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Belgium in the Ranks: Corporate taxation

Belgium is known for its highly skilled and multilingual workforce, geographical location and innovation clusters. But where does the country stand in comparison to other economies? In this feature of our Belgium in the Ranks series, we take a look at Belgium’s corporate tax system through the lens of the World Economic Forum’s Competitiveness Report 2015-2016 (WEF).

Belgium boasts attractive trade tariffs, ranking 5th out of 140 in the WEF on customs duties. As befits a small, open economy, tax policies with regard to international trade are generally business-friendly. The country’s trade performance is exemplified by the strong trade ties between Belgium and the US.

On the other hand, the business community in Belgium suffers from high tax rates and an unpredictable tax environment. Belgium’s position in the WEF on tax criteria corroborates AmCham Belgium’s concerns: the country ranks 118th out of 140 on the effect of taxation on incentives to invest and 120th on total tax rate (% profits).

AmCham Belgium strongly recommends reducing the corporate tax rate from 33.99% today to 20% or even less by 2020. Lowering the nominal rate is essential for Belgium to compete in the new international tax environment set by the OECD’s BEPS project and the European Union’s Anti-Tax Avoidance Package. In addition, it would be useful for Belgium to benchmark its rate against those of neighboring countries and the United Kingdom.

A lower corporate tax rate would not only help retain international companies in Belgium, but also attract holding companies and decision-making centers, leading to more investment. Foreign investment has direct benefits for the local economy, through the stimulation of employment and innovation, as well as multiplier effects. Belgium competes in a globalized world, particularly with respect to lower-skilled workers. Ensuring overall costs – including taxes – are competitive for companies stimulates job creation.

It is important to note that some tax incentives which exist in Belgium are not taken into account in the WEF study, such as the notional interest deduction (NID) and R&D incentives. Although they might add some complexity to the fiscal landscape, they help attract and retain foreign investment. According to KPMG, the various incentives on offer reduce the effective Belgian corporate tax rate to 24-27%. These tax incentives, which are compliant with new international tax standards, contribute to job growth and attract investment in R&D and innovation. However, these measures have to be set in a stable legislative framework to work.

Companies’ investments strategies are based on long-term perspectives. A stable and predictable tax environment is not only an added-value, it is a prerequisite. In this regard, the Chamber recommends maintaining the NID as it contributes to the country’s image as a reliable and stable investment location. Belgium must provide tax certainty in an ever-changing international tax landscape.

AmCham Belgium supports upcoming legislative negotiations on corporate tax reform. Belgium’s corporate tax regime could become as competitive as its trade tariffs to help attract and retain international companies.

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