General Information

Who is subject to corporate income tax?

Companies, associations and organisations with legal personality are subject to Belgian corporate income tax if they are engaged in a business or profit-making activity and have their registered office, main establishment or place of effective management in Belgium.

In principle, foreign entities are subject to Belgian non-resident corporate income tax if they carry on business activities in Belgium through a branch (permanent establishment).

What are the corporate income tax rates?

The standard corporate income tax rate is 33.99% (including an austerity surcharge of 3%).

Small and medium-sized companies benefit from a reduced progressive tax rate, provided certain conditions are met (e.g. taxable income does not exceed EUR 322,500 and no more than 50% of the shares in the Belgian company are held by another company).

This rate amounts to:

• 24.25% on income up to EUR 25,000
• 31% on income between EUR 25,000 and EUR 90,000
• 34.5% on income between EUR 90,000 and EUR 322,500

These percentages currently still have to be increased by the 3% austerity surcharge.

What is the tax base?

In general, the tax base for corporate income tax purposes is determined on an accrual basis and consists of worldwide income less allowed deductions (see below).
It is assumed that all income received by a company is, in principle, business income.

As a general rule, business expenses incurred or borne by the company during the taxable period in order to obtain or safeguard taxable business income are considered tax deductible. In order to be deductible, these expenses must be vouched for by proper documentation.

Therefore, the income tax base is based on the financial statements of the company with some adjustments, i.e.

• Disallowed expenses;
• Exempt foreign income;
• Dividends-received deduction;
• Notional interest deduction (with effect from assessment year 2007 - i.e. the financial year ending on or after 31 December 2006);
• Both distributed and retained profits are subject to corporate income tax;
• Tax losses carried forward;
• Investment deduction;
• Patent income deduction (with effect from assessment year 2008 - i.e. the financial year ending on or after 31 December 2007).

What about capital losses and gains?

In principle, capital losses are deductible for corporate income tax purposes. As an exception to this rule, capital losses on shares are not tax deductible unless, and to the extent that, they occur because of a liquidation and reflect a permanent loss of actually paid-up share capital.

In principle, capital gains are taxable upon realisation. As an exception to this rule, realised capital gains on shares are free of taxes (subject to conditions).

With effect from assessment year 2007, all capital gains will only be considered on a "net" basis (as opposed to a "gross" basis) for Belgian tax (relief) purposes. Unrealised capital gains (e.g. gains that are merely expressed in the accounts) can be temporarily exempted from taxes, subject to conditions.

The taxation of capital gains realised on tangible fixed assets or intangible fixed assets that have been depreciated for tax purposes and been held for more than 5 years prior to disposal can be deferred, provided the full proceeds are in due time reinvested in new or second-hand depreciable tangible or intangible fixed assets that are used for a business activity in Belgium. Where reinvestment occurs, taxation of the capital gains is spread over the depreciation period of the assets in which the realisation proceeds are reinvested. For reinvestments in buildings, ships or aircraft, the reinvestment period is five years. In all other cases, the reinvestment period is three years.

What fiscal corrections increase the tax base?

- Disallowed expenses

Expenses are mainly disallowed if and to the extent that:

• They are not vouched for by proper documentation;
• Their deductibility is limited for tax purposes (e.g. car costs, restaurant and reception costs, social benefits);
• They are deemed excessive (not at arm's length).

Expenses that are non-deductible are added back to the tax base, but can e.g. generally be offset by any tax losses.

- Timing difference

Certain accounted costs (e.g. likely liabilities and charges) can be temporarily disallowed from a tax point of view (e.g. where they are not specific), thereby increasing the tax base. If and to the extent that the conditions for deducting such costs are met at a later stage, the tax base is reduced accordingly.

Subject to specific conditions, a company can allow for a temporary tax-free reserve for certain accounted income (e.g. expressed but unrealised capital gains) and therefore temporarily reduce its tax base. If and to the extent that the conditions necessary for this temporary exemption are no longer met, the tax base is increased accordingly.

What fiscal corrections lower the tax base?

- Exempt foreign income

In principle, if a Belgian tax-resident company derives income from a foreign branch, it will be exempt from Belgian tax if the branch is located in a country with which Belgium has a double taxation treaty.

- Dividends-received deduction

Dividends received by Belgian tax-resident companies or permanent establishments of non-resident companies from holdings in resident or non-resident companies are 95% exempt from corporate income tax, provided the following (simplified) requirements are fulfilled:

• Holding of 10% or a minimum acquisition price of EUR 1,200,000 or more;
• The shares must qualify as financial assets;
• The beneficiary of the dividend must have had full legal ownership of the underlying shares for an uninterrupted period of at least one year before the dividend distribution or must commit to holding them for a minimum period of one year;
• Taxation condition: dividends from companies not resident in a country whose common tax regime is considerably more favourable than the Belgian tax regime (as a general rule, less than 15% (effective) taxation). The common tax regimes of the Member States of the European Union are deemed to fulfil this requirement.

It should be noted that some exceptions to these rules apply to finance companies, treasury companies, investment companies, intermediaries and companies deriving income from branches located in a country whose common tax regime is considerably more favourable than Belgium's.

- Notional interest deduction

With effect from assessment year 2007, Belgian tax-resident companies and Belgian branches of non resident companies can claim a tax deduction for their cost of capital by deducting notional interest at a rate calculated on the aggregate amount of their equity including retained earnings.

The purpose of this innovative measure is to put an end to the discrimination between companies that attract equity financing vis-à-vis those attracting debt financing, by allowing a notional interest deduction in the case of equity financing.

Only in a limited number of cases is the deduction not available, i.e. in the circumstances outlined below where the taxpayers in question are subject to a Belgian tax regime that deviates from the common Belgian tax regime:

The average interest rate paid on 10-year Belgian Government bonds for 2005 will be used as the basis for the assessment year 2007. The latter interest rate will then be adjusted annually (with a maximum up or downwards variation of 1% in principle) by referring to the average interest rate on 10-year Belgian government bonds from the previous year, but capped at a maximum of 6,50%. Pursuant to a Royal Decree it will be possible though to deviate from the above rules.

For assessment year 2008 the notional interest deduction rate is set at 3,781%, for assessment year 2009 the interest deduction rate will be set at 4,307%.
Small and medium-sized companies are allowed to increase the base interest rate by 0,5%. However, they need to make a choice between the current system of an investment reserve and the notional interest deduction.

In the event of a company's financial year being longer or shorter than 12 months, the base interest rate is multiplied by the number of days in this financial year and divided by 365. In the case of a newly incorporated company, for which no "last year-end date" is available, the basis for calculation of the notional interest deduction for the first financial year will be determined on the company's equity as per incorporation date.

When determining the basis on which the notional interest deduction is calculated, the company's share capital plus its retained earnings, as determined for Belgian GAAP purposes and as per the last year-end date, will be taken into account.

Afterwards, certain adjustments are to be made - i.e. the accounting equity as per the last year-end date (or per incorporation date) has to be reduced by the following items, all valued at the same year-end date:

• The fiscal net value of
  • Own shares held by the company;
  • Financial fixed assets qualifying as "participations and other shares";
  • So-called Equity-UCITS, i.e. investment companies whose dividends are eligible for the Belgian participation exemption;
• In the event of the company having foreign permanent establishments (PE), the positive difference between the net book value of assets (other than the above shares which are already excluded from the equity attributable to the foreign PE) and the liabilities (other than equity attributable to the PE);
• In the event of the company having real estate (rights) abroad (which have not yet been excluded even though they are attributable to a PE whose income is tax-exempt in Belgium as a result of tax treaty protection), the positive difference between the net book value of that real estate and the liabilities (other than equity) attributable thereto;
• The net book value of tangible fixed assets whose corresponding costs unreasonably exceed the needs of the company;
• The book value of any other investment that is not acquired in order to produce a regular income;
• The book value of real estate (rights) used/occupied by either individuals with a director or liquidator mandate in the company or by their spouse or dependent children;
• Re-valuation gains in respect of assets, other than the aforementioned assets, tax credits for R&D and capital subsidies.

Components of the accounting equity are adjusted upwards or downwards on a pro-rata basis in case they change during the course of the financial year. Changes are deemed to have taken place with effect from the first day of the calendar month following the month in which the change took place.

The non-utilized part of the notional interest deduction can be carried-forward for a maximum of 7 years if there is insufficient tax capacity in the year the deduction is claimed. From a tax-technical viewpoint, in the tax return the deduction will be claimed prior to offsetting any carry-forward tax losses. In the event of a purely tax-driven change of control of a company with carry-forward notional interest deduction, the latter will be forfeited. No advance decision (hereafter "ruling") is required for claiming the deduction.

- Patent income deduction

The Belgian government has introduced a tax deduction for new patent income, amounting to 80% of the income, thereby resulting in effective taxation of the income at the rate of 6.8%. The new tax measure is aimed at encouraging Belgian companies and establishments to play an active role in patent research and development, as well as patent ownership. The tax deduction applies to new patent income and came into force as from tax year 2008, i.e. financial years ending on or after 31 December 2007.

The tax deduction for patent income is to cover:

• patents or extended patent certificates owned by a Belgian company or establishment as a result of its own patent-development activities (partly or fully) in research and development centres in Belgium or abroad;
• patents or extended patent certificates acquired by a Belgian company or establishment provided it has further developed the patented products or processes in the company's research centres in Belgium or abroad.

The Belgian company or establishment can use the patents - owned by it or licensed to it - to manufacture patented products or have them manufactured on its behalf. Alternatively, it can license the patents to other parties.

To benefit from the deduction, the research centre should qualify as a so-called "line of business". In essence, it should be an entity or a division of an entity that is capable of operating autonomously.

For patents licensed by the Belgian company or establishment to any party - whether related or unrelated - the tax deduction amounts to 80% of the relevant patent income, to the extent the income does not exceed an arm's length price.

For patents used by the Belgian company or establishment for the manufacture of patented products - manufactured by itself or by a contract manufacturer on its behalf - the tax deduction is to be 80% of the licence fee that the Belgian company would have received had it licensed the patents used in the manufacturing process to an unrelated party.

The tax deduction for patent income will be available to all corporate taxpayers in Belgium, in essence all Belgian resident companies and Belgian permanent establishments of non-resident companies.

Additional possibilities to reduce effective tax rate:

• Apply foreign tax credit if actual foreign royalty withholding tax;
• Notional interest deduction.

- Tax losses carried forward

Tax losses can be carried forward for an unlimited period of time and be deducted from future profits.

However, carry-back of losses is not allowed. The deduction of tax losses is not allowed on abnormal or gratuitous benefits received from a related party or on the separate taxation of secret commissions.

The further use of tax losses may become partly or wholly unavailable where a company is involved in:

• Certain tax-exempt reorganisations such as mergers and divisions (partly unavailable);
• A change of control that does not meet financial or economic needs (totally unavailable).

Specific rules apply in relation to the offsetting of foreign branch losses against Belgian profits by companies with activities abroad. As a general rule, foreign branch tax losses are deductible in the hands of the Belgian head office, but recapture is possible in the case of double use of tax losses.

- Increased investment deduction

Companies acquiring new tangible or intangible fixed assets used in Belgium for environmentally friendly investments in research and development, energy-saving investments and patents and investments relating to security equipment can, subject to conditions, claim an additional deduction from their taxable profit equivalent to a basic percentage of the acquisition or investment value of those investments.

Rates for assessment year 2008:

• Basic rate: 0% (or 3% for investments contributing to the recycling of packaging);
• Deduction for patents, R&D and energy-saving investments: 13.5%;
• Staggered deduction for R&D: 20.5%;
• Safety and security investments: 20.5% (only for small and medium-sized companies);
• Certain investments in the maritime sector: 30%.

- Realised capital gains on shares

Net capital gains on shares are exempt on condition that the dividends relating to such shares qualify for the dividends-received deduction at the time the gains are realised.

Contrary to the dividends-received deduction, this exemption is granted regardless of the percentage or value of the holding, the period for which it is held or its classification for Belgian GAAP accounting purposes.

In certain cases, capital gains on shares are only exempt to the extent they exceed previously deducted capital losses on those shares (since 1991 capital losses on shares have no longer been tax deductible).

What are the withholding taxes on dividends, interest and royalties?

- Dividends

In principle, dividends distributed by a Belgian company are subject to a Belgian domestic withholding tax of 25% (a reduced rate of e.g. 15% is possible provided certain conditions are met).

Based on the implementation of the EU Parent-Subsidiary Directive of 23 July 1990 into Belgian tax law, in principle a withholding tax exemption applies to dividends distributed by a Belgian tax-resident company if the recipient company:

• Is established in Belgium or another EU Member State; 
• Has a direct holding of at least 15% in the capital of the Belgian distributing company (as from 1 January 2007). This level will ultimately be reduced to 10% for dividends distributed or made payable as from 1 January 2009; 
• Maintains this holding for an uninterrupted period of at least one year or commits to holding it for a minimum period of one year; 
• The companies are incorporated in the appropriate legal form (in a cross-border context).

Furthermore, the withholding tax rate can in most cases be reduced under applicable tax treaties, irrespective of whether the EU Parent-Subsidiary Directive applies.

Minor formalities require to be observed.

- Interest

In principle, interest payments are subject to a Belgian domestic withholding tax of 15%. Belgian domestic law provides for numerous exemptions - e.g. interest income on Belgian registered bonds paid to non-residents is exempt from withholding taxes.

Under the Belgian tax statute implementing the EU Interest and Royalties Directive, in principle, a withholding tax exemption is available on interest or royalty payments between two associated companies, provided they are both regarded as established in the EU and meet the following conditions:

• one of the two companies has had a direct or indirect holding of at least 25% in the capital of the other for an uninterrupted period of at least one year; 
• a third EU tax-resident company has had a direct or indirect holding of at least 25% in the capital of each of the companies for an uninterrupted period of at least one year; 
• where the holding has not been held for a minimum of 12 months at the time the payment is made, the company concerned must undertake to observe the 12-month period; 
• the companies are incorporated in the appropriate legal form (in a cross-border context).

Minor formalities require to be observed.

- Royalties

Belgian domestic tax law defines royalties very broadly as "income derived from the letting, use or concession of movable goods". The Belgian tax authorities consider a "concession" as any agreement under which a right is granted (in exchange for valuable consideration) to use or exploit a tangible or intangible asset, provided no legal ownership therein is transferred.

In principle, this type of income is subject to a 15% withholding tax unless an exemption applies (e.g. no withholding tax is due if the recipient is a Belgian company).

In the event of a cross-border payment of royalties, the withholding tax rate may be reduced if a double taxation treaty applies (with a lower withholding tax rate on royalties, e.g. the Belgian-US tax treaty provides for a 0% withholding tax) or on the basis of the implementation in Belgian tax law of the EU Interest and Royalties Directive (see above: interest). Minor formalities require to be observed.

Note that exemptions similar to those under the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive are available in relation to Switzerland.

What about the deductibility of royalties and interest?

Paid royalties and interest are subject to the main principles governing the deductibility of expenses. Strictly speaking, there is no thin-capitalisation rule or "earnings-stripping rule" applying to paid interest or royalties.

However, Belgian anti-abuse measures may apply in the following cases:

• Interest or royalty payments between two related parties at a rate that cannot be considered to be at arm's length;
• Interest or royalties paid to a resident of a tax-haven country (with a tax regime significantly more favourable than the Belgian regime), unless it is demonstrated that the payment is at arm's length and corresponds to genuine transactions;
• Interest payments in respect of loans are disallowed for Belgian tax purposes if the beneficiary of the interest is not subject to income tax or if the interest is subject to an advantageous income tax regime compared to the Belgian income tax regime for interest received and to the extent that the total amount of the loans, other than bonds and similar securities that are publicly issued, exceeds seven times the amount of the Belgian-resident company's taxed reserves (at the beginning of its financial year) plus paid-up capital (at the year-end).

Can dividends be deducted?

Payments that qualify as a dividend from a Belgian tax point of view cannot be deducted.

Tax Treaties

What are "Tax Treaties" and how do they benefit foreign investors?

Belgium has entered into various agreements with foreign jurisdictions designed to avoid and eliminate double taxation. E.g. Belgium has entered into a double taxation agreement with Hong Kong, facilitating the use of Belgium as a gateway to business with Asia as it provides for a 0% dividend withholding tax rate. The Belgian-Macao tax treaty provides for a 0% dividend withholding tax rate. The Belgian-USA tax treaty also provides for a 0% dividend withholding tax rate.

The primary purpose of double taxation treaties is to allocate the taxing rights on income arising from international transactions between the countries involved and to limit local taxation and grant tax relief to avoid/mitigate double taxation. Most of these treaties are based upon the OECD Model Double Taxation Convention on Income and on Capital.

Which countries have a tax treaty with Belgium?

See www.flandersinvestmentandtrade.com 

Transfer Pricing

What are the rules governing transfer pricing?

The concept of transfer pricing is based on the rule that companies in the same business group must perform their business transactions "at arm's length." This means that a company must be able to demonstrate that the prices at which it trades with affiliated companies are comparable to the prices and terms that would prevail in similar transactions between unrelated parties.

What are the tax implications of not adhering to the arm's length principle?

If a Belgian tax-resident company or a Belgian branch is found not to have transacted business "at arm's length", the Belgian tax authorities can, subject to conditions:

• Add to its tax base the advantage granted to an affiliated company (although such permanent tax differences can be offset by e.g. tax losses);
• Challenge the deductibility of tax losses (or other deductions) up to the amount of abnormal or gratuitous benefits received from an affiliated company.

In practice, whether a company has engaged in improper transfer pricing depends on the facts and circumstances of the transaction in question.

How can a company ensure that its transfer pricing practices are acceptable?

The Belgian tax authorities recommend that taxpayers maintain documentation supporting their transfer pricing policy. This documentation must be relevant, comprehensive and reliable.

Furthermore, taxpayers and prospective investors can apply for a unilateral or bi- or multilateral advance transfer pricing agreement or ruling from the federal tax authorities in respect of the arm's length nature of a pricing arrangement.

What factors do the federal tax authorities consider when determining whether the documentation evidencing an arm's length transaction is relevant, comprehensive and reliable?

The federal tax authorities have adopted the transfer pricing guidelines published by the OECD. These guidelines indicate that taxpayers should prepare and retain documentation identifying:

• The legal structure and activities of the group;
• The nature, terms (including prices) and quantities of the relevant transactions;
• The arm's length nature of the prices charged. The company must be able to demonstrate that the prices at which it trades with related parties are comparable to those at which it trades with independent parties.
  

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.

What is the scope of application?

Are eligible for the domestic dividend withholding tax exemption, any corporate shareholder who:

• is a resident of a treaty country;
• 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, the minimum participation requirement remains 25% for an uninterrupted period of 2 years.

The parent company as well as the Belgian subsidiary 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;

and

• have its head office, corporate headquarters or administrative seat in Belgium.

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 Belgium, and Flanders as a region, an attractive holding company location.

What are the tax benefits in Flanders?

Here is a list of the other tax benefits to which a Flemish (holding) company is entitled:

• no capital duty on capital contributions;
• no annual wealth or capital taxes;
• no taxation of capital gains on shares;
• 95% participation exemption for qualifying dividends received;
• thin capitalization rules can be avoided;
• no CFC rules;
• interest expenses related to holding activities are deductible for corporate income tax purposes;
• various domestic interest withholding tax exemptions including the application of the EU Interest & Royalty Directive, and a new double tax treaty with the U.S.A.;
• notional interest deduction (Flemish companies and foreign branches located in the Flemish region are allowed to deduct a notional interest for equity investments in Flanders);
• incorporation of a new Flemish company in less than a week provided all information is readily available.
  

Branch v. Subsidiary

- Taxation of branches

What are the main tax advantages in establishing a branch of a foreign company as a European headquarters?

A branch is considered to be the same legal entity as the foreign company to which it belongs. Consequently, there are certain tax advantages in establishing a branch, such as:

• There is no dividend withholding tax or any other type of "branch level" tax upon the transfer of branch profits to the foreign company;
• Belgian branches of foreign companies are also granted a notional interest deduction (of 3,781% for assessment year 2008) on the amounts put durably at their disposition.

Are there any negative tax implications to establishing a branch?

In principle, a Belgian branch is treated in the same way as a Belgian tax resident company. The fact that a Belgian branch is considered to be part of the same legal entity as the foreign company has the following disadvantages:

• In principle, the tax deduction of payments made by the branch to its foreign head office (e.g. interest, royalties, management fees etc) is disallowed;
• No per se application of the Belgian tax treaty network. In principle, the tax treaties of the state of residence of the foreign company apply;
• No per se application of the EU Parent-Subsidiary Directive or EU Interest and Royalty Directive if the foreign company is a non-EU tax resident company.

- Taxation of subsidiaries

What are the main tax advantages of establishing a subsidiary of a foreign company as a European headquarters?

Please note that with effect from 2006, the 0,5% registration duties on capital contributions have been abolished.

The main tax advantages in establishing a subsidiary are:

• Leveraging through interest, royalties or management fees paid to, amongst others, the parent company;
• Application of the extensive Belgian tax treaty network;
• Most common types of Belgian companies qualify as a parent company or subsidiary under the application of the EU Parent-Subsidiary Directive or the EU Interest and Royalty Directive. Consequently, a withholding tax exemption on dividends distributed or interest/royalties paid by a Belgian company to another qualifying EU tax resident company may be available.
  

Belgian Ruling System

- General

As part of its 2002 Corporate Tax reform, Belgium has introduced a New Ruling Practice that can be considered one of the major achievements of this reform.

The main principles of the "new" ruling system are as follows:

• · Ruling on almost all tax topics;
• Case-by-case ruling in a new open culture;
• Legal certainty in advance for investors;
• In accordance with international regulations;
• Applies both to potential and actual investors;
• In principle valid for five years, but deviations possible if motivated;
• Substance required;
• Rulings can be unilateral, bi- or multilateral.

Since 1 January 2005 a new independent and well-staffed central ruling Office has been operational. The Office can be reached by email at dvbsda@minfin.fed.be or by telephone on +32 (0) 2 579 38 00.

The ruling practice has proved successful with more than one request being received a day. The ruling Office has a constructive business-like working style. For example, they accept pre-filing meetings even on a no-name basis and meetings can even be conducted in English. On average, rulings are delivered within 3 months after the filing of the request.
In addition, the Tax Administration has been reformed to provide client-focused services to the public through the setting up of a helpdesk for foreign investors. The helpdesk can be contacted via albert.wolfs@minfin.fed.be and bart.adams@minfin.be

Rulings can be obtained on issues related to all federal taxes and regional taxes collected centrally such as:

• Corporate Tax;
• Individual Income Tax;
• VAT;
• Customs;
• Capital duty.

Rulings can also be obtained in relation to:

• Transfer pricing;
• Depreciation and provisions;
• Deductible expenses;
• Participation exemption of dividends;
• Qualification as a permanent establishment;
• Tax transparency;
• Reorganisations;
• Proper costs to the employer;
• "Tonnage" tax rulings renewable every 10 years:
  • An advance tax ruling can be requested to determine the lump-sum taxable profits resulting from the operation of ships (including ship management on behalf of third parties) and any 'related' operations;
• Downwards adjustment of taxable profits:
  • o Belgium has introduced a new section in its tax legislation, on the basis of which, Belgium will refrain from taxing the profits that a Belgian company would not have realized if it had not been part of related party dealings. Because the cost structure (or the profit potential) of a member of a multinational group of companies will normally be different from that of a stand-alone entity, its profit will also normally be higher. This profit differential, which does not result from the functions performed and risks assumed by the respective entity, should, on the basis of the arms length principle, not be allotted to the Belgian group member. Consequently, the new section allows for a unilateral adjustment of the Belgian taxable basis similar to the corresponding adjustment of article 9 of the Model Double Taxation Treaty. The underlying assumption is that the 'excess profit' forms part of the profits of the foreign related party. Which part of the profit is deemed to be derived from the related party dealings (and therefore exempted in Belgium) will need to be agreed up front with the Belgian ruling Office.

Advance rulings are published in summary format on a no-name basis (on the website www.fisconet.fgov.be). 

- Application of the Ruling to existing beneficial tax regimes

In the past, Belgium has developed particular tax regimes providing favorable tax treatment for specific business entities and their foreign employees, including distribution centers and service centers in particular.

The beneficial tax regime for distribution centers was laid down in a circular letter of November 30 1994. The special tax regime for service centers was detailed in a circular letter issued by the Belgian tax authorities on July 26 1996. Both letters were characterized by a rigid and standardized approach towards taxpayers willing to benefit from these regimes (standardized remuneration of allowable activities etc).

These systems were cancelled at the end of 2005 and the new ruling practice provides an alternative to these regimes, allowing similar results but in a more customized way.

How can the new ruling system be applied to a shared service center or a distribution center?

The transfer price of a shared service center/distribution center can be ruled off on a cost-plus base. Depending on the facts and circumstances, certain costs such as disbursements can be excluded from this cost-plus base.

In addition, rulings could be applied in other areas such as Customs and VAT. For example:

• Ruling on the exclusion of certain costs from the customs value of imported goods e.g.
  • Royalty payments;
  • Buying commissions;
  • Late payment interest;
• Rulings on Binding Tariff Information (BTI) and/or Binding Origin Information (BOI), which give certainty to importers concerning the classification of goods and the possible use of preferential tariff rates.

- Further application of the Ruling

The new Belgian ruling system can be used to develop - with legal certainty - new business strategies which may offer substantial advantages compared to those previously offered by, for example, informal capital rulings or even coordination centers. The new ruling system operates on a case-by-case basis within the framework of EU legislation.