The New Year traditionally brings tax changes of all kinds. The year 2024 will be no exception with intense legislative activity over tax reforms at the close of 2023, characterised by several laws in addition to the traditional programme law.
The following is a summary of the many and varied measures on the horizon for the New Year.
1. Measures affecting companies
Countries with significantly more advantageous tax regimes: adapting anti-abuse provisions
At present, tax law provides that certain amounts (e.g. interest or royalties) paid by a Belgian company to a non-resident taxpayer benefiting from a significantly more advantageous tax regime for such income are not deductible unless they relate to "real and sincere transactions and do not exceed normal limits".
Similarly, another provision states, in substance, that the transfer or contribution of certain assets (e.g. securities, liquidities, intellectual property rights, etc.) to a non-resident taxpayer benefiting from a significantly more advantageous tax regime for the income derived from these assets, constitutes a tax abuse and is not opposable against the Belgian tax authorities. The Belgian taxpayer may, however, prove the contrary by proving, in summary, that the transaction meets either legitimate financial or economic needs or that the actual consideration received has been subject to tax in Belgium.
The law modifies these two provisions. They will only apply if the Belgian taxpayer and the foreign taxpayer in question are directly or indirectly interdependent. The latter notion is broad, encompassing economic, managerial and structural criteria.
The addition of this condition of interdependence should make it possible to reduce the scope of application of these provisions and improve their foreseeability.
Proof to the contrary has also been modified. From now on, the Belgian taxpayer will be able to avoid the application of these provisions by proving:
- The foreign taxpayer is subject to an effective income tax, which is at least equal to half of that due if he were established in Belgium; or
- The payment or transaction is part of a genuine transaction in the sense that it has been set up for valid commercial reasons that reflect economic reality.
These measures will be applicable from 1 January 2024.
Controlled foreign company (CFC)
The Controlled Foreign Company (CFC) regime was transposed into Belgian law as part of the implementation of the Anti-Tax Avoidance Directive (ATAD). Based on these rules, certain undistributed income of a controlled foreign company must be taxed in Belgium in the hands of the taxpayer who controls it.
The directive allowed for transposition into national law according to two distinct models: A or B.
- Under the first approach (A), certain well-defined passive income (dividends, etc.) of the CFC is taxable in the hands of the controlling company unless (among other things) the CFC has sufficient economic substance.
- Under the second approach (B), the income of the CFC is only taxable at the level of the company that controls it if this income has been diverted from the resident company to the CFC under arrangements considered to be "non-genuine".
This second approach was adopted by Belgium. It was, however, deemed ineffective insofar as it overlapped with existing rules in Belgium. As a result, the bill provides for a switch to model A. Under this system, the Belgian entity controlling the CFC will no longer be required to tax the income of the CFC on the basis of "non-genuine arrangements". The current provisions have therefore been completely revised.
The taxpayer still has the option of proving that the income comes from a CFC carrying out a "substantial economic activity" (the exclusion rule).
The new regime provides rules to prevent profits already taxed as undistributed "CFC profits" in the hands of the Belgian company from being subject to double taxation when paid out as dividends, or in those cases when CFC shares are disposed of:
- The specific deduction for "Definitively taxed income" ("RDT/DBI") is maintained.
- However, the reform adds that it does not apply in the event of a change of control of the taxpayer, "which does not meet legitimate needs of a financial or economic nature". It also stipulates that taxes at the CFC level can now be offset against Belgian tax under certain conditions.
The CFC declaration obligation will be reinforced even if no CFC profits are taxable in Belgium.
These measures will take effect in the 2024 tax year.
Limitation of certain deductions: return of the 70% rate
Since 1 January 2018, certain tax deductions carried forward by companies with a tax base of over EUR 1 million have been limited. These are essentially the deduction for tax losses carried forward, innovation carried forward or RDT carried forward (i.e. the "basket" regime).
There is no deduction limit up to EUR 1 million. Above this amount, the above-mentioned expenses were only deductible at a rate of 70%. From 1 January 2023, this rate had been reduced to 40% as part of the budgetary measures pending implementation in Belgium of the "Pillar Two" of the "BEPS" (i.e. "Base erosion and profit shifting") project measures, which aims to establish rules guaranteeing minimum taxation of the profits of multinational companies.
In view of the transposition of the "Pillar Two" earlier this year (providing for an effective tax rate of 15% for multinationals and large domestic groups with consolidated annual sales in excess of EUR 750 million), tax deductions on income in excess of EUR 1 million will again be limited to 70% from 1 January 2024. (It was previously limited to 40%).
Increase in tax on credit institutions
The tax on credit institutions (e.g. banks) is currently 0.13231% on the average amount of debts owed to customers.
The legislator now provides for progressivity in that the rate will be increased to 0.17581% only for the portion of the taxable base exceeding EUR 50 billion. Fines will be imposed if the tax is passed on to customers.
These measures will take effect in the 2024 tax year.
Deduction of annual taxes on credit institutions, collective investment schemes and insurance companies
The Programme Law of 26 December 2022 introduced a partial restriction on the deductibility of annual taxes for credit institutions, collective investment schemes and insurance companies. As of 1 January 2023, only 20% of these taxes are deductible for the entities that pay them.
From 1 January 2024, the legislator has introduced a total absence of deductibility.
2. Miscellaneous measures (individuals and other legal entities)
Major tightening of the Cayman tax
The programme bill aims to strengthen the Belgian transparency tax, commonly known as the "Cayman tax".
In force since 2015, the Cayman tax or transparency tax aims to tax the income collected by a "legal construction" (e.g. a trust, certain low-taxed companies, etc.) at the level of its founders or beneficiaries who are Belgian tax residents (individuals and certain legal entities), as if they had directly collected the income.
In addition to this transparent taxation of income collected by the legal structure, any distribution to its founder is in principle taxed as a dividend at the rate of 30% unless the distribution relates to (i) capital contributed, or (ii) income "taxed in Belgium" at the level of the founder.
Essentially, the reform focuses on the following aspects:
- Dedicated Undertakings for Collective Investment (UCIs): in order for a UCI not to qualify as a legal structure for Cayman tax purposes, it is now necessary for it to be held by at least 50% of "unrelated" persons.
- A specific "exit tax" is introduced, particularly when the tax domicile of the founder of the legal structure is transferred outside Belgium.
- Income that has been exempted from withholding tax (e.g. capital gains on shares) will be taxed on distribution (30%). The absence of withholding tax will be limited to income that has actually been taxed on a "look-through" basis.
- The notion of "founder" is broadened to include people who hold rights in legal entities indirectly, via intermediate entities that are not legal entities (e.g. a limited liability company).
The reform will apply to income earned by legal entities and distributions made after 1 January 2024.
For more information, see our previous newsletter, specifically devoted to this topic.
Long-term leases and rights to build rights: significant increase in registration duties
From 1 January 2024, the rate of registration duty on contracts for the creation or transfer of long-term leases and rights to build will rise from 2% to 5%.
This increase applies to deeds signed on or after this date unless they were preceded by an earlier private deed.
VAT rates on building demolition and reconstruction
Currently, there are two parallel VAT regimes concerning the reduced rate of 6% (instead of 21%) for the demolition and reconstruction of real estate:
- The first, which is permanent, offers 6% VAT only in 32 listed "urban areas".
- The second, temporarily in place from 1 January 2021 to 31 December 2023, applies this reduced rate throughout Belgium (with some exceptions) subject to compliance with certain specific, stricter conditions.
The law replaces these regimes with a single one. In short, it perpetuates the 6% rate across the whole country, but the conditions are modified and tightened. Essentially, the 6% rate will apply throughout Belgium in the event of:
- the demolition of a building and the joint reconstruction of a residential building intended for the housing of the natural person project owner and located on the same cadastral parcel. Legal entities (e.g. developers) are excluded from this scheme, which is the major change compared to the existing one. Other conditions include that the surface of the building must not exceed 200 square meters and that the conditions must be respected for a period of five years.
- demolition of a building and joint reconstruction of a residential building intended for long-term rental (at least 15 years) as part of social policy and located on the same cadastral parcel as that building.
Private foundations and (international) non-profit association – non-profit entity wealth tax
Private foundations, non-profit associations and international non-profit associations established in Belgium are subject to a 0.17% tax on their total assets. This tax currently only applies to assets in excess of EUR 25,000. Certain exemptions exist (e.g. for certain pension funds).
The 19 October 2023 law introduces a progressive rate:
- Under EUR 50,000: no taxation.
- From EUR 50,000 to EUR 250,000: the rate will be reduced to 0.15%.
- From EUR 250,000 to EUR 500,000: 0.30%.
- Over EUR 500,000: 0.45%.
As a result of the reform, non-profit associations (including international ones) and private foundations with (very) small assets will benefit while those with (very) large assets will be heavily impacted. The reform also aims to extend exemptions (notably, to healthcare organisations and medical homes).
This reform will go into effect on 1 January 2024.
For more information on tax changes in Belgium in 2024, contact your CMS client partner or these CMS experts: