Details of Finance Minister Johan Van Overtveldt’s plan to overhaul the Belgian corporate tax system began to emerge last week. His proposal, as reported by local media, includes the gradual reduction of the corporate income tax rate from 33.99% today to 20% by 2020, in line with AmCham Belgium’s recommendation, but also regrettably the elimination of the notional interest deduction (NID).
Under Minister Van Overtveldt’s current plan, the corporate tax rate would be reduced to 28% in 2017, 24% in 2018 and 20% in 2020, and would ultimately apply to companies of all sizes. At 20%, Belgium’s corporate tax rate would fall just below the EU average and would place the country in a more competitive – but not a leading – position within its peer group. In a fast-changing international tax environment, the headline rate will become increasingly important to attract and retain foreign investment.
In addition, the Finance Minister is considering abolishing the Fairness Tax as well as the minimum tax on capital gains on shares, as advocated by the Chamber. The plan also includes a full tax deduction on qualifying dividends received from subsidiaries, as is the case in the Netherlands and Luxembourg, in lieu of the current deduction of 95%.
As part of the reform, however, the Minister proposes to eliminate, amongst other tax incentives, the notional interest deduction. At a time when other countries are implementing similar systems, AmCham Belgium strongly recommends maintaining the NID. The NID is a uniquely effective tax incentive: it helps stimulate job creation and attract treasury centers, headquarters and other capital-intensive activities, which have an important influence on subsequent investment decisions. Moreover, the NID is understood to be compatible with new international tax rules, and maintaining this regime is important for Belgium’s image as a stable and reliable investment location. Because of the low notional interest rate (linked to 10-year Belgian government bonds) and other restrictive conditions, abolishing the NID would also not help compensate the estimated loss of revenue resulting from the corporate tax reform package.
Despite our reservations about the NID, Minister Van Overtveldt’s proposal goes a long way toward creating a simpler, fairer, more competitive and more sustainable corporate tax system, and represents a good starting point for negotiations. AmCham Belgium looks forward to working in partnership with all stakeholders on this basis to improve the business and investment climate. The Chamber’s full recommendations on corporate taxation can be found in our Tax Horizon 2020 position paper.