business Restructuring, Deductible expenses Financing, Branches, Bonded warehouses, etc.

2/ Tax Ruling

Federal

Public Service

Finance

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Belgian DISTRIBUTION Centre Belgian SERVICES Centre

Operational Companies

OperationalCompanies

PARENT COMPANY e.g.USA / Japan…

* OECD accepted norm: arm’s length standard

Cost plus % case-by-case ruling *

Federal

Public Service

Finance

2/ Tax Ruling

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Examples of matters that can be cleared in advance:

Transfer pricing issues Cost plus ruling for European Distribution Center (EDC) Cost plus ruling for Service Sharing Center (SSC)

Taxable presence or not in Belgium ? In the hands of the foreign principal of a Belgian manufacturer or sales

function In the hands of the service recipients of a EDC or SSC

Personal tax issues Amount of tax-free lump sum allowances for personnel

VAT issues“Tonnage” tax regime for shipping …

Federal

Public Service

Finance

2/ Tax Ruling

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3/ Dividend withholding tax exemption

Conditions to benefit

be resident in a country with which Belgium has concluded a double tax treaty;

the beneficiary holds a participation of at least 10% in a Belgian subsidiary, for an uninterrupted period of at least 12 months = low participation threshold;

Federal

Public Service

Finance

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Parent company(treaty partner of Belgium)

Belgian Subsidiary

No WHT No LOB

10% shareholding

12 months

Federal

Public Service

Finance

3/ Dividend withholding tax exemption

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Participation exemption dividends received : deduction of 95%

Deductibility of interest paid to acquire shares No capital duty For large enterprises: low taxation of 0,412% on

realized capital gains on shares if minimum holding period of 12 months is fulfilled

For SME’s: full exemption of realized capital gains on shares if min holding period of 12 months is fulfilled

4/ Holding regime

Federal

Public Service

Finance

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For foreign executives and managers temporarily detached in Belgium : Tax free expatriate allowance (cost of living, cost of housing, tax equalization)

operational entity: 11 250 € / an HQ or R&D centre: 29 750 € / an

Reimbursement of non-repetitive expenses (installation costs, moving expenses, school fees) unlimited amount tax free

« Travel exclusion »:workdays performed outside Belgium tax free in Belgium

5/ Expatriate status

Federal

Public Service

Finance

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For employers:

No tax, no social security contributions on expatriate allowances and reimbursement of expenses

Deductible from Corporate tax

Federal

Public Service

Finance

5/ Expatriate status

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6/ 10 good reasons to invest in R&D

1. Patent Income Deduction2. Investment deduction for R&D related investments and patents

3. R&D Tax Credit4. Partial exemption salary withholding tax for researchers

5. Tax allowance for additional employee

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6/ 10 good reasons to invest in R&D !

6. Innovation premium

7. Expatriate status in R&D

8. Tax exoneration for regional grants

9. Accelerated depreciation of R&D intangibles

10. Deductible gifts

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6/ Tax incentives for R & D

1/ Patent income deduction

What is it ?Deduction of 80% of the income from patents from the taxable basis, resulting in an effective tax rate of maximum 6,8% on this income

Who can benefit ?Belgian companies and Belgian establishments of foreign companies

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6/ Tax incentives for R & D

1/ Patent income deduction

Example Patent income: 100 Deduction: ( 80) Taxable basis: 20 Corporate Tax (33,99%) (6,8) Net income after tax: 93,2

Effective Tax rate: 6,8 %

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6/ Tax incentives for R & D1/ Patent income deduction

Patents concerned

•self-developed or co-developed by a Belgian company or branch;•acquired by a Belgian company or branch provided they are being further developed in Belgium or abroad (by acquisition, or license,…) •Large companies must have in-house R&D activities in a R&D center that qualifies as branch of activity•As of 1 January 2013 SME’s are exempted from the R&D center requirement

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6/ Tax incentives for R & D

1/ Patent income deduction

Calculation of the deduction

•For patents that are licensed: 80% of the patent income received, to the extend the income is at arm’s length

•For patents that are used in the production process: deemed deduction of 80% of the at arm’s length royalty that would have been received had the patents been licensed to unrelated third parties

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Développer une entreprise axée sur R&D

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6/ Tax incentives for R & D

1/ Patent income deduction

• Applies to variable income streams, fixed income streams, as well as upfront fees, milestones, etc.

• Other intellectual property rights (copyrights, know-how, designs, trademarks, etc.) do not qualify.

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6/ Tax incentives for R & D1/ Patent income deduction

Highly competitive measure

• Very low effective tax rate of maximum 6.8% and absence of any capping rules;

• Tax deduction in addition to normal tax-deductibility of R&D related expenses;

• Can be combined with Notional Interest Deduction for invested equity, etc.

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6/ Tax incentives for R & D2/ Investment deduction for R&D related inv. and patents

• Investment deduction for R&D related investments: for assets which aim to promote R&D of new products and advanced technologies which are environment-friendly : deduction of 13,5% on the investment value (in one shot) OR 20,5% on the annual depreciation (spread deduction)

• Investment deduction in patents acquired or self-developed by the company deduction of 13,5% on the investment value NB: In case of insufficient profits, deduction carried forward for an unlimited period .

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6/ Tax incentives for R & D3/ R&D Tax Credit

Corresponds to the tax saving linked with the investment deduction

Ex.: Investment of 100 000 € Tax credit = 100 000 x 13,5% x 33,99% = 4 589 €

•Advantage: improved presentation in accounting terms of the cost price of R&D in Belgium

•In case of insufficient profits, the Tax Credit can be carried over to the subsequent 4 tax years;The part not used after 5 years is refunded.

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6/ Tax incentives for R & D4/ Income tax reduction for researchers, in favor of employers

• Principle: the salary withholding tax is normally retained on the remunerations paid to the researcher, but the amount of tax so retained must not be totally paid to the Belgian Treasury (= extra financial means for the employer)

• 80% exemption !

• For researchers with a specific degree, engaged in R&D program

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6/ Tax incentives for R & D

5/ Tax allowance for additional employee

Exemption of 15 270 € (year 2015) from the enterprises profits:

•for the manager of Total Quality department•for the manager of Exportations department

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6/ Tax incentives for R & D

6/ Innovation premium

• Principle: the premiums must be granted for an innovation which creates genuine added value for the normal activities of the employer

exemption from personal income tax for the beneficiary exemption from social security contributions deductible against corporate income tax for the employer

• Conditions: the amount paid per worker may not exceed one month’s gross salary

per calendar year Publication within the company of the criteria, identification of the

project,…and communication to the Ministry of Economic Affairs

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6/ Tax incentives for R & D7/ Expatriate status in R&D

Attractive conditions for foreign executives and researchers:

•Exclusion from the taxable remuneration of expatriation allowances max €29 750 per year for repetitive expenses (cost of living, cost of housing, tax equalization) tax free reimbursement of installation costs, school fees,…

•Exclusion from the taxable remuneration of workdays performed outside Belgium

Attractive conditions for employers:

•Reduction of employment cost for expatriates with simple proceedings

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6/ Tax incentives for R & D

8/ Tax exoneration for regional grants in favor of R&D

• Subsidized assets or intellectual property out of a subsidized project can not be transferred during a 3 year period

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6/ Tax incentives for R & D

9/ Accelerated depreciation of R&D Intangibles

Tax depreciation rules on R&D investments (intangibles):

accelerated depreciation in 3 years instead of 5, according to the straight-line method of depreciation

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6/ Tax incentives for R & D

10/ Deductible gifts

Cash contributions aiming at sponsoring public R&D programs

deductible from the net taxable incomemax. 5% of the net income or € 500 000

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People

Wage withholding tax exemptionTax allowance for additional employeeInnovation premiumExpatriate tax regime

Belgian R & D Centre

Activities Investments

Patents

Favourable transfer pricing rulings

Investment deductionR&D Tax creditAccelerated depreciationTax exoneration for regional grants

Patent Income Deduction

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ExampleManufacturing company with a R&D division:•Share capital: 100 000 (of which 20 000 = contributed patent value)•Return on equity: 12% Net profit: 12 000 (of which 3 000 = patent income ; 9 000 = product revenue)

To deduct•Invest. ded. on patents: 13,5% x 20 000 = 2700•Patent Income Ded.: 80% x 3 000 = 2400•N.I.D. 1,63% x 100 000 = 1630•Taxable basis: 5 270

Corporate Tax: (5 270x 33,99%) = 1 791 Effective tax rate: 14,9 %

INVEST IN BELGIUM – increase your profits

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More information ?

Contact

Federal Public Service Finance Fiscal Department for Foreign InvestmentsRue de la Loi, 24 (Parliament Corner)1000 Brussels - BELGIUM

Michela Ritondo

Email: michela.ritondo@minfin.fed.beTel.: +32 257 938 69