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Notional Interest Deduction
What is Notional Interest Deduction?
The notional interest deduction allows companies and organizations to reduce their taxable base when making investments from their own resources. It is the deductible amount that equals the fictitious interest cost on the adjusted equity capital.
Scope of application
Are eligible for the notional interest deduction, all companies that are subject to Belgian corporate income tax, or non-resident corporate income tax.
Calculation
The amount that can be deducted as notional interest from the taxable base equals the fictitious interest cost on the adjusted equity capital. The fictitious interest rate to be applied to the adjusted equity capital is equal to the annual average of published interest rates for 10-year Belgian government bonds (OLOs).
Applying the fictitious interest rate to the adjusted equity capital produces the amount that can be deducted from the taxable base, i.e. the notional interest deduction. The notional interest rate for tax year 2008 is 3.781%.
Advantages
The measure with respect to the notional interest deduction:
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Reduces the taxable base of the company, thus providing attractive tax savings
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Protects the capital of companies, so they can be stronger and more independent
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Provides flexibility, because under certain circumstances it is possible to carry forward any unused amount of the deduction
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Abolishes the 0.5% registration fee on capital contributions
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Complies with EU regulations and offers companies legal certainty
New Domestic Dividend Withholding Tax Exemption
What is the New Domestic Dividend Withholding Tax Exemption?
The new domestic dividend withholding tax exemption extends the EU Parent-Subsidiary Directive between the 25 EU-countries and Switzerland to all countries worldwide that have a double tax treaty with Belgium.
Scope of application
Are eligible for the domestic dividend withholding tax exemption, any corporate shareholder who is a resident of a treaty country and holds at least a 15% participation in its Belgian subsidiary for a consecutive period of at least 12 months (10% participation as of 2009). For Switzerland there are separate rules.
The parent company must have a legal form as listed in the appendix to the Parent–Subsidiary Directive or be a company established under Belgian Law and subject to corporate income tax. Furthermore it must have its head office, corporate headquarters or administrative seat in Flanders.
How does it work?
Using Flanders as their holding location for investments in Europe allows corporate investors from treaty countries to repatriate European profits without paying dividend withholding tax and without a limitation on benefits.
Dividends paid to corporate shareholders by a holding company domiciled in Flanders are exempt from withholding tax under this new exemption, whereas capital gains on shares realized by this holding company are in principle exempt from corporate income tax. This makes Flanders as a region, an attractive holding company location.
Organization for Financing Pensions (OFP)
The Belgian government recently created a flexible legal and fiscal context for pension funds established in Belgium. The aim is to make Belgium, and Flanders as a region, an attractive location for pan-European pension funds.
What is an OFP?
An OFP is a special purpose vehicle specifically designed for pension institutions. As of January 1st 2007 all new Belgian pension funds have to be incorporated within this legal framework. As a transitional measure, all existing pension funds (until today recently structured as a non-profit association) need to be converted before January 1st 2012.
What are the advantages of creating an OFP?
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An OFP is not subject to the special annual estate tax of 0.17 percent on the pension funds' assets at January 1st of each year
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An OFP is subject to corporate tax on an alternative basis (i.e. the total of the "abnormal and gratuitous benefits" received by an OFP and the disallowed expenses)
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An OFP will be able to credit interest and dividend withholding tax against corporate tax due and excess withholding taxes are refundable
VAT Grouping
What is VAT Grouping?
All taxpaying entities of a group can be regarded by the Belgian VAT administration as a single fiscal entity. Consequently, different companies of the same group will not have to invoice one another VAT. There will be one VAT return for the entire group.
Scope of application
Belgium-based companies from all sectors of industry.
Advantages
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Cost saving: companies of the same group can save the 21% VAT when they invoice one another
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Extremely flexible: foreign companies can choose if they want to adopt fiscal unity or not and which parts of their group will fall under the new system
This simplification of VAT rules makes Belgium an even more attractive location for inward investment and the multinational's choice to base centers like those for invoicing, accounting, credit management, IT services and contact centers.
Hong Kong treaty
Belgium, as first country of the EU, has signed in 2003 a double tax treaty with the Hong Kong Administrative Region of the People's Republic of China (i.e. Hong Kong).
What is the Hong Kong treaty?
Belgium companies are able to pay dividends, interest and royalties, under certain conditions, to Hong Kong at a zero or low rate of withholding tax:
Dividends:
Interest:
0%:
" On commercial debts-claims represented by commercial paper, resulting from deferred payment for goods, merchandise or services supplied by an enterprise;
" On debt-claims or loans of any nature (not represented by bearer instruments) paid to banking enterprises;
" On deposits made by an enterprise with a banking enterprise;
" On certain loans related to the Hong Kong or Belgian governments;
10% in other cases.
Royalties: 5% in all cases.
Advantages
This tax treaty has lead to substantial tax advantages for companies located in Hong Kong, which are investing or are planning to invest in Europe, through the use of Belgian (holding) companies.
Tax Rulings
All taxpayers may request an “advance ruling” under which the Federal Public Finance Department determines how the tax code shall be applied to a particular situation or specific transaction that has not yet taken effect from a taxation point of view. A ruling relating to any tax matter can be applied for: mergers, splits and related transactions; contributions; transfer pricing; absence of permanent establishment; participation exemption, regime; withholding taxes; depreciation; tax deductions; capital gains. This list is by no means exhaustive.
There are, however, a number of restrictions:
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Only concrete transactions or situations in which implementation is considered in a serious and precise way fall within the scope of the ruling procedure and this under certain conditions
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No ruling can be requested with regard to levies and prosecutions
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Theoretical applications and applications as part of tax strategies are not permitted
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No ruling can be requested in situations that are identical to cases that are, in the name of the applicant, subject of administrative appeals or legal actions
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The ruling decision binds the Administration other than if conditions are not fulfilled, if the situation is described incorrectly or incompletely, and in cases pertaining to changes in the law or in cases of conflict with legal provisions
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The applicant has no obligation to execute the actions on which the ruling is based
The ruling application must be submitted on paper to the Federal Public Finance Department and must contain the following elements:
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Identity of the applicant and, if applicable, of third parties
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Description of the activities of the applicant
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A complete and detailed description of the particular situation or operation
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Reference to the legal or regulatory provision on which the decision should be based
Until a decision is made, all new elements that relate to the operation or situation must be added to the application.
Applications can be submitted at any time on paper and the tax authorities have three months in which to answer the request for a ruling. This timeframe can be altered by mutual consent of the taxpayer and the tax administration. The tax authorities must inform the taxpayer of the established timeframe no later than 15 days after the receipt of the completed ruling request.
A decision is valid for five years, unless the object of the request justifies a different period.
The application must be submitted on paper to:
Federale Overheidsdienst Financiën
Dienst Voorafgaande Beslissingen
Maria Theresiastraat 1
BE-1000 Brussels, Belgium
tel: +32 2 579 38 00
fax: +32 2 579 51 01
e-mail : dvbsda@minfin.fed.be
Foreign applicants wishing to establish or invest in Flanders should contact:
Cel Fiscaliteit van de Buitenlandse Investeringen
Maria Theresiastraat 1
B-1000 Brussels
Tel: +32 2 579 38 66
Fax: +32 2 579 51 12
Please Note: A foreign business that is looking to invest in Flanders and requires any advice or assistance in these matters is welcome to contact us.
Measures specifically focused on SMEs
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New tax rates of:
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From 0 to 25,000 Euro: 24.98%
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From 25,000 to 90,000 Euro: 31.93%
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From 90,000 to 322,500 Euro: 35.54%
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From 322,500 Euro: 33.99%
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Self financing of companies by means of retained earnings is encouraged by a tax exemption for an investment reserve of 86.8 million Euro
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The tax surcharge due for insufficient advance payments will no longer payable by SMEs in their first three years
A recent Flemish Government decision means that investments in machinery and equipment no longer attract additional real-estate taxes that applied in cases where the investor also owned the building in which the assets were housed. In addition, real-estate tax due on the building component will no longer be indexed but will remain frozen at 1996 levels.
Please Note: This benefit is available only in Flanders and not in other parts of Belgium.
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