Financial Services Industry - Agreement on the Budget 2018: update on the most important changes
New tax on securities accounts
An amended version of the proposed ‘Tax on securities accounts’ has been sent to the Council of State for re-examination.
As a reminder, the annual tax of 0.15% will be due as from 2018 on securities accounts with qualifying securities with a total value of EUR 500.000 or more per account holder. A yearly average will need to be calculated in order to determine the taxable base. Belgian residents are in scope of the new tax with respect to both their Belgian and foreign securities accounts. Also Belgian securities accounts held by non-residents will be subject to taxation.
Qualifying securities are:
- listed and unlisted shares,
- listed and unlisted bonds,
- listed and unlisted shares or units in investment funds,
- savings certificates,
- share / bond certificates, and
Nominative securities are out of scope unless they would be held via a securities account. The amendment regarding non-listed shares is rather cosmetic, as those securities are mostly held on a nominative basis (and not via a securities account). Life insurance products and regulated pension savings products remain excluded in the amended draft legislation.
Belgian banks are obliged to withhold the tax on securities accounts with a value of EUR 500.000 or more. Upon request of the account holder, Belgian banks can also levy the tax on accounts of less than EUR 500.000. Payment of the tax by the bank will discharge the individual, who will however need to mention the existence of several securities accounts in his personal income tax return. Foreign financial institutions can spontaneously file and pay the tax as paying agent or appoint a Belgian representative.
If the tax is not been withheld by the bank, then the accountholder will be held personally responsible to file and pay the tax himself.
In the case of securities accounts in co-ownership or usufruct, specific rules would apply.
Finally, an anti-avoidance clause would be introduced to prevent that private individuals hold a securities account through a company in order to avoid the new tax.
Belgian Savings Tax / “Reynders Tax”
Instead of an abolition of the 25% asset test which needs to be calculated in order to determine whether funds are in scope of the Belgian Savings Tax, the threshold would be reduced to 10%. This new threshold would only apply for new units/shares acquired as from 1st January 2018. Hence, much more collective investment institutions might fall within the scope of the Belgian Savings Tax (19bis ITC).
The exemption of withholding taxes on interest received on a saving account will be reduced from EUR 1.880 to EUR 940 as from financial year 2018.
A new exemption on the first EUR 627 for income on shares (dividends) will be introduced. Withholding tax will be withheld at source and the individual will need to reclaim the exempt part via his tax return.
Stock exchange tax
As from 1 January 2018 the stock exchange tax on shares and bonds will again increase:
- 0,35% for shares (instead 0,27%); and
- 0,12% for bonds (instead of 0,09%).
Corporate Income Tax (CIT) reform
We refer to our general CIT publication published on 29 October 2017 with respect to a.o. the decrease of the corporate income tax rate, the reform of the notional interest deduction and the broadening of some R&D incentives.. Hereafter we focus on some specific Financial Services related topics.
Please notice that once the law is (substantially) enacted, some of these measures will impact the deferred tax position of the company.
Dividend received deduction
The dividend received deduction would increase from 95% to 100% as from financial year 2018. Following to this increase, the reduced withholding tax rate of 1,6995% on Belgian-sourced dividends paid to qualifying foreign companies will be replaced with an exemption based on the same conditions (i.e. participation below 10% but above 2,5 Mio, period of 1 year,….).
Exemption of capital gains on shares (large companies)
As from financial year 2018, the separate taxation at 0,412% of capital gains on shares will be abolished.
An exemption of capital gains taxation will be introduced, subject to a minimum participation threshold. Capital gains on shares will be exempt if the company holds a participation of at least 10% or with an acquisition value of at least EUR 2.500.000. Furthermore the exemption only applies if the subject-to-tax condition is fulfilled and if the participation is held for more than one year.
If these conditions are not fulfilled the capital gain will be taxable at 29,58% as from 2018 and 25% as from 2020. If only the holding period (> 1 year) is not fulfilled, the capital gain will be taxed at 25,50% in 2018-2019.
The minimum participation threshold will not apply to insurance companies with respect to hedging securities (dekkingsactiva / actifs de couverture). This because of the specific nature of these assets as a guarantee to the insurance taker.
Capital gains on financial institutions’ trading portfolios remain taxable on a net base, at the standard CIT rate, as before.
Minimum taxable base
The principle of the minimum tax base remains unchanged: companies with a taxable profit that exceeds 1 mio EUR will have a minimum tax base via the limitation of certain deductions, grouped in a “basket”. This basket will only be deductible from 70% of the amount of the taxable profit exceeding 1.000.000 EUR.
Dividend received deduction of the year, Innovation income deduction of the year, the investment deduction and the group contribution (in terms of the fiscal consolidation that would be introduced) would not be included in the basket and therefore need to be deducted from the taxable profit before the basket is taken into account.
During the past weeks changes however have been made with respect to the order of deduction. Currently we understand that the deductions included in the basket should be applied in the following order: incremental notional interest deduction of the year, carry forward of dividend received deduction, carry forward innovation income deduction, losses carried forward, and finally (old) notional interest deduction.
Provisions for risks and charges will only be tax-deductible if at the end of the taxable year an ‘obligation’ actually exists. Provisions based on a contractual, regulatory or legal obligation will thus be tax-exempt.
When a provision is reversed after 2018 the initial tax rate at the time the provision was recorded will always apply. Same goes for the deferred taxation of capital gains if not reinvested within the 3 or 5 year period.
These measures will not affect the impairments on accounts receivable (provision for doubtful debtors).
Interest deduction limitation
For loans concluded as of 17 June 2016, the tax deduction of interest will be limited to 30% EBITDA (consolidated). The first amount of EUR 3.000.000 (consolidated) of interest will be deductible without limitations. This interest deduction limitation would not apply to financial institutions. The existing thin-cap limitation would be abolished (in principle also for financial institutions), except for the grandfathered loans and for loans granted by tax haven companies.