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NINETEENTH INTERNATIONAL TAXWEEK

SYLLABUS

BELGIAN CORPORATE INCOME TAX

Lecturer : Wim Reynebeau

October 2010
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1. INTRODUCTION

1.1. An Overview

The Belgian Income Tax system consists of the following four separate
federal taxes, which are based on the tax status of the income recipient :

- Personal Income Tax payable by resident individuals on their total

income from all sources ;
- Corporate Income Taxes payable by resident companies and other
legal entities on their total income from all sources ;
- Non-resident Income Tax on income earned or received in
Belgium.
- Legal Entities Income Tax payable by non-profit resident legal
entities or by entities exempt from C.I.T. on non-exempt items,
including income from fixed assets and personal property, certain
miscellaneous income, and certain taxable charges and allotments,
such as payments to undisclosed beneficiaries and group insurance
premiums exceeding the tax-deductible limit.

Indirect Taxes include Value Added Tax, Registration Duties, Mortgage

Duties and Court Fees, Inheritance Tax, Stamp Duties, Duties upon
Importation and Exportation, etc... Belgium has no net wealth tax.

1.2. Sources of Tax Law

The primary source of tax law is the constitution, which allows Parliament to
enact tax laws. In addition, many tax laws enable the King, that is, the
government, to enact certain rules by Royal Decree. Court decisions
interpret the tax laws.

1.3. Tax Administration

1.3.1. Filing

Individual and corporate taxpayers must file annual tax returns reporting
income received during the preceding calendar year for individuals or during
the financial year, which is considered the income year, for corporations. The
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year of filing and assessment is considered the tax year. The tax return
should be completed, dated, signed and returned to the tax inspector by the
date indicated on the return unless the taxpayer obtains an extension. The
filing date varies from year to year, but is usually around 30 June for
calendar-year taxpayers.

1.3.2. Advance Payment and Assessment

In general, taxes are withheld from the income of individuals (wage tax or
PAYE). However, self-employed individuals and corporate taxpayers should
make advance tax payments. For a calendar-year taxpayer, these payments
are due on 10 April, 10 July, 10 October and 20 December. Surcharges are
levied on the entire amount of tax due if prepayments have not been made
or are insufficient.
A few months after filing, a tax assessment or refund notice is issued. The
amount of tax due must be paid to the tax collector within two months of the
date of receipt of this assessment. Any refund should be received within the
same two-month period.

1.3.3. Appeals

A decision by a tax inspector may be appealed to a tax director. The

director's decision may be appealed to the Court of First Instance, whose
decision may be appealed to the Court of Appeal. This decision may then be
appealed to the Supreme Court.
The tax authorities have three years, or five years in the case of fraud, to
audit a tax return.

1.3.4. Tax Audits

Tax audits are performed regularly. Because the income tax and the value
added tax authorities co-operate with each other, corporations are generally
audited annually, by the income tax authorities and the V.A.T. authorities.
Audits are limited and often do not last more than one day.
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2 CORPORATE INCOME TAX (C.I.T.)

2.1. Tax period

For the taxation of individuals, the tax period is always the calendar year.
This is not the case for the C.I.T. : the tax period is the financial year and
the link between the taxable period and the tax year is based on the date
the accounts are closed.
Legislation relating to tax period 2010 therefore applies to profits from
financial years closed between 31/12/2009 and 30/12/2010.

2.2. Liability to C.I.T.

All companies are liable to C.I.T. if :

- they have a separate legal personality ;

- they have their statutory seat, their principal establishment, their seat
of management or their seat of administration in Belgium ;
- they are engaged in a business or a profit-making activity.

Non-profit organizations are, in principle, not liable to C.I.T., provided their

activity is in keeping with their legal status ; the status of non-profit
company does not automatically bind the tax office, which can submit a non
profit-making company to the payment of C.I.T. if the association is engaged
in profit-making activities.
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2.3. Tax base

2.3.1. Financial profit and taxable profit

The notions of "taxable profit" and "financial profit" are quite different from
each other. Although the latter serves as a basis for the computation of the
taxable income, it is subject to several adjustments :
- either because certain profits are exempted (see below : exempt
reserves, dividends and income from exempt capital) ;
- because certain expenses which have burdened the financial results
are not tax deductible (see below "disallowed expenses") ;
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- because the tax depreciation does not correspond to financial

depreciation ;
- or because assets have been undervalued and liabilities overvalued.

In addition to these differences, we may add those relating to specific tax

deductions.

The adjustments and deductions which allow the calculation of net taxable
profit on the basis of financial profit are usually grouped into "eight
operations" as follows :

1. the addition of the three elements which make up taxable profit :

reserves, disallowed expenses and distributed profits ;
2. the breakdown of profits according to whether they are made in
Belgium or abroad ;
3. the deduction of non-taxable items ;
4. the deduction for "definitively taxed income" (D.T.I.) and for
exempted income from movable property ;
5. the deduction for patents income
6. the deduction for risk capital;
7. the deduction of carry-forward losses ;
8. the investment deduction.

The profit thus calculated is taxed globally.

2.3.2. First operation : the components of taxable profit

2.3.2.1. Reserves ( = retained earnings)

As a general rule, any net increase in company assets is considered a

taxable profit.
Slush funds are to be added to visible reserves (accounting reserves) :
exempt reserves are then separated to ascertain the amount of taxable
reserves.
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Visible (or disclosed) reserves

In principle, any retained earnings contribute to the accrual of taxable

profits, whatever name they are given : legal reserves, available reserves,
unavailable reserves, statutory reserves, provisions for risks and expenses,
reserves carried over, etc.

Hidden (or undisclosed) reserves

Undervaluation of assets and overvaluation of liabilities constitute hidden

reserves which also make up part of the taxable profit.
Depreciations exceeding the depreciation limits allowed by the tax code and
underestimation of inventory, for example, constitute an underestimation of
assets.
A notional debt is a case of overvaluation of liabilities.

Exempt reserves

a) The exempt portion of capital gains is considered as an exempt

reserve : if the intangibility condition is required, the exemption is
only awarded if the liabilities appear in a separate account.
b) Certain provisions can also be exempted : they must relate to
specifically defined risks and expenses. The expenses they are to
meet must be, by their very nature, professional expenses for the
year in wich they are to be borne and the formation of these
provisions must be justified :
° either by events having occurred in the course of the financial
year ;
° or by a periodicity of expenses lasting beyond the year but not
exceeding 10 years (provisions for overhaul or important
repairs).
c) The depreciation of debt-claims is deductible in total as
professional expenses when the loss is actually incurred in cash.
In the case of a depreciation relating to a probable loss, the
debt-claim must result from the professional activity and be identified
and justified case by case.
d) Share premiums and capital subscription reserves are exempted
if they are incorporated in the capital or appear in an unavailable
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reserve account and so satisfy the same unavailability condition as

the company assets.
e) Reserve for Investments for the benefit of SME’s : in order to
encourage self-financing of SME’s, there is a granting of exemption
from tax for a given percentage of the firm’s profits.
The sum qualifying for exemption will equal 50% of the amount that,
during the course of the accounting year, will be taken from the result
and added to the firm’s retained earnings (from which will be
excepted, among other things, tax-free provisions).
The amount of retained earnings taken into account for the
computation of the exemption may not exceed € 37.500 per tax
period.
Some other conditions (regarding investments) will have to be met.
S.M.E.’s benefiting the Investment Reserve have to choose between
this reserve and the allowance for risk capital
f) Exemption of profits up to 150% of investments in the production
of recognized Belgian audiovisual works = Tax Shelter: the tax break
for the company that invests consists of an exemption of profits up to
150% of the investments made. However, this exemption is limited to
50% of the profits from the taxable period, or € 750.000.

Withdrawals on exempt reserves

In principle, each withdrawal on exempt reserves leads to an increase

of the tax base. This withdrawal is taxed at the normal C.I.T. rate
except in case of subsequent deduction. In order to stimulate the use
of some exempt reserves, a special tax regime has been introduced
for tax years 2008, 2009 and 2010. The withdrawals are taxable at a
reduced rate.
The exempt reserves concerned are the following:
- the investment reserve constituted during tax year 1982;
- the exempt realized capital gains, except for capital gains
realized on company vehicles, vessels and capital gains to
which spread taxation applies.
The withdrawal cannot exceed the total amount of capital gains
existing at the end of the tax period linked to tax year 2004.
The tax rate amounts to 14% or 25% according to whether there are
investments or not.
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Tax arrangements for capital gains

a) Capital gains realized during exploitation

a1. Capital gains intentionally realized on tangible and intangible assets

The tax regime is based on the principle that taxation can be carried
over.
This carry-over of taxation applies to capital gains made on tangible
and intangible assets allocated for more than 5 years to the
performance of the professional activity, on condition that there is a
re-investment.
If the duration of the allocation is less than 5 years, the capital gains
constitute a taxable profit at the full rate.
When the tax can be carried over, the capital gains in question are
considered as profits for the taxable period of re-investment and for
subsequent taxable periods in proportion to the depreciation and the
non-depreciated balance for the tax period during which the property
ceases to be allocated to the exercise of the professional activity.
The staggered taxation is made at the full rate.
The re-investment must be made in respect of tangible or intangible
assets that can be depreciated. The re-investment must be made
within a period of 3 years starting from the first day of the tax period
during which the capital gains were acquired.
If there is no re-investment within this period, the capital gains are
considered as a profit for the tax period during which the re-
investment period expired.
The tax is payable at the full rate.
The exemption of the monetary adjustment portion is maintained.

a2. Capital gains intentionally realized on financial fixed assets

Capital gains made on fixed income securities are taxable at the full
rate.
Capital gains made on stocks and shares are totally exempt, without
the re-investment condition or intangibility condition having to be
met.
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Nonetheless, the revenue produced by the stocks or shares on which

the capital gains are made must comply with the "taxation condition"
applicable to participation exemption (P.E.).
On the other hand, the condition relating to the participation threshold
is without effect on the exemption of capital gains.

a3. Unintentional or forced capital gains

Forced capital gains must be construed as capital gains acquired

through compensations received as a result of casualties,
expropriation, claim to right of ownership or any other similar event;
are hence concerned, events which the natural or legal person could
neither foresee nor prevent. Where the event results in a permanent
cessation of the professional activity, the regime of "capital gains
upon the cessation of a professional activity" applies.
In the other case, i.e. where the professional activity is furthered, the
capital gains are chargeable according to the rules that apply to
voluntary disposition:
- carry-over taxation, where the condition of re-investment in
tangible or intangible fixed assets is met;
- full rate taxation for capital gains on fixed income securities;
- exemption without re-investment condition, provided the condition
of taxation for capital gains on shares is met.

The re-investment period ends three years after the end of the
taxable period in which the compensation is received.

b) Capital gains realized upon the cessation of a professional activity

Capital gains realized upon the cessation of a professional activity are

capital gains realized on the occasion or as a result of the discontinuation
of a professional activity, whether these gains are made involuntarily or
not. The special regime applies for capital gains on stocks and contracts
in progress, on intangible fixed assets, on tangible and financial assets
and on other portfolio securities.
The discontinuation can be complete or partial, but it must be final.
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The capital gains are taxable as from the date they are settled, e.g. upon
promise to sell, upon a hire-purchase contract, upon the declaration of an
inheritance.
Tax regime and rates to apply depend on the circumstances and on the
nature of the assets:
- for tangible or financial assets and other securities: 16,5%
- for intangible fixed assets: for the portion of the discontinuation gains
not exceeding the algebraic sum of the taxable net profits and
proceeds obtained during the four years preceding the year of
discontinuation, the rate of 33% applies; for the balance, the separate
taxation does not apply.

The 16,5 % rate also applies where the discontinuation is the result of
the taxpayer's decease or where it is a forced final cessation.

2.3.2.2. Disallowed Expenses

The expenses of a corporation are similar of an individual taxpayer. All the

expenses are for professional use. The expenses have burdened the financial
results, they diminish the profits.
However, in the Corporate Income Tax, some of the expenses are not
deductible : disallowed expenses.

This grouping is made up of expenses which appear as charges in the

financial accounts but for which a deduction is not authorized in the
calculation of taxable profits.
This concerns mainly :

a) non-deductible taxes

Corporate Income Tax (except the contribution which is payable on

secret commission), advance payments, allowable withholding taxes
which are levied or determined on income included in the taxable
base are not deductible. This is also the case for the interest on late
payments, fines and prosecution expenses relating thereto.
Are also non deductible: taxes, fees and public service charges due to
the Regions, as well as the surcharges, penalties, charges and default
interests related to them.
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Remark : withholding tax on real estate income.

Since real property withholding tax is no longer creditable against
C.I.T., tax due by companies for real property they own is entirely
deductible as a business expense.

b) fines, penalties and confiscations of any kind

The non-deductibility of fines also includes fines which are incurred by

managers and salaried staff of the company.

c) in certain cases, interest on loans

There are two cases where legislation considers interests disallowed

expenses : exaggerated interests and undercapitalization.

c1. exaggerated interests :

Interests from bonds, loans, debt-claims and other certificates

representing amounts borrowed is deductible only to the extent that it
does not exceed an amount corresponding to the market rate of
interest, taking into account the particular data resulting from the
appreciation of the risk involved in the operation, especially the
debtor's financial situation and the term of the loan. The balance is a
disallowed expense. These limits apply neither to interest on bonds
nor to sums paid by or to financial institutions.

c2. Undercapitalization :

Applies to interests which stay in principle deductible and the

beneficiaries of which are not liable to a common tax regime or benefit
a tax regime which derogates from the common tax regime. Those
interests are considered disallowed expenses to the extent that the
balance of the interest-yielding loans exceeds seven times the total of
the taxed reserves existing at the beginning of the assessment period
and the paid-up share capital existing at the end of the taxable period.
This provision does not apply to interests on loans issued by a public
call for funds.
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d) abnormal or benevolent advantages

Abnormal or benevolent advantages which are granted to companies

which are established abroad and with which the company has direct
or indirect links involving interdependence, or to a company which is
subject in the country of its registered offices to a tax system which is
considerably more advantageous.

e) social benefits

Social benefits in respect of which the beneficiary is exempted from

taxation.

f) donations (gifts)

Certain types of donations can nonetheless be deducted from the

taxable profit provided they fulfill the conditions for exemption (in
such cases, the deduction is made at the third operation).

g) withdrawal of exemption for additional staff

The employment of additional staff can give entitlement to exemption

from taxation at the third operation.
The exemption awarded is, however, withdrawn when the personnel
is reduced.

h) certain specific professional expenses

These involve :

- expenses and charges exceeding reasonable professional

needs ;
- expenses in respect of clothing with the exception of specific
working clothes ;
- 31 % of restaurant bills;
- 50% of business related reception expenses and business gifts.
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i) car expenses

The deductibility limitation applies to motor cars, twin-purpose

vehicles, vans and minibuses other than those exclusively used for
paid conveyance of passengers.
As from 1/4/2007, the deductibility of the expenses is computed to
CO2 emissions per kilometer, on the following scale:

Diesel vehicles Petrol vehicles Deduction rate

CO2 emissions g/km CO2 emissions g/km In %
Less than 105 Less than 120 90
From 105 to 115 From 120 to 130 80
From 116 to 145 From 131 to 160 75
From 146 to 175 From 161 to 190 70
More than 175 More than 190 60

Fuel, interest and radiotelephone expenses remain totally deductible.

j) write-down on share participations, except in case of full

distribution of company assets

k) certain pensions and pension contributions

Payments with a view to constituting an extra-statutory pension are

deductible only to the extent that they relate to compensations paid
with a regularity similar to that with which compensations chargeable
to the results of the taxable period are paid to the personnel.
Payments relating to compensations granted by the general meeting
of shareholders, or placed on a current account, are therefore not
deductible.
The payments must be made, outside any statutory obligation, to an
insurance company or pension fund and must be irredeemable.
However, the deduction of these contributions is granted only to the
extent that the statutory and extra-statutory allowances converted
into an annuity upon the beneficiary's retirement, added to the other
amounts the retirement entitles to, do not exceed 80% of the latest
ordinary gross remuneration of a normal career.
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2.3.2.3. Distributed profits

2.3.2.3.1. Dividends

Dividends distributed by share companies and revenue from capital invested

in partnerships are included in the taxable base.

When the company distributes dividends to the shareholders, the dividends

are subject to a withholding tax of 25 % (sometimes 15 %).

2.3.2.3.2. Interest assimilated to dividends

Any interest on advances and loans granted to partnerships can be

assimilated to dividends when the advance or loan is given :

- by a natural person detaining parts in the company ;

- by persons holding a managing function in the company, as well as by
their spouses and under-age children.

The interest received is then assimilated to a dividend if and to the extent

that :
- the maximum rate of interest concerning the interests that are
deductible as expenses concerning loans with non-financial
institutions. This is the rate of interest applied on the market, taking
into account the specific data on the assessment of the risk run in the
transaction, specifically taking into account the financial situation of
the debtor and the period of the loan;
- the total amount of interest-yielding advances exceeds the total
amount represented, at the beginning of the tax period, by the paid-
up capital at the end of the tax period increased with the taxed
reserves at the beginning of the tax period.

This assimilation to dividends implies that the amounts in question are not
deductible in respect of C.I.T. and are subject to the withholding tax at the
rate applicable to dividends.
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2.3.2.3.3. Acquisition of own shares, total or partial distribution of company

assets

In the event of distribution of company assets, the sums shared out are
considered as distributed profit in respect of the quota exceeding the
effectively paid company assets which remain outstanding, after
re-evaluation, if any.
Although these sums are considered as distributed profits, no withholding
tax on income from movable property is deducted when they are assigned.
This situation is changed since 29/12/02. The Act introduces a W.T. of 10%
on income paid or allowed in response to the complete or partial division of
the registered capital or in the event that a company purchases its own
shares.

2.3.3. "Second operation" : breakdown of profits according to their source

Taxable profits which are made up of the sum of reserves, disallowed

expenses and dividends are subsequently broken down into two categories
according to whether they are earned :

- in Belgium and abroad, in a country with which Belgium has not

concluded an international convention preventing double taxation:
they are in this case taxable at the full rate ;
- abroad, in a country with which Belgium has concluded a convention:
they are in this case exempt from C.I.T. and can no longer be taken
into account in the calculation of the taxable base.

2.3.4. Sums deductible at the "third operation"

The following are deductible :

- exemptions of 13.840 EURO exemption awarded for additional staff

member assigned in Belgium to the development of the technological
potential of the company, or appointed to a managing function in the
export department or in the ‘total quality’ department;
- exemption of 20% for the remuneration paid or allocated to workers
in respect of whom the employer benefits a trainer’s bonus;
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- the 5.150 EURO exemption for each additional member of personnel

in S.M.E.'s ;
- gifts ; the deduction of gifts cannot, however, exceed 5 % of the
result of the 1st operation, nor 500.000 EURO.

2.3.5. The "fourth operation" : deduction of D.T.I. and exempt income from
movable assets

2.3.5.1. Introduction

A (foreign) company pays a dividend to the Belgian shareholder-company.

The dividend, as a part of the profits made by the (foreign) company, was
subject to the own national corporate tax. At the same time, (foreign)
dividends are in many cases subject to withholding taxes.
The dividends constitute a taxable income for the Belgian company. In order
to avoid double taxes, the legislator developed a system of deduction
'income from income'. This deduction is called the system of Definitively
Taxed Income (D.T.I.) or Participation Exemption.
The three main conditions to be met to apply the deduction of D.T.I. concern
the quantitative bottom condition, the submission to taxes ("Taxation
condition") and the permanency condition. Mainly the latter condition will be
highlighted on since its application specifically concerns the foreign
dividends.
The European directive aims at establishing a tax neutrality of the dividend
flows between companies based in the several member states. This is why
the member state of the main branch cannot levy taxes on the dividends
received (method of exemption). If they still do so, they will have to grant a
tax credit (accountability method). Alike most European continental member
states, Belgium preferred to apply the method of exemption (the deduction
of the D.T.I.).
The directive is only applicable to companies that are subject to the
corporate taxes. Another condition is the participation of at least 10% in the
capital of the daughter company.
The deduction of the D.T.I. takes place after the deduction of the profits that
are exempted by the treaty and from the non-taxable components, but
before deduction for patents income, for risk capital, of previous losses and
the investment allowance. The deduction of the D.T.I. technically takes place
in the fourth operation of the calculation of the corporate tax.
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The deduction of the D.T.I. is only allowed as far as the dividends have
contributed to the making of taxable profits. Consequently, the D.T.I. cannot
be deducted as far as the income from bonds, invested in foreign branches
established in countries with which Belgium has concluded a double tax
treaty.
At the same time, the deduction of the D.T.I. is only possible as far as after
the previous operations (i.e. after the third operation of the calculation of the
corporate tax), taxable profits remain. These taxable profits constitute an
amount including the taxes and the non-deductible decreases in value or
devaluations of shares but excluding the other disallowed expenses. Hence,
the deduction of the D.T.I. can never lead to a negative tax result.

2.3.5.2. Quantitative bottom condition (= participation threshold)

The company receiving the dividends must have a participation in the capital
of the daughter company of at least 10% or maintain a participation with a
purchase value of at least 1.200.000 EURO at the date of granting or pay
ability of the dividends.
The quantitative bottom condition is not applicable to dividends received by
banks, savings banks, public credit institutions, insurance companies and
stock exchange companies.

2.3.5.3. Taxation condition

The dividends are deductible as D.T.I. as far as they are granted by

companies that are subject to Belgian corporate taxes or, as far as
companies based abroad are concerned, if these foreign companies are
subject to a tax similar to the corporate tax (= taxation condition)

The taxation requirements have been replaced by a series of exclusions, the

nature of which is essentially qualitative.

1. The first case of exclusion concerns income allocated or assigned by

companies which are not liable to C.I.T. or to similar foreign tax, or
which are established in countries offering a legally established tax
system which is markedly more advantageous than the Belgian
system.
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2. The second case of exclusion concerns income allocated or assigned

by financing companies (financing companies are those companies
having loans to related companies from the same group as their main
activity), money market funds (= any company whose activities
exclusively or mainly consist in investing cash funds) and investment
companies (= any company whose activities exclusively consist in
investing mutual funds) which, although they are liable to C.I.T., are
subject to a tax regime which derogates from the common tax
regime.
3. The third case of exclusion allows upstream control : the participation
exemption (D.T.I.) is not granted to the extent of income, other than
dividends, obtained by the distributing company itself from companies
established abroad, if that income has benefited a tax regime
derogating from the common tax regime.
4. The fourth case of exclusion also allows upstream control of the
distributing company : the participation exemption (D.T.I.) is not
granted insofar as the distributing company has obtained capital gains
through one or more companies established abroad and benefiting a
tax regime which is markedly more advantageous than the one the
capital gains would have been subject to in Belgium.
5. The last case of exclusion concerns income obtained by companies,
other than investment companies, distributing dividends to which the
first four exclusions apply.

A foreign tax system must be seen as “significantly more favorable” if:

- either the nominal tax rate applicable to company profits is less than
15%;
- or the rate that corresponds to the actual tax burden because of the
way in which the taxable profits are determined is less than 15%.

However, the law provides limitations of the exclusions :

1. The first case does not apply to inter-municipal associations.

2. Case number two does not apply to investment companies whose
statutes provide for an annual distribution of at least 90% of the
income obtained or capital gains realized.
3. Neither the second nor the fifth case apply to resident finance
companies having established their residence in one of the member
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states of the E.U., as regards legal business or profit-making activities

and insofar as the company is not overcapitalized.
4. The fifth case does not apply where the distributing company is noted
on a European stock exchange and is liable to C.I.T. in a country with
which Belgium has concluded a double taxation agreement.

2.3.5.4. The permanency condition

The deduction of the D.T.I. is only allowed for:

- participations which are entered in the accounts as a financial asset;
- the shares must remain fully owned for a continuous period of at least
one year.

2.3.5.5. Basic amount of the D.T.I. deduction

The taxable amount of the (foreign) dividend is constituted by the received

net amount (before deduction of collection and custody charges, but possibly
after the foreign withholding tax), increased with the Belgian withholding tax
if the foreign dividends were cashed after deduction of the withholding tax.
The D.T.I. deduction amounts to 95% of the taxable amount of the (foreign)
dividends.
The deduction is applied to the amount of the proceeds remaining after the
third operation, whereupon it is understood that the following disallowed
expenses are to be taken out, which means they are to be considered
deductible :
- non-deductible gifts ;
- fines and penalties ;
- certain specific professional expenses ;
- exaggerated interests ;
- abnormal or benevolent advantages ;
- social benefits ;
- certain contributions to pension schemes.

From tax year 2005 on, these disallowed expenses are not to be taken out
of the taxable base to witch the participation exemption applies, if the
dividend is allocated or attributed by a subsidiary established in the
European Union.
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2.3.5.6. Not meeting the conditions for the D.T.I. deduction

If one of the conditions (quantitative bottom condition, taxation and

permanency condition) is not met, then the dividends (after deduction of the
foreign withholding tax) are completely submitted to the Belgian corporate
tax. The F.F.T.C. (see below) cannot be applied to foreign dividends, except
the dividends of investment companies in accordance with the principle of
the positive transparency.

2.3.5.7. Exempt income from movable property

Income from preference shares of the Belgian National Railway Company

and income from tax exempted bonds (prior to 1962) are also deductible.

2.3.5.8. Capital gains on shares are exempt from taxes if dividends on the
shares qualify for D.T.I. To qualify for D.T.I. for capital gains, only the
taxation test needs to be satisfied.

2.3.6. The “fifth operation: deduction for patents income

The new deduction is in force as from tax year 2008.

Are taken into consideration: the patents or supplementary protection
certificates registered by the company itself and that have been
developed, wholly or partially, in the R & D centers of the company,
as well as the patents, supplementary protection certificates or
licenses acquired by the company provided they had been improved
in the R & D centers of the company.
’Patents income’ means as well the income stricto sensu notably
derived from the granting of licenses, as the income which would
have been received from a third party by the company having
exploited patents on its own behalf. The income must be assessed on
the basis of the remuneration which would have been agreed between
independent companies.
The qualifying income must be included in the taxable income and the
following expenses must be deducted:
- amortization charge for the tax period, on the investment value
or cost price of the patents, provided it is deducted from the
basis amount which is taxable in Belgium;
 - 22 -

- compensation owed to third parties pertaining to these patents,

deducted from the taxable result in Belgium.

The so determined income enjoys a 80% exemption.

In case of insuffiency of profit, the balance of the deduction for patent
income cannot be carried over the next taxable periods

2.3.7. The “sixth operation: deduction for risk capital or allowance for
corporate equity

2.3.7.1. The concept

As of tax year 2007, Belgian companies and foreign companies with a

Belgian establishment enjoy a fictitious interest deduction calculated
on the basis of their risk capital.
The idea behind the implementation of the notional interest deduction
is reducing the tax discrimination between debt financing (whereby
the compensation – interest – is in principle tax deductible), and
equity financing (whereby the compensation – dividends – is in
principle not tax deductible).

2.3.7.2. The rate

The deduction is equal to a certain percentage of the company’s risk

capital or simply:
NOTIONAL INTEREST RATE * RISK CAPITAL
The percentage is set every year. The basis rate for tax year 2010 is
4,473%. The increased rate for SME’s is 4,973%.

2.3.7.3. What is risk capital ?

The percentage is applied to the company’s “risk capital”. By “risk

capital” the legislator understands the total equity as projected in the
non-consolidated annual accounts at the end of the previous taxable
period = the firm’s net worth.
From this “basic” risk capital a number of amounts are deducted to
obtain a “corrected” risk capital that will form the basis for the
 - 23 -

calculation of the deduction.

The following amounts are deducted:
- the fiscal net value of the own shares, participating interests
and shares posted under financial fixed assets and shares of
investment companies which can benefit from the dividend
exemption regime (D.T.I.);
- the net equity assigned to permanent establishments or real
estate property or rights situated in a country with which
Belgium has concluded a double-tax treaty;
- the net book value of material fixed assets which unreasonably
exceed the professional needs;
- the book value of some assets held as investments;
- the net book value of real estate property made available to
company managers;
- the part of the expressed but unrealized capital gains exempted
of taxes and capital subsidies.

2.3.7.4. Income deduction

The notional interest deduction is deducted from the company’s

taxable income, but the company may not end up in a loss situation
as a result thereof.
If there is not enough profit, the deduction can be carried forward to
the following accounting years up to a maximum of 7 years.

SME’s having constituted exonerating investment reserves in the

course of the tax period (i.e. those being subject to C.I.T. at the
reduced rate) cannot combine this advantage with the benefit of the
allowance for corporate equity, not only for the tax period in question
but also for the following two tax periods.

2.3.8. The "seventh operation" : deduction of previous losses

The losses from previous tax periods are deductible with no time limit.
Companies may carry forward losses indefinitely. Losses may not be carried
back. Losses for tax purposes are not always equal to the losses for financial
accounting purposes.
 - 24 -

A special disposition applies, however, where a company gets the

contribution of a branch of trade of another company, or of the universality
of its goods or when it absorbs another company.

2.3.9. "Eighth operation" : the investment deduction

The investment allowance makes it possible to deduct from the tax base a
quota of the amount of investments made in the course of the tax period.
The investment allowance may apply to investments in tangible or intangible
fixed assets, newly acquired or constituted during the tax period and which
are assigned in Belgium for the exercise of a professional activity.
The investment allowance is, as a rule, no longer applicable since
assessment year 2007.
The allowance is maintained, however, at the below-mentioned rates:

- for "R-D" investments, "energy saving" investments, "green"

investments and for patents ;
- for security – system investments;
- for investments aimed at the production of reusable packages and the
recycling thereof ;
- in the "spread deduction" form.

For investments in the taxable period related to tax year 2010, the rates of
the investment allowance are as follows :
- recycling of packaging 3%
- companies 0%
- "R-D" investments, rational use of energy,
patents, "green" investments 15,5 %
- security – system investments 22,5%
- staggered deduction for “R-D”,"green",
energy-saving investments 22,5 %

2.4. Computation of the tax

2.4.1. Common rate

C.I.T. is payable at a rate of 33 %

 - 25 -

2.4.2. Reduced rates

Reduced rates can be applied when the taxable profit does not exceed
322.500 EURO

Taxable net profit (EURO) Rate applicable to this bracket

0 - 25.000 24,25 %

25.000 - 90.000 31 %

90.000 - 322.500 34,50 %

322.500 and more 33 %

In order to qualify for these reduced rates, a company must however fulfill a
number of additional conditions relating to :

- the activities of the company ;

- the shareholding of the company ;
- the rate of return on the capital ;
- the remuneration of their managers.

The activities of the company

In order to qualify for the reduced rates, the company must, by law, fulfill
two conditions in respect of its activity :
- the company must not be a finance company (a holding). That means
that the group must not hold shares the investment value of which
exceeds 50% of either the revalorized value of the paid-up capital
increased by the taxable reserve and the accounting capital gains. The
investment values taken into consideration are the ones held by the
shareholding company the day they close their annual accounts. The
shares representing at least 75% of the paid-up capital of the issuing
company are not taken into consideration when determining whether
the 50% limit is exceeded or not ;
- it must not have benefited from the services of a co-ordination center.
 - 26 -

The shareholding of the company

Entitlement to the reduced rates is not granted to those companies of which

at least 50 % of the shares are held by one or more other companies.

The return on the registered capital

Entitlement to the reduced rates is also denied if the rate of return on the
registered capital effectively paid up which remains to be reimbursed at the
beginning of the tax period exceeds 13 %.

The remuneration of managers

In order to qualify for the reduced rates, the company is also obliged to pay,
from the results of the taxable period, a minimum remuneration to one
manager at least :

- if the company's taxable profit exceeds 36.000 EURO, the company

must pay to one manager a remuneration of at least 36.000 EURO ;
- if the taxable profit does not exceed 36.000 EURO, the company must
pay to one manager a remuneration amounting to no less than its
taxable income.

2.4.3. Taxation of withdrawals on exempt reserves

A special tax regime applies to withdrawals on some exempt reserves for tax
years 2008 to 2010.
These withdrawals are taxed at 25%. A rate of 14% applies where the
company invested, in the tax period during which the withdrawal occurred,
an equivalent amount in depreciable tangible or intangible assets. These
assets are not required to be new but they cannot be considered as a re-
investment to benefit other advantageous tax incentives (e.g.: the
investment reserve or the spread deduction of capital gains). The company
is not required to keep the investments in its possession.
 - 27 -

2.4.4. Tax Credit for research and development

2.4.4.1. Investments taken into account

The tax credit for R & D is granted for investments in tangible fixed
assets newly acquired or constituted and in new intangible fixed
assets, which are allocated in Belgium to the exercise of a
professional activity.

2.4.4.2. Calculation basis

The present basis used for the calculation of the deduction for
investment, i.e. the investment value or yield value, is multiplied by
the rate of the deduction for investment, by distinguishing between
the increased deduction for investment and the spread deduction for
investment. Indeed, the tax credit can be applied in one go or be
spread.
This calculation basis is then multiplied by 33,99% (normal rate of
C.I.T. increased by the supplementary crisis contribution).

Example
Investment R & D of 1.000 EURO
Deduction for investment rated at 15,5%
Spread deduction for investment rated at 22,5%
Nominal rate of C.I.T. fixed at 33,99%
Tax credit applied in one go: 1.000 * 15,5% * 33,99% = 52,68 EURO
Spread tax credit (according to the accepted fiscal depreciation, e.g.
over five years): 1.000 * 20% * 22,5% * 33,99% = 15,34 EURO

2.4.4.3. Incompatibility

Companies have to choose between the tax credit for R & D and the
deduction for investment for patents or for “green” investments. This
choice is irrevocable.
The provisions relating to the exclusion of some fixed assets from
entitlement to the deduction for investment, also apply to the tax
credit for R & D.
 - 28 -

2.4.4.4. Crediting and carry-over

The tax credit fully applies to C.I.T. As appropriate, it can be carried

over successively to the subsequent four tax years.

2.4.5. Crisis surcharge

Owing to the introduction of the crisis surcharge, an additional 3 % crisis

contribution is levied on corporate income tax, for the benefit of the State
only.

2.4.6. Tax increase for lack or insufficiency advance payments

The tax increase for lack or insufficiency advance payments is, as a rule,
calculated in the same way as for the P.I.T.
The surcharge (6,75%) for insufficient prepayments is determined by
applying the rate of the surcharge to total tax due and adjusting for tax
prepayments. For the 2009 income year, the following are the adjustments:
- 9% for the 10 April prepayment;
- 7,50% for the 10 July prepayment;
- 6% for the 10 October prepayment;
- 4,50% for the 20 December prepayment.

2.4.7. Crediting of withholding taxes

Withholding taxes allowable as a credit set-off are divided into repayable and
non-repayable taxes.
With respect to dividends, the crediting of the withholding tax on the income
from movable property is made conditional upon the requirement that the
recipient have the full ownership of the shares at the moment the income is
granted or made payable. In addition, a company cannot set off the W.T. on
income from movable assets relating to dividends when the attribution or
payment of this income results in a write-down or a capital loss on the
underlying shares.

For all other types of income from movable property, the crediting of the
W.T. on income from movable assets and of the F.F.T.C. (see below) is only
 - 29 -

awarded, pro rata temporis, for the period during which the company has
enjoyed full ownership of the securities.

2.4.7.1. Repayable withholding taxes and payments

The following are set off against C.I.T. and repayable :

- advance payments ;
- the W.T. on income from movable assets.

2.4.7.2. Non-repayable withholding taxes

The withholding tax on real estate income cannot be set off against
C.I.T., but is be considered as an allowable expense.

The Fixed Foreign Tax Credit (F.F.T.C.)

The F.F.T.C. can be set off against C.I.T. but is not refundable. It relates
only to fixed interest securities.

a) Introduction

A company receives an interest from a foreign source. The

withholding taxes were deducted. The interest is entered in the results
account and constitutes a completely taxable income. In order to
avoid international double taxes (foreign withholding taxes and
Belgian corporate tax), the Belgian legislation offers the opportunity
to incorporate a tax credit, i.e. the Fixed Foreign Tax Credit (F.F.T.C.).

b) Modalities

The F.F.T.C. is taken into account with the Corporate taxes due by the
Belgian company. The possible surplus is not refundable.
The received net foreign movable property, i.e. after deduction of the
foreign withholding tax, is to be increased with the F.F.T.C. in order to
determine the taxable basis.
 - 30 -

c) Foreign taxes

The interests must be subject to taxes similar to individual income

taxes, corporate taxes or taxes on non-residents abroad in order to
enable the settlement of the F.F.T.C.

d) Interests

However, the F.F.T.C. is restricted to the actually deducted foreign tax

for interests. In this case, the F.F.T.C. equals the following percentage
of the income:
x
100 - x

x equaling the actually deducted foreign tax, expressed in a

percentage of the income on which the tax is levied and limited to 15.

If the foreign taxes were at the expense of the foreign debtor, then
the denominator will remain 100.
The F.F.T.C. is not calculated on the basis of the gross income before
deduction of the possible withholding taxes, but on the income
reduced with the financial costs concerned.

EXAMPLE

A Dutch company pays an interest to a Belgian company. The Dutch

withholding tax amounts to 25%. However, based on the double tax
treaty between Belgium and the Netherlands, it is reduced to 15%.
The contractually fixed gross interest amounted to 100.
Taking into account the first limitation, the F.F.T.C. must be calculated
as follows :
100 - 25 (25% withholding tax) = 75 * 15/85 = 13,23
 - 31 -

2.4.8. Special tax regimes

Disallowed sums or expenses

A 300 % tax imposition, to be increased by the additional crisis tax, is

applied to sums or expenses which are not justified and to undisclosed
reserves. This contribution constitutes a professional expense.