Parliament to approve legislation implementing corporate tax reform today
Corporate tax rate reduction
The highlight of the corporate tax reform is the reduction of the corporate tax rate.
For large companies, the corporate tax rate is reduced from 33,99% to 29,58% (crisis contribution - lowered from 3% to 2% - included).
For SMEs, the rate goes down to 20,4% (crisis contribution of 2% included) on the first bracket of 100.000 EUR of net taxable income. This SME rate will only apply if a.o. a minimum salary of at least 45.000 EUR (up from 36.000 EUR) is paid to a company director (individual).
Capital gains on shares
For large companies, the separate taxation at 0,412% of capital gains on shares will be abolished.
The dividends-received deduction will be increased from 95 to 100%.
Legislation, to be introduced in the beginning of next year, would abolish the fairness tax.
R&D - partial exemption of payment of wage withholding tax
The exemption of payment of wage withholding tax for scientific research staff (master or PhD) will be extended to staff with a (scientific) bachelor’s degree as from 1 January 2018. The rate of exemption is 40%, with a maximum exempt amount equal to 25% of the exempt amount for masters (50% for SMEs).
The investment deduction for SMEs will be increased from 8 to 20% for investments made in 2018 and 2019 and linked to assessment years 2019 and 2020.
Minimum tax base
A minimum tax base will be introduced for companies with a taxable profit that exceeds 1.000.000 EUR via the limitation of certain deductions, grouped in a “basket”. Those deductions will only be deductible from 70% of the taxable profit exceeding 1.000.000 EUR.
The following deductions are included in the basket (in this order): the incremental notional interest deduction, the dividends-received deduction carried forward, the innovation income deduction carried forward, the deduction of losses carried forward and the (old) notional interest deduction carried forward.
The dividends-received deduction of the year, the innovation income deduction of the year and the investment deduction are not included in the basket.
Incremental notional interest deduction
The notional interest deduction is reformed and will in the future only be calculated on the additional equity (capital increases + retained earnings) and no longer on the total equity. It will be calculated on the increase of the equity over a period of 5 years, divided by 5.
Exemption of capital gains on shares
A minimum participation threshold will be introduced. Capital gains will be exempt if the company holds a participation of 10 % or the participation has an acquisition value of at least 2.500.000 EUR. If this condition is not fulfilled, the capital gain will be taxable at the standard rate.
An exemption for new provisions will only apply for costs resulting from an obligation which exists on the closing date of the financial year.
When a provision (recorded during a financial year closing as from 1 January 2017) is reversed as from 2018, the initial tax rate of the year during which the provision was recorded will remain applicable on the corresponding profit. Same goes for the deferred taxation of capital gains if not reinvested within the 3 or 5 year period.
Withholding tax on reduction of capital
A reduction of capital will be considered to be pro rata a reduction of capital and pro rata a distribution of certain taxed reserves and exempt (included in capital) reserves. On this second part the dividend withholding tax of 30% will be due – if no exemption applies. This will apply to capital decreases decided by the general shareholders’ meeting as from 1 January 2018.
Separate tax in case of insufficient salary of company directors
A (deductible) separate tax of 5,1% (crisis contribution included), applicable to all companies, will be due on the difference between the minimum director’s salary (of 45.000 EUR) and the actually paid director’s salary.
For affiliated companies where at least half of the company directors are the same in each company, the total remuneration paid by those companies to one of those directors can be taken into account. In that case the minimum salary is set at 75.000 EUR.
The interest rate to calculate the penalty in absence of sufficient prepayment of the corporate tax is increased to 3% (actually 1%) leading to an average increase of 6.75% (actually 2.25%).
No deductions (apart from the dividends-received deduction of the year) will be allowed on tax supplements resulting from a rectification of the tax return or an assessment ex officio if a tax increase of at least 10% is effectively applied.