Tax measures announced for the end of this year
On Monday 9 October 2023, the Belgian Federal Government reached an agreement on the budget for financial year 2024. The tax measures included in the budget are described below (which are yet to be turned into law and thus subject to change).
1. More far-reaching CFC regime
In 2019, Belgium implemented a CFC regime whereby profits realised by a low-taxed entity (i.e. a Controlled Foreign Company (“CFC”)) are taxed in the hands of the parent company in Belgium if relevant key functions related to these profits are exercised in Belgium (a so-called “Model B CFC regime”).
The Government has now decided to switch to a more far-reaching CFR regime (a so-called “Model A CFC regime”) whereby all passive income of a CFC (e.g. interest, royalties or dividends) will be included in the corporate income tax base of the parent company in Belgium, unless the CFC carries on substantive economic activity supported by staff, equipment, assets and premises (the “substance carve-out clause”).
Exclusions would be provided for cases where:
- one third or less of the income of the CFC falls within the definition of passive income for CFC purposes; or where
- one third or less of the passive income of the CFC comes from transactions with the Belgian parent company or associated enterprises.
2. Increase of registration duties for long-term leases and rights to build
The rate of registration duties for long-term leases and rights to build will be increased from 2% to 5%.
3. Real estate investment fund (FIIS/GVBF)
A corporate “exit tax” of 15% is due when a Belgian real estate asset enters into the FIIS/GVBF tax regime (fonds d’investissement immobilier spécialisé / gespecialiseerde vastgoedbeleggingsfondsen).
A new rule will be introduced pursuant to which if a real estate asset leaves the FIIS/GVBF tax regime less than five years after payment of the exit tax, an additional tax of 10% will have to be paid (i.e. the positive difference between the ordinary corporate income tax rate of 25% and the exit tax of 15%). Through this measure, the Government apparently seeks to prevent abuses of the FIIS/GVBF tax regime.
4. Articles 54 and 344, §2 ITC
Article 54 ITC provides, under certain conditions, for the non-tax deductibility of payments made to non-resident beneficiaries established in low-taxed jurisdictions.
Article 344, §2 ITC provides that the transfer/contribution of certain types of assets to non-resident beneficiaries established in low-taxed jurisdictions is not effective towards the tax authorities (niet-tegenwerpelijk / non-opposable) under certain conditions.
In the so-called SIAT case, the European Court of Justice decided that Article 54 violates the freedom to provide services and could hence no longer be applied in an EU context. The Government has now decided to change the wording of Article 54 and Article 344, §2 to make these provisions compliant with EU law, notably as follows:
- transactions will only be targeted by these rules if they are made between related parties; and
- the taxpayer would be able to avoid taxation under Articles 54 and 344, §2 ITC by proving that the beneficiary is subject to effective taxation in its country of establishment of at least half of the taxation that would have been due if the non-resident beneficiary had been established in Belgium, or that the payments or the transfers are made in the context of a real and genuine transaction and not with artificial constructions.
5. Contribution of the financial sector
Currently, the annual tax on credit institutions, the annual tax on collective investment undertakings and the annual tax on insurance companies are non-tax deductible for corporate income tax purposes for 80% of the amount of tax paid. The non-tax deductibility will now be increased to 100%.
Furthermore, the rate of the annual tax on credit institutions will be increased from 0.13231% to 0.17581% for the portion of the average amount of debts towards clients that exceeds EUR 50 billion, in the year preceding the assessment year.
6. Cayman tax
A number of technical changes will be made to the Cayman tax, including the introduction of an exit tax and exceptions to the look-through tax approach. The rate of the Cayman tax would not be increased. Please contact us if you require further information on the contemplated changes.
7. Legal entities tax
Tax audits in relation to the conditions for the application of the legal entities tax (instead of the corporate income tax) will be significantly increased.
8. Entry into force
All these measures should enter into force as from 1 January 2024.
We are at your disposal to further discuss the above measures, and to help you determine how they can impact the tax position of your company.