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The Corporate taxation system has been revised in recent years and is very much in line with the country's reputation as a centre for holding and finance companies. Belgium has an extensive network of treaties with over 80 countries to avoid double taxation and is the only EU member state to have a tax treaty with Hong Kong. As a result of recent tax reforms, Belgium has become even more attractive, being the only country to permit a tax deduction on risk capital - known as a (deemed) Notional Interest.

Notional Interest Deduction (NID) — a unique innovation

All companies subject to Belgian corporate tax are allowed to deduct a percentage of interest on their adjusted equity from their taxable income, in order to mitigate the imbalance between equity and debt financing. The rate will be set each year and is in line with the average 10-year Government bond rate. For the fiscal year 2006 it has been set to 3,442 %. Small and medium sized companies may even apply a further 0,5% deduction (3.942%). By law, the maximum deviation per fiscal year (1%) as well as the maximum rate (6.5%) is regulated. Government may change these by Royal Decree. If the notional interest deduction cannot be fully applied, the non-utilized amount can be carried forward for a maximum of 7 years. The deduction does not discriminate between companies, is fully compliant with existing Belgian and EU laws, and assures legal certainty for investors.

In order to avoid duplication and/or abuse, the equity capital is subject to the following deductions:

Increases or decreases during the taxable period are taken into account on a pro rata basis, starting on the first day of the month following the date of occurrence.

Capital tax

In addition to the Notional Interest Deduction, as of 1 January 2006 the capital tax rate has been set to 0% as an extra stimulus for equity financing.

Corporate tax

The standard corporate tax rate is 33.99%, but due to the Notional Interest Deduction, the effective rate can be significantly lower (10-25%), depending on the amount of equity capital. Significant tax reliefs are the 100% exemption for capital gains on shares (without any limit) and the 95% exemption for WHT-free EU Parent-subsidiary dividend income.

Reduced corporate tax - small and medium-sized companies

For small and medium sized companies, a reduced rate is available based on several conditions: employees (max. 50), turnover (max. €7.000.000), balance total (max €3 650 000) and taxable profit (max €322 500). Reduced standard rates: first €25 000 (24.98%), from €25 000-90 000 (31.93%) and from €90 000-322 500 (35.54 %). An extra 0.5% notional interest may also be deducted.

Corporate tax - Investment deductions

Depending on the type of investment, Belgium permitted the deduction of between 4.5% (standard) and 21.5% (increased) of the investment (rates FY 2006). Some examples: Energy conservation (14.5%), R&D for new products/technology (14.5%) and patents (14.5%). For certain R&D projects, Para-fiscal relief on salary and social security costs might even be obtained. The new ruling process offers decision-support through advance validation of the impact on corporate tax.

Corporate tax — a new ruling process

Effective as of January 2005, a new central ruling commission took office with the objective of increasing/enhancing the transparency of the procedures, facilitate pre-filing meetings (even anonymous, should you wish) and an average delivery time of 3 months.
They hereby offer Corporate Belgium the possibility of clearing in advance "any" potential tax issue in areas such as transfer pricing, taxable presence, restructuring, participation, VAT, customs and even personal tax. The standard validity period of a ruling is 5 years.

The Belgium / Hong Kong Double Tax Treaty — the EU / Asia gateway

The first OECD tax treaty entered into by Hong Kong, as well as the first Double Tax Treaty entered into by an EU state. It creates unique opportunities for both Asia-EU and EU-Asia investments, with Belgium as another key financial portal.
Belgium has extended its role as the major holding country in the EU by making the EU parent-subsidiary WHT-exemption accessible to Asian investors -the treaty allows WHT-free dividend repatriation from Belgium to Hong Kong, while in Belgium 95% of dividend income from EU subsidiaries is tax-exempt.
Source taxation on dividends is 0% for participations of a minimum of 25%/12 months, 5% for participations of a minimum of 10% /no time limit, and 15% for all other dividends. For interest, it is 0-10% - depending on type of interest - and 5% for royalties.
Together with the Notional Interest Deduction for equity financing, a significantly low tax strategy is possible. Profits added to the Belgian equity capital accumulate these effects and can be used to finance other subsidiaries. The new Belgian ruling system offers you the opportunity to settle tax objectives upfront.

Some of the many advantages of Belgian corporate taxation

To establish yourself or your business in Belgium will require securing relationships with key partners, such as government officials, bankers and corporate professionals. You need experienced consultants to build a network of contacts and help you to become established in your new environment.

The specialised services of Henley & Partners are a resource and complement to other consulting and law firms. We can help other firms and their clients with the unique and specific details required by the business relocation and immigration process and related tax planning.

To find out more about the possibilities Belgium offers you, contact Henley & Partners. Through our Antwerp office, we are well positioned to advise and assist you with all matters regarding Belgium.