Future Federal Government proposes budgetary measures
In order to comply with the stability pact, Belgium needs to reduce its budgetary deficit to a level below 3% of Gross National Product in 2012.
This note summarises the main fiscal measures intended to achieve that. The information is based on the text summarising the position of the negotiating political parties. There is no draft bill available yet and the scope and entry into force of many measures will need to be clarified in the draft bill, which we understand will for most of the measures be submitted to Parliament for a vote before the end of this calendar year.
Capital gains taxation of 25% on qualifying shares (which benefit from the Dividends Received Deduction (DRD) regime) if sold within the first year of acquisition. Capital gains exemption on shares would therefore become subject to a 1-year holding requirement. Capital losses and reductions in value are not tax deductible (subject to the existing exception in relation to a liquidation);
The Notional Interest Deduction (NID) has been maintained, but the NID rate has been capped at 3% (3.5% for SMEs);
The possibility to carry-forward excess NID would be abolished for new excess NID as of 1 January 2012. The “stock” of carried-forward excess NID existing on 31 December 2011 would remain deductible, subject to the following limitations: (i) 7 years limitation, (ii) only 60% of the taxable profits exceeding 1 million euro can be offset by excess NID. The “stock” of carried-forward excess NID that cannot be offset because of the limitation under (ii), can be carried forward to the next year. It is unclear whether this carry forward itself will be limited in time;
Thin capitalisation rule: Under the current legislation, interest paid to a person or entity that is not subject to tax or that benefits in relation to the interest from a tax regime that is significantly more advantageous than the Belgian tax regime, is not tax deductible to the extent that a debt to equity ratio of 7:1 is exceeded. The debt to equity ratio will be reduced to 5:1 and its scope of application will be extended to intra group loans. The exception for bonds and other similar securities which were emitted through a public offering would remain applicable;
Limitation of deduction of group pension contributions. At present these contributions are tax deductible to the extent they will entitle the beneficiary to an additional pension which, together with the legal pension, will not exceed the 80% of the last normal salary income of the beneficiary. A new cap will be added by reference to the highest pension for federal officials;
No change with respect to the DRD regime;
Increase of bank levy;
Increase of disallowed expenses for the employer in relation to company cars.
- No broadening of the existing capital gains tax rules on shares;
- Increase of the withholding tax rate on interest from 15 to 21%, except for savings deposits (taxed at 15%; exemption up to € 1,770 interest remains) and the current issue of State Bond (15%);
- Dividends currently subject to a withholding tax rate of 15% will be taxed at a rate of 21%, dividends currently taxed at the 25% rate will remain taxed at 25%. For liquidation boni the rate would remain at 10%. It is unclear whether the 10% rate will continue to apply to so-called redemption bonuses upon the redemption of own shares;
- Individuals who receive income from capital (interest and dividends) in an amount exceeding € 20,000 on a yearly basis will be subject to an additional tax of 4% on the income exceeding € 20,000, other than dividend income already taxed at 25%, liquidation bonuses and exempt interest on savings accounts;
- No new tax amnesty;
- Increase of taxation on company cars : the benefit in kind for the use of company cars would be increased by linking it both to the CO2-emission level and to the car’s value;
- Taxation of stock options: the lump-sum valuation of the taxable benefit upon grant would increase from 15 to 18%, the reduced rate will thus increase from 7.5 to 9%. The new rule would be applicable to all options attributed as of 1 January 2012. As for tax purposes attribution is deemed to occur the sixtieth day after the offer of the option, this would imply that the higher valuation percentage applies to all options granted after 3 November 2011. It is unclear whether this effect was intended;
- Finally, the agreement also provides that extra-legal pensions received at the age of 60 would be taxed at 20% and those at the age of 61 at 18%. The 16.5 rate would apply if the pension is taken up between 62 and 64 years and the 10% rate would be available for pensions paid at the age of 65 ;
- No wealth tax.
- Services of notaries and bailiffs would become subject to VAT at 21%. Services of lawyers would remain exempted from VAT according to the current rules;
- Contrary to many other countries, no general increase of the standard VAT rate (21%).
- There would be a significant extension of the general anti-abuse provision (article 344, §1 ITC), in accordance to which the Tax administration can replace the legal qualification given by the taxpayer to one or more acts. It would no longer be required that the legal consequences of the new qualification imposed by the Tax Administration should be identical or similar to the legal consequences of the legal qualification chosen by the taxpayer ;
- Strengthening of the fight against tax and social fraud;
- Increase of excise duties on tobacco and alcohol;
- Increase of the percentages and the maximum amount of taxes on stock exchange transactions with 30%;
- Increased audits against the illegitimate use of companies;
- A tax on the conversion of bearer shares into registered shares or dematerialised shares. The tax will be equal to 1% for conversions in 2012 and 2% for conversions in 2013. All bearer shares will have to be converted by 31 December 2013.
5. Entry into force of the new provisions
- This will largely depend on whether or not the budgetary measures can still be adopted by Parliament this year.