Stay ahead: prepare for upcoming changes to the Belgian dividend-received deduction

The Belgian government has reached an agreement to restrict the application of the 100% dividend-received deduction (the “DRD”) for participations below 10%, but exceeding an acquisition value of EUR 2.5 million. These participations will only be eligible for the exemption if they classify as “fixed financial assets”. The proposed measure is expected to be part of a program law set for adoption by July 2025. 

This change will also have an impact on the tax exemption for capital gains on shares, as this exemption is subject to the same conditions as the DRD regime. 

Here is an overview of the key aspects of the proposed legislation to help you stay prepared. 

1. Proposed change to the minimum participation requirement

Under the current regime, dividends received (and capital gains realised) are exempt from corporate income tax in the hands of the Belgian corporate shareholders if the following conditions are met: 

• quantitative conditions: the shareholder must hold a participation in full ownership of at least EUR 2.5 million or minimum 10%, for an uninterrupted period of at least one year; and
• qualitative conditions: these conditions ensure the exemption only applies to dividends stemming from profits that have been subject to corporate income tax.

Under the proposed new rules, participations below 10% (but with an acquisition value of at least EUR 2.5 million) would only qualify for the DRD if they have the nature of “fixed financial assets” for accounting purposes. The legislator thereby refers to the notion of fixed financial assets under Belgian GAAP. Similar principles would apply to companies not subject to BE GAAP but following a deviating regime, such as banks, insurance companies and stockbroking firms. 

The new measure would apply to all companies, with the exception of those that qualify as “small” companies within the meaning of Article 2, §1, 5°c)bis of the Belgian Income Tax Code (“ITC”).  

There would be no changes to the minimum holding period and the qualitative conditions. The idea of raising the threshold of EUR 2.5 million up to EUR 4 million has also been abandoned.

2. Qualification as “fixed financial asset”

Participations can be recorded as “fixed financial assets” for accounting purposes if they are held in (i) related companies, (ii) companies with which a shareholding relationship exists in the meaning of company law, or (iii) certain “other participations”.

These other participations must meet the following conditions:

• there is a durable and specific link between both companies.
  
  The “durable link” criterion takes into account the minimum contemplated holding period of the shares at acquisition. The mere good financial management of excess funds is not sufficient to establish a durable link. Shares initially recorded as “cash equivalents” (for short-term investment purposes) can in principle be requalified as “fixed financial assets” if the company later decides to hold them for a longer term.
  
  A “specific link” exists, for example, if there is a periodic exchange of information between the two companies, if the shareholder holds a seat on the Board, or if there are shareholder agreements in place restricting the transfer of shares for a certain period; and,
• the participation enables the shareholder to influence the company’s policy, or it contributes to the shareholder’s own activities.

The question whether a participation can be classified as a “fixed financial asset” is a matter of fact. The Board of Directors must ultimately assess this on a case-by-case basis, potentially under auditor supervision.

3. Changes to the Tate & Lyle withholding tax exemption 

Belgian companies may exempt dividends paid to foreign shareholders from Belgian withholding tax if the acquisition value of their shares equals at least EUR 2.5 million, but remains under 10%. This exemption, known as the “Tate & Lyle” exemption (Article 264/1 ITC), applies on the condition that the foreign shareholder cannot credit the Belgian withholding tax. 

Under the new rules, this exemption would only apply if the participation held by the foreign shareholder classifies as a “fixed financial asset”. For this notion, the preparatory works refer to the definitions provided in the EU accounting directive (2013/34/EU), and where useful, IFRS 10.

These new rules should enter into force as from assessment year 2026 (DRD), or 1 July 2025 (Tate & Lyle withholding tax exemption). 

With the new rules underway, the qualification of participations as “fixed financial assets” becomes essential for participations below 10%. This qualification must be made at the time of the dividend distribution. Given the somewhat subjective nature of this condition, discussions with the tax authorities may arise. We can help you in determining whether your participations may qualify, and advise on the arguments you can present during tax audits. 

We will keep you updated on any developments related to the upcoming changes to the DRD, ensuring you remain informed and prepared.