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Corporate Tax Rate

According to PwC’s 2013 edition of “Paying Taxes”, Belgium is now in the top three most heavily taxed countries in the EU. While our European counterparts are reducing the tax burden on companies in the face of hard times, the cost of doing business in Belgium remains onerous. These countries are also proving more resilient to the crisis than Belgium. 

Belgian companies (including the Belgian subsidiaries of foreign companies) are subject to a standard tax rate of 33% plus a 3% crisis tax, resulting in a total nominal rate of 33.99% regardless of the source of the income. This fixed rate acts as a deterrent for both current and future investors, certainly when compared to countries such as the Netherlands, the UK and Ireland which have corporate tax rates of 25%, 23% and 12.5% respectively.

The Notional Interest Deduction

To alleviate some of the fiscal burden, the Government had introduced the notional interest deduction (NID) in 2006. The NID was an innovative measure which enables companies subject to Belgian corporate tax to reduce their effective fiscal burden by deducting an amount of deemed interest paid on the basis of the company’s equity. The NID has therefore proven to be a major incentive for multinationals to establish themselves and then expand their activities in Belgium. The NID not only benefits multinationals, however. It equally helps SMEs improve their after-tax results and hence encourages longer-term investments, while also incentivizing them to increase their equity levels and thereby their solvency.

“Such uncertainty counts as a black mark against the choice of Belgium versus other jurisdictions competing for the same investments.”

-Howard Liebman, President of AmCham Belgium and Partner, Jones Day BrusselsJones Day

Unfortunately, despite its success in making Belgium an attractive location for investment, the measure has been subject to constant debate and reform since its inception. A cap on the NID was introduced in 2009, followed by other restrictive measures. There have even been several proposals to eliminate it entirely. Having this beneficial measure in a constant state of flux is not good for business, as companies need to be able to plan long term for investment in a stable regulatory environment.

According to Howard Liebman, Chair of AmCham Belgium’s Legal & Tax Committee and a Partner at Jones Day Brussels, American-based groups have expressed serious concerns with regard to the constant changes in Belgian tax law.  “Many investors have decided to establish themselves in Belgium at least in part due to various tax incentives such as the NID,” according to Mr. Liebman, “and when these incentives are constantly under attack or put in question, let alone reduced in value, this naturally results in a diminution in the full faith and credit accorded by these investors to future promises and assurances. As a result, such uncertainty counts as a black mark against the choice of Belgium versus other jurisdictions competing for the same investments.”

As Belgium has a small, open economy, it is critical that the country remains an attractive location for foreign investment. The Chamber believes it is high time this debate was put to rest and that the government provide a predictable fiscal and regulatory environment. The NID should only be set aside if there is a drastic reduction in Belgium’s mainstream corporate tax rate and, simultaneously, a real reduction in labor costs.

Belgium introduces “fairness”?

The Belgian Government seems to be in the habit of finding solutions through introducing more taxes. In a surprise move this Summer, the Government introduced a new tax: the so-called Fairness Tax. Devised in late-night negotiations to trim billions off the country’s budget and meet European Union targets, the usual spending cuts were accompanied by this brand new tax that comes on top of the corporate income tax. The Fairness Tax is independent of and comes, where applicable, on top of other taxes. 

From January 1, 2014, companies that fall under the following two conditions will be liable for an additional tax equal to 5.15% of the difference between the dividend paid out and the pre-tax profits:

  1. The company must not be an SME as defined by Belgian corporate law; and
  2. A company must pay more in dividends than it pays in tax.

Ultimately, the new levy will put an end to companies taking advantage of Belgium’s favorable fiscal measures to pay little or no taxes while at the same time distributing big dividends to shareholders. This may seem fair on the surface, but there are actually serious flaws with this concept. Primarily, it is based on the assumption that a company distributing dividends is a company that is doing well.  But business realities are much more complex than that. For instance, a company may wish to distribute or continue to distribute dividends to keep shareholders on board, even though it may be struggling. However, the Fairness Tax could in fact conflict with two separate aspects of European law, as well as Belgian Constitutional Law, so it remains to be seen if it will actually come into force (and if so, in what form) in January 2014.

Regardless of whether the Fairness Tax will actually become effective, the Chamber is concerned that the Government would impose yet additional fiscal burdens on companies at a time when so many are stretched to the limit. Many business associations, including AmCham Belgium, are worried about the signal this sends to foreign investors.

It is also troubling to think that the Belgian Government believes the solution to all problems is more taxes. During his speech at the University of Ghent on October 1, 2013, Prime Minister Elio Di Rupo said that “taxes ensure our prosperity”. On the very same day, Graydon, a leading provider in credit and debt management information, revealed that it had noted a record-breaking 8,904 bankruptcies in Belgium in the first three quarters of 2013. This is a 12% year-on-year increase and has resulted in the loss of 19,934 jobs. Clearly, something has gone awry amidst all of Belgium’s clever tax increases.

AmCham Belgium recommendations:

  • Lowering the nominal corporate tax rate to a more reasonable 25%
  • Providing a predictable fiscal and regulatory environment to enable companies to implement long-term planning
  • Maintain the Notional Interest Deduction in its current form

For more of our policy recommendations, please refer to our Priorities for a Prosperous Belgium.