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In order to stimulate economic growth the federal and the regional governments have implemented certain incentives for businesses that establish operations in Belgium.
This section describes the three types of incentives available to companies: cash grants, employment and training incentives and tax-related incentives.
Cash Grants
What kinds of cash grants are available?
Cash grants are available for investments in tangible fixed assets such as buildings and equipment and in some cases additionally for investment in some intangible assets. Cash grants are calculated as a percentage of the approved investment.
What factors determine whether a company qualifies for a cash grant and, if so, the amount of the cash grant?
The maximum amount of cash grants depends upon the size of the company (small, medium or large).
An SME can obtain grants in each location in Flanders.
Large companies must be located in an EU development zone to be eligible for grants. Additionally, a large company must also invest more than 8 million EUR over the next three years.
What kinds of assistance can Flanders offer a potential foreign investor interested in finding out about cash grants?
Flanders Investment & Trade can assess a company's eligibility for obtaining any of the available cash grants. Flanders Investment & Trade will provide information and assistance with the filing of the actual grant request with the appropriate authorities within the Flanders Ministry of Economics.
Is your company considered small, medium or large according to EU standards?
A small company satisfies all of the following two conditions:
1. Maximum employment of 50 people in the Belgian entity;
2. Maximum turnover of 10 million EUR or a balance sheet total of maximum 10 million EUR of the Belgian entity together with the parent company;
To calculate the above data, the data of each partner enterprise and/or linked enterprise has to be taken into account.
A medium-sized company satisfies all of the following two conditions:
1. Employment of 51 to 250 people in the Belgian entity;
2. Annual turnover of no more than 50 million EUR or a balance sheet total of maximum 43 million EUR of the Belgian entity together with the parent company.
To meet the conditions, the data of each partner enterprise and/or linked enterprise will be taken into account.
A large company is a firm that exceeds at least one of the criteria specified above for medium-sized companies.
What are EU development zones and what are the benefits of locating in one?
These are business development zones defined by the European Union under the European Regional Development Fund and where regions can provide more substantial business incentive grants.
Where are EU development zones located in Flanders?
Flanders has European Union development zones in each of the provinces except Flemish Brabant.
What is an ecological subsidy?
An ecological subsidy of 10% (for large companies) or 20% (for SMEs) can be obtained for that part of the investment that qualifies as "ecologically friendly," in accordance with the requirements of the Flemish administration. That part of the investment is no longer eligible for any of the above-mentioned cash grants. Percentages are valid as from the first call for proposals for Flemish eco-subsidies (September 2007).
Employment and Training Incentives
What employment-related incentives are available?
The Belgian Government offers several opportunities to reduce social security contributions for employers. In general, different programs are dedicated to specific targets or issues. Contributions vary from a reduction to a lump sum. We would like to highlight some of them, but for more programs and details, we kindly request that you contact Flanders Investment & Trade.
- Employment Plan - Plan Activa
A reduction in social security contributions is possible for all employees who were unemployed for the last 12 months and for people older than 45 years who were unemployed for the last six months. This results in a substantial reduction of the total annual payroll costs. The reduction can be combined with other social security incentives like:
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Reduction of working hours below 38-hours/week;
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Installation of a four-day week;
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Reduction of 10% for start-job agreements ("startbaanovereenkomsten").
Maintain elderly employees above the age of 57
Maintaining employees above 57 in the company is compensated via a reduction of social securities.
How are these employment incentives granted?
Upon filing by the payroll service, the reductions are automatically granted by the federal government. No pre-financing is required nor is there an administrative burden for the company.
What types of human resources assistance can the Flemish Government's Employment Agency provide to companies?
The official Flemish Employment Agency (VDAB) has an excellent reputation within the business community as a provider of qualified applicants and customized training. The agency has access to a large, comprehensive database of unemployed job seekers and a substantial database of employed job seekers. It also provides recruitment services and can conduct and evaluate detailed psychological and technical tests.
The VDAB can also provide companies with training programs and training subsidies for variable lengths of time. Because of the multitude of programs, the potential investor is advised to meet with VDAB representatives in order to design a customized training program. As an example, in close cooperation with the VDAB, it is possible for a company to select candidates and train them according to their experience and skills in a specific job category.
The training costs can be covered by the VDAB.
What type of on-the-job training can the VDAB provide?
The on-the-job training division of the VDAB is devoted to training candidates to acquire skills for which there is a shortage on the labor market, or training those who are currently unemployed. The grants, which can range from one month to one year, completely cover the training period. The subsidy depends on the trainee's future salary, his or her current unemployment allowance and the number of months of training required. Although the VDAB itself is not involved in the training, it does approve the entire training process. On-the-job training is extremely flexible and requires minimal administration.
Individual training in a company (IBO)
An employer can benefit from a reduction in the payroll costs for a new employee who is entitled to follow a training scheme. The person involved is not formally on the payroll of the company (the training lasts between 4 and 52 weeks).
Re-entering after resignation due to re-organisation
An employer hiring a resigned employee (after a re-organisation) can benefit from a premium of 400 euro per quarter.
Young hirers
To encourage the employment of young people, employers can benefit from a fixed premium if they hire an employee younger than 18 years old.
Budget for Economic Advice
The Budget for Economic Advice allows SMEs to obtain financial support for training and advice expenses. The system also covers support for mentorship and the acquisition of knowledge. The training and advisory services must be delivered by recognized institutions. The maximum support is 35% of the accepted costs, with a maximum of 2,500 EUR for each of the four areas and an overall maximum of 5,000 EUR per company over a period of 2 years.
Are other training grants available?
Under specific conditions, companies may benefit from additional European grants from the European Social Fund for vocational training projects. Additionally, the Flemish Government provides ad hoc grants for specific, innovative training projects that deliver indirect added value for the region. To check whether your company qualifies for these kinds of grants, contact Flanders Investment & Trade.
What additional measures are available to reduce labor costs?
Provided it is explicitly stated in the collective labor agreement, overtime can be calculated on an annual rather than a weekly basis.
Other available measures are:
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First hiring program, providing a fixed contribution for the first, second and third hired employees;
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Special regulations for certain categories of people such as disabled employees and immigrants;
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Start-job agreements - reduction of social security contributions for employees hired under a start-job agreement (young and unemployed);
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Reduction of working hours - a fixed reduction for employers whose employees switch to average working hours of less than 38 hours a week (at least one hour less than 38 hours);
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Four-day weeks - a fixed reduction for employers who switch to a working week of four days.
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Partial exemptions from advance payments on wages are allowed for companies that employ personnel holding a university or master's degree that are assigned to R&D projects.
Tax-Related Incentives
- Expatriate tax incentives
What tax incentives are available to foreign executives?
In order to reduce the employment cost for foreign expatriates, thereby encouraging multinational companies to transfer their employees to Belgium, the Belgian tax authorities introduced a special tax regime for executives and specialists in 1983. Provided that both the employer and the employee meet the qualifying conditions for the special tax regime, certain beneficial tax rules will apply.
Given the fact that qualifying expatriates will be considered Belgian non-residents, they are only taxed on their Belgian source income. They will be exempt from taxation in Belgium on foreign passive sources of income such as dividends and real estate. Although expatriates are obliged to declare their worldwide earned group income in Belgium, they will not be taxed on the part of their remuneration corresponding to the number of days worked abroad (travel exclusion).
In addition, expatriates will not be taxed on significant allowances and reimbursed expenses paid to cover the cost of the assignment to Belgium (costs proper to the employer). Tax free reimbursement of schoolfees and non-recurring costs such as moving and installation costs are unlimited. Reimbursement of recurring expenses, such as cost of living allowance, cost of housing allowance, tax equalization and home leave is limited to 11,250 EUR or 29,750 EUR, depending on the nature of the assignment.
- Research and development personnel tax incentives
What types of incentives exist to stimulate research and development?
To encourage R&D activities, a one-time deduction from taxable profits is available for companies employing additional research personnel, quality assurance personnel or a head of export, expatriate as well as Belgian. However, when the average number of R&D personnel diminishes in a subsequent tax year the amount previously deducted must be added back to the profits of that tax year.
The deduction amounts to 13,010 EUR for scientific researchers, quality assurance managers or export directors (figures for assessment year 2008).
Provided that they fulfill the requirements, companies employing researchers who work on research projects in partnership with a university or high school located in the European Economic Area, the National or Flemish Fund for Scientific Research or other recognized scientific institutions, are allowed to only pay to the authorities 50% of the amount of the professional withholding taxes of their scientific personnel, as a reduction of the total employment cost. The same applies to scientific personnel working for so-called "Young Innovative Companies," for which specific conditions need to be met.
As from January 2007, the existing exemption of payment of 25% of the withholding tax withheld has been extended to certain master diplomas.
- Overtime, night and shift work tax incentives
What tax incentives are available to reduce the labor cost of overtime, night and shift work?
Employers can benefit from a partial exemption from the professional withholding tax on the first 65 hours of overtime. The exempt portion is equal to 24.75% of the gross salary on which the overtime compensation is calculated.
Employers are allowed to deduct 5.63% of the taxable remuneration of night and shift workers from the amount of professional withholding tax that they have withheld and should pay to the authorities (the amount can be increased to a maximum of 10.7% provided certain conditions are met).
- Notional Interest Deduction
The notional interest deduction applies with effect from tax year 2007 (accounting years ending on December 31 2006 or later). Under the notional interest deduction, a company will be able to make a deduction from its taxable profits depending on the portion of equity financing. The regime is applicable to all Belgian companies and to Belgian establishments of foreign companies, whatever their size may be.
The notional interest deduction will be calculated by multiplying the total equity by the interest rate for 10-year government bonds (OLOs). The rate is 3.781% for tax year 2008 (3.442% for tax year 2007). For small- and medium-sized companies (pursuant Art. 15 of the Company Law) the percentage is 4.281% for tax year 2008 and 3.942% for tax year 2007. The applicable percentage is revised on an annual basis. The percentage is equal to the average of the interest rate for 10-year government bonds for the penultimate calendar year preceding the tax year. For instance, for tax year 2007, the applicable percentage is the average of the OLO interest rate for 2005. The law sets a maximum deviation of 1% from one year to the
next and a maximum percentage of 6.5%, although the government may change the percentage by Royal Decree if it is deemed to be necessary.
The law also includes measures to prevent abuse of the notional interest deduction. To prevent the same equity from generating deductions for different taxpayers, the following items are excluded from the base on which the deduction is calculated:
1. The net book value of the shares the company holds in its own share capital;
2. Shareholdings recorded as financial fixed assets;
3. Shares held in collective investment companies generating income eligible for the dividends received deduction;
4. The net book value of assets of permanent establishments held by the company in countries that have concluded a tax treaty with Belgium;
5. The net book value of real estate (or entitlements in real estate) held by the company in countries that have concluded a tax treaty with Belgium;
6. The net book value of fixed assets to the extent that the costs of these assets unreasonably exceed the needs of the company;
7. The net book value of assets (e.g. art and jewels) that are not expected to generate regular income;
8. The pro rata net book value of real estate or other entitlements in real estate, privately used or occupied by directors (or their spouse or children) receiving income from the company holding the real estate rights;
9. Recorded but unrealized capital gains (referred to in article 44, 1, 1° Income Tax Code), provided they do not relate to assets referred to in points 4, 5, 6 and 7 above.
- Investment deduction
Companies acquiring new tangible or intangible fixed assets used in Belgium for business purposes can, under certain circumstances, claim a deduction from their taxable profit amounting to a percentage of the acquisition or investment value of those investments.
The investment deduction does not affect the depreciation base. It is treated as a tax credit in the tax return and, when the profit is insufficient, can be carried forward indefinitely but with certain limits as to the amount.
What investment deduction rates are available?
Either a one-time or a spread investment deduction may be taken at the option of the taxpayer. The onetime investment deduction regime is equal to a certain percentage of the cost price of the investment. The rates are as follows:
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13.5% for energy-saving investments, patents, investments in the security of the company's premises or R&D investments leading to new products (figures based on assessment year 2006);
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3% for investments made in tangible fixed assets which are used solely for the production of recycled packaging (figures based on assessment year 2006).
The spread investment deduction is spread over the depreciation term of the capital investment made. The following rates apply:
What types of investments are excluded from the investment deduction?
The following investments, among others, are not eligible for the investment deduction: inventory, cars, land, real estate to be sold by real-estate companies, assets depreciated over less than three years, assets not used solely for business purposes and assets leased under an operational lease contract.
- Tax credit for research and development
Companies investing in fixed assets that qualify for the increased investment deduction for patents or for research and development will have the option to apply for a tax credit instead of an investment deduction. The choice for a tax credit will be irrevocable. The tax credit for research and development can be carried over to the four subsequent assessment years. The unused part of the tax credit carry over is fully refundable after five assessment years (including the investment year). The tax credit for research and development came into effect with effect from tax year 2007.
- Tax deduction for patent income
The Belgian government has introduced a new tax deduction for companies in respect of certain patent income. The deduction, which is designed to stimulate technical innovations by Belgian companies through R&D activities in connection with patents, will reduce the effective tax rate on patent income to a maximum of 6.8%.
The tax deduction will apply to all Belgian companies and Belgian branches of foreign companies, as wellas to the following types of income:
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Income derived from the licensing of patents by a Belgian company or branch;
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Income derived from the use of patents in the production of patented products by a Belgian company or branch or on its behalf.
The above-mentioned patents should be developed in R&D centres in Belgium or abroad or involve patents obtained or licensed from third parties, provided the patented products or processes are further developed by R&D centres in Belgium or abroad (regardless of whether such further development leads to additional patents).
The deduction in respect of licensed patents will be equal to 80% of the arm's length patent income received. For patents used in the production process, the Belgian company or branch will be able to deduct from its taxable profits an amount equal to 80% of the arm's length royalty the Belgian company or branch would have received had it licensed the patents to unrelated parties.
In the case of patents licensed or acquired from third parties, the basis on which the 80% exemption is applied must be reduced by:
The patent deduction will apply with effect from tax year 2008 to all new patent income (i.e. patent income that has not led to the sale of patented products or services by the Belgian company or branch, by a licensee or a related company to unrelated parties before January 1 2007).
- Tax-free investment reserve
Within certain restrictions, companies qualifying for reduced corporate tax rates (certain small and medium-sized enterprises) can build up a tax-free investment reserve amounting to 50% of their taxable results allocated to the reserves, reduced by:
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The tax exempt capital gains on shares;
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25% of capital gains realized on cars;
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The reduction of share capital compared to the share capital of the previous income year during which a tax-free investment reserve was built up or increased.
Furthermore, there are some other restrictions related to the tax exemption of the investment reserve (e.g. reinvestment requirement, a time limitation, a limit on the amount that may be exempted etc).
Small and medium-sized companies will have to make the choice between the current system of an investment reserve and the notional interest deduction. They will not be allowed to apply both incentives. Companies applying the investment reserve cannot benefit from the notional interest deduction in a two year period following the relevant financial year.
- Tax losses carried forward
How are tax losses of a Belgian company treated for tax purposes?
Prior and current year tax losses incurred by a Belgian company can be carried forward without any limits in time and amount in order to offset future taxable income. However, restrictions apply if there is a change in the control of the company, a merger, a contribution or a disallowed transfer pricing.
- Depreciation
Depreciation can be applied to formation expenses and to intangible and tangible fixed assets with a limited economic lifetime. It must be taken every year, irrespective of the amount of corporate income, starting from the financial year in which the asset was acquired, produced or received as a contribution.
Which methods of depreciation are available?
Depreciation is calculated on the basis of the acquisition value and the useful life of the asset. Two depreciation methods are applicable: a straight-line method, which is the most commonly used method and a double declining-balance depreciation method, which is optional.
Under the straight-line depreciation method, the asset is depreciated over its useful economic lifetime based on a fixed percentage of the acquisition value. The double declining balance method takes as a depreciation percentage the double of the straight-line depreciation percentage with a maximum of 40% of the acquisition value. Each following year the depreciation is calculated on the value of the asset at the end of the previous financial year. Once the annual depreciation is lower than it would be under the straight-line depreciation method, the tax subject can switch back to the straight-line method.
- Ruling regime
All taxpayers may request from the tax authorities an "advance ruling," by which the Advance Ruling Commission determines how the tax shall be applied to a particular situation or operation that has not yet taken any effect from a taxation point of view.
The Advance Ruling Commission must acknowledge the receipt of a request for an advance ruling within five working days. A first meeting must be organized within 15 working days of the receipt of the request for an advance ruling. The law states that the decision regarding the advance ruling should be communicated to the taxpayer within three months of the date of the filing of the ruling request. However, the Advance Ruling Commission and the taxpayer may mutually agree to modify this period. The three-month period is indicative in the sense that no sanctions are provided for if the Advance Ruling Commission does not meet this deadline.
The Advance Ruling Commission must notify the taxpayer regarding its decision in respect of the advance ruling. If the Advance Ruling Commission cannot give a positive ruling, the taxpayer is often invited to withdraw the request to avoid a negative ruling being given.
The Tax Administration is bound by the decision given regarding an advance ruling. However, a taxpayer is not bound by the ruling and does not have to carry out the envisaged transaction or action. The rulings are, in principle, valid for a period of five years, but can be renewed. If required, the period of the validity of the ruling may be longer (e.g. a ruling with respect to depreciation of a building).
- Capital tax
No capital tax is levied on contributions to a company's share capital (upon incorporation and subsequently). The capital tax was abolished because it would have been illogical to introduce measures to stimulate the self-financing of companies by creating a notional interest deduction but continuing to tax the contribution of capital into a company.
- Withholding tax exemptions
Obviously, Belgium has implemented the EU Parent-Subsidiary Directive and the Interest and Royalty Directive, resulting in an exemption of withholding tax on dividends paid to EU companies, provided some conditions are met and an exemption of withholding tax on interest paid to related EU companies. Belgium also has an extensive tax treaty network that could substantially reduce the withholding tax on payments to non-EU companies.
In addition to the above, Belgian internal tax legislation provides for some specific exemptions, such as an exemption of withholding tax on interest paid to banks located in the EU or in tax treaty countries and an exemption of withholding tax on interest paid by intra-group finance companies located in Belgium.
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