First phase of Belgian tax reform submitted to Parliament

The participation exemption regime

Under the current rules, dividends received by a Belgian company are fully exempt from corporate income tax if the following cumulative requirements are met:

• Minimum participation requirement: The recipient company holds a participation in the distributing company of at least 10% or with an acquisition value of at least EUR 2.5M;
• Minimum holding requirement: The recipient company holds, or commits to hold, said participation for an uninterrupted period of at least one year in full ownership; and,
• Subject-to-tax requirement: The distributing company and any underlying companies meet minimum taxation standards, and the transaction is not deemed abusive.

The bill now tightens the minimum participation requirement for participations with an acquisition value of at least EUR 2.5M but below the 10% threshold. For these investments, an additional condition applies as of assessment year 2026: at the time the dividend is distributed, these investments must also qualify as a “financial fixed asset” in the hands of the recipient company if the latter does not qualify as a small company. The term “financial fixed assets” follows the meaning it has under accounting law. Importantly, this condition does not apply to participations of 10% or more, as the Court of Justice of the EU has previously ruled that adding extra requirements to the 10% threshold would violate the EU Parent-Subsidiary Directive. Contrary to what was stated in the government agreement, there will be no increase of the threshold value to EUR 4M.

The Tale & Lyle withholding tax exemption

Under Belgian tax law, dividend distributions made by a Belgian taxpayer are in principle subject to Belgian withholding tax (WHT) at the rate of 30%. However, following the Tate & Lyle judgment of the Court of Justice of the EU and subject to certain conditions, Belgium implemented a full exemption of WHT for participations of less than 10% but with an acquisition value of EUR 2.5M held by a company established in the EEA or in a state with which Belgium has concluded an agreement for the avoidance of double taxation if exchange of information is possible.

For this exemption to apply, the bill now also adds the condition that the participation must qualify as a Financial Fixed Asset in the hands of the foreign recipient company that does not qualify as a small company. The new condition applies for dividends distributed as of 1 July 2025.

Shift to a real exemption system

When the government agreement was concluded, it was decided to switch from the deduction to a real exemption of the dividends received. While the bill has not yet implemented this measure, it is expected to be introduced at a later stage.

A transfer of seat is assimilated to a liquidation for Belgian corporate income tax purposes if and to the extent that the company’s assets and liabilities of the company do not remain allocated to a Belgian permanent establishment. Consequently, all assets and liabilities are deemed to be realized upon the transfer of seat and any latent capital gains and goodwill become taxable in Belgium (subject to the participation exemption regime or tax deductions, as the case may be).

However, in accordance with the position of the Belgian Ruling Commission and recent case law, a transfer of seat – if operated in legal and accounting continuity – does not trigger a taxable dividend in the hands of the shareholders and hence no dividend withholding tax arises.

The bill now also extends the assimilation of a transfer of seat (and other reorganisations such as cross-border mergers, insofar as these involve the transfer of a company’s assets abroad) to a liquidation at the level of the shareholders. Shareholders of a company will, in proportion to their shares held in the company, be deemed to receive a liquidation dividend equal to the positive difference between (i) the fair market value of the assets reduced by the liabilities and (ii) the fiscally paid-in capital. This (deemed) liquidation dividend may be reduced by the corporate income tax due on the latent capital gains and the profit of the current financial year.  The (deemed) liquidation dividend will for individual shareholders be taxable as movable income at a rate of 30% (exemptions or reductions might apply) and for corporate shareholders at the standard corporate income tax rate (unless the participation exemption regime can be applied).

Shareholders – both resident and non-resident - will be required to report the (deemed) liquidation dividend in their respective Belgian income tax returns. To ensure that the shareholders are aware of the distribution of such a (deemed) liquidation bonus, individual forms will have to be provided by the company to the shareholders detailing the amount of the fictitious distribution (under penalty of a separate assessment at a rate of 100%).

Shareholders will have the possibility to pay the tax immediately or to spread the payment of the tax over five years.

As noted by the Council of State, many questions arise as to the compatibility of this shareholders’ taxation with the European fundamental freedoms. Furthermore, the interplay with the tax treaties concluded by Belgium, remains unclear.

The new provisions will apply to transfers and reorganisations that occur as of 1 July 2025.

Currently, there is no specific tax regime for carried interest, generating uncertainty with respect to the tax qualification of such income. A new tax regime bringing clarity to this matter is therefore more than welcome.

A specific competitive tax regime (compared to Belgium’s neighbouring countries) is now introduced for carried interest held by private individuals. The objective is to stimulate the activity of investment funds in Belgium.

The new tax regime foresees the taxation of carried interest as moveable income, subject to a flat rate of 25%. This tax rate will only apply on the disproportionate return compared with other investors, regardless of the way carried interest will be allocated from a legal perspective (i.e. under the form of a capital gain, a dividend distribution or a redemption/liquidation gain). As carried interest will qualify as moveable income, it will not be subject to employer and employee social security contributions.

For this specific regime to apply, carried interest should be attributed or paid by a so-called “carried interest vehicle”, being any Belgian or foreign undertaking for collective investment which does not qualify as a UCITS according to the European Directive 2009/65/EG or similar regulation for non-EU vehicles.

Fund managers holding their carried interest through their personal management company are not targeted by this regime. In such case, the existing rules remain applicable, be it that such management company will – as of assessment year 2026 - not be allowed anymore to allocate profits to a so-called liquidation reserve as long as it holds a participation in a carried interest vehicle (the possibility to benefit from the VVPRbis regime is however maintained). Carried interest granted through a stock option plan qualifying under the Belgian law of 26 March 1999 is also excluded from this new tax regime.

Finally, the new tax regime will be applicable to all carried interest attributed or paid as from the moment the law will be published in the Belgian Gazette (expected to take place before 1 July 2025). 

The bill introduces a new specific anti-abuse measure with regard to the tax on securities accounts (hereinafter TSA). The measure strives to prevent the conversion of taxable financial securities held on a securities account (that meet the threshold of 1,000,000 euros) into registered securities (that fall out of scoop of the TSA), as well as the splitting of a securities account (with financial securities that meet the threshold of 1,000,000 euros) into multiple securities accounts (with financial securities below the threshold of 1,000,000 euros).

The Belgian intermediary or responsible agent becomes legally obliged to report the conversion as well as the splitting to the Belgian tax authorities (hereinafter BTA). The reporting obligation rests with the account holder for securities accounts held at foreign banks for which no responsible agent has been assigned. The details on the reporting will be introduced by a Royal Decree. The reporting needs to be filed by the 31^st of October of each year. The first reporting needs to be completed by 31 October 2025.  

The new anti-abuse measure is written as a rebuttable presumption. In principle, the conversion of financial securities held on a securities account into registered securities is not opposable to the BTA, unless the account holder provides proof that the conversion was mainly driven by other reasons than the avoidance of the TSA. In principle, the splitting of a securities account into multiple securities accounts is not opposable to the BTA, unless the account holder provides proof that the splitting was mainly driven by other reasons than the avoidance of the TSA. In the preliminary works, the splitting of a securities account as a consequence of a gift of financial securities by parents to their children is given as an acceptable counterargument.

The anti-abuse measures apply to transactions carried out as from 1 July 2025.

The ordinary withholding tax rate on dividends amounts to 30%. Shareholders of a small or medium sized enterprise (SME) may under certain conditions benefit from reduced withholding tax rates based on the VVPRbis regime or on the liquidation reserve/VVPRter regime.
 
Under the current VVPRbis-regime, a reduced withholding tax rate of 20% or 15% applies on dividends from shares that have been issued in return for contributions in cash as from 1 July 2013. These reduced rates apply respectively as from the second and third financial year following the year of the contribution. 
 
Under the current liquidation reserve/VVPRter regime, shareholders of SMEs may allocate all or part of the profit of the year to a so-called liquidation reserve, triggering a 10% flat tax on the amounts so allocated. After a waiting period of 5 years, the liquidation reserve may be distributed with a reduced withholding tax rate of 5% (meaning a consolidate effective tax rate of 13.64%). If said 5-year waiting period is not fulfilled, a withholding tax rate of 20% would be due (meaning a consolidated effective tax rate of 27.27%). No withholding tax is due in case of distribution of the liquidation reserve (meaning an effective tax rate of 9.09%). 

The bill harmonizes the VVPRbis-regime and the liquidation reserve/VVPRter regime. With respect to the liquidation reserve, the waiting period will be reduced to 3 years instead of 5 years. The 5% withholding tax rate will be increased to 6.5% for liquidation reserves recorded as from 1 January 2026, resulting in a consolidated effective tax rate of 15%. Dividends distributed out of the liquidation reserve within 3 years would be taxable at a consolidated effective tax rate of 30%. 

The new rules with respect to the liquidation reserve will enter into force as from 1 July 2025. For liquidation reserves recorded until 31 December 2025, the options are threefold upon a distribution as from 1 July 2025: (1) 5% withholding tax after a waiting period of 5 years, (2) 6.5% withholding tax after a waiting period of 3 years, and (3) 20% withholding tax if the 3-year waiting period is not fulfilled. For liquidation reserves recorded as from 1 January 2026, the withholding tax rate will be 6.5% after a waiting period of 3 years. If the 3-year waiting period is not met, the effective tax rate will be 30%.

Recent practice has shown that tax audit teams almost automatically apply a tax increase for audit adjustments that are made in the framework of a tax audit (usually 10% in case of an error committed by the taxpayer in good faith). Notwithstanding the recent decision of the Constitutional Court, the corresponding administrative position of the (former) Minister of Finance, and the legal possibility to waive such tax increase, the tax audit teams continue to systematically apply a tax increase for (almost) every offence. The consequences thereof can be severe for taxpayers: under the current rules, any additional taxable basis imposed at the occasion of a tax audit where a tax increase of at least 10% is imposed, constitutes a minimum taxable basis which cannot be offset with current-year or carried-forward deductions (the so-called “cash tax for audit adjustments” principle).

The bill now foresees that no such tax increase can be applied in case of a first offence committed in good faith. Furthermore, the taxpayer is presumed to act in good faith, unless the tax administration can prove otherwise or in case of an ex officio tax assessment. However, this counterproof may give rise to discussions in practice. For example, according to the parliamentary works, a taxpayer that has deducted expenses that are “clearly not professional expenses” will be deemed not to act in good faith. The same parliamentary works refer to group restructurings that create deductions in high-taxed companies with income pick-up in low taxed companies as an indication of not acting in good faith. In other words, the discussions on the merit of an audit adjustment will also be relevant for determining “good faith” and one may expect a stringent position of the tax administration.

The “cash tax for audit adjustments” principle remains in place: if an audit adjustment would lead to the application of a tax increase (of at least 10%), the audit adjustment cannot be offset with current-year or carried-forward tax deductions.

The abolition of the tax increase for such first correction for errors in good faith would enter into force for tax increases assessed as of 1 July 2025.

With respect to indirect taxes, the bill mainly amends applicable VAT rates in the real estate and construction sector. The reduced VAT rate of 6% for the supply of residential housing after demolition-reconstruction will become permanent after the transitional regime will expire on 30 June 2025 (which required that the building license was requested before 1 July 2023). Consequently, professional real estate developers will again be able to benefit from the reduced VAT rate when selling residential housing resulting from a demolition-reconstruction project (assuming the other social conditions are also met). However, the maximum surface area of the residential housing must be limited to 175 square meters (instead of the previously applicable 200 square meters). The 200 square meters limit will continue to apply for the reduced VAT rate on demolition-reconstruction services invoiced to a private person who will live in the reconstructed house.

Furthermore, the reduced VAT rate of 6% for the renovation of residential housing older than 10 years will not apply for the supply and installation of heating systems running on fossil fuels. The supply and installation of these systems, including any crucial ancillary parts and services, will again become subject to 21% VAT. The reduced VAT rate of 12% for the supply of coal and coal derivatives will also be abolished, making these supplies subject again to 21% VAT.