Second phase of Belgian tax reform approved by Parliament

The Belgian legislator aims to enhance the investment deduction framework and incentivizes investments through the following measures:

• A taxpayer might have insufficient taxable basis to fully apply the investment deduction. Under the current regime, the carry forward of unused investment deduction is limited for certain investments and the use of carried forward investment deduction in subsequent years is subject to certain limitations. These limitations will be eliminated, allowing all unused investment deductions to be carried forward and used in subsequent years without restrictions.
• Under the current system, taxpayers who applied for regional state aid were ineligible for the increased thematic deduction. This restriction will be abolished, enabling taxpayers to benefit from both incentives.
• Due to uncertainties that existed, it is now clarified that the prohibition on combining the R&D tax credit and the investment deduction applies only to the technology deduction.
• The deduction rate of the increased thematic deduction, which applies primarily – in short – to energy and environmental investments, is currently set at 40% of the acquisition value for individuals and small companies and 30% of the acquisition value for other companies. The rate will be standardized at 40% for all eligible individuals and companies.

The first three amendments or clarifications apply to investments made as of 1 January 2025. The fourth amendment will only enter into force as of assessment year 2027.

For more information on the investment deduction and changes that were introduced to the general regime as of 2025, we refer to our previous article in this respect.

Dividends received are fully exempt from corporate income tax if certain conditions are fulfilled. However, the Belgian legislator did not opt for a real exemption method but instead introduced the “inclusion and deduction” method, according to which – in short – dividends distributed by a subsidiary are first included in the tax base of the parent company and may then be deducted from this base as “dividend received deduction” (DRD). The following amendments have been approved in relation to the dividend received deduction regime (i.e. participation exemption for qualifying dividends).

DBI-BEVEK/SICAV RDT

Currently, dividends distributed by (and capital gains realised on the shares of) a so-called DRD-SICAV can benefit from a DRD provided that the following conditions are met:

• The DRD-SICAV is subject to Belgian corporate income tax, or to a foreign tax regime similar to it, but benefits from a tax regime that deviates from the standard tax regime in Belgium or that foreign country; and
• The Articles of Association of the DRD-SICAV provide for the annual distribution of at least 90% of the income it receives, after deducting remuneration, commissions, and fees.

The DRD applies to the extent that the distributed dividends originate from qualifying dividends and capital gains that meet the subject-to-tax requirement under the DRD regime.

As of assessment year 2026, capital gains realised on shares of a DRD-SICAV that would benefit from a DRD, will become subject to a 5% tax if the income distributed by such entity in at least one of the previous taxable periods was exempt based on the DRD. The tax will equally apply to non-resident companies subject to the non-resident corporate income tax. Capital gains on shares held in Private Privaks/Privées are excluded.

Moreover, a corporate investor will only be allowed to credit any withholding tax on (tax exempt) dividends distributed by a DRD-SICAV if this investor grants a remuneration of EUR 45.000 or higher to at least one director (or at least the amount of the result of the taxable period if the remuneration is lower than EUR 45.000).

Group contribution

Under the Belgian group contribution regime, a profit-making group company can transfer, subject to certain conditions and for tax purposes only, a part of its taxable profit (the so-called “group contribution”) to a loss-making group company. The profit-making group company may deduct the group contribution from its taxable profit, while the loss-making group company may offset its current year tax losses against the group contribution received.

If the profit transferred under the group contribution regime exceeds the loss of the loss-making company, the current rules state that any DRD cannot be used to offset the profit allocated to a loss-making company under the group contribution regime. The Court of Justice of the European Union has meanwhile ruled in the John Cockerill case (C-135/24) that this prohibition violates the EU Parent-Subsidiary Directive.

With this bill, Belgium remedies this violation of the EU Parent-Subsidiary Directive by allowing companies that receive a group contribution to offset the current-year DRD to the amount of the group contribution that exceeds the loss. Because the John Cockerill judgment applies retroactively, and Belgian law should be applied in conformity with EU law, the bill now codifies the principles that are de facto already applicable, as confirmed in the parliamentary documents.

In the parliamentary preparations, the government confirms its intention to further prepare the shift from a dividend received deduction regime to a full exemption regime, as was already announced in January 2025, but states that more time is required to prepare suitable legislation.

Belgium offers a special tax regime for qualifying inbound taxpayers (employees and directors) and qualifying inbound researchers (employees). The special tax regime includes an annual tax-free and social security-exempt lump sum allowance for recurring costs of up to 30% of the gross remuneration (capped at EUR 90,000) and the tax-free and social security-exempt reimbursement of certain non-recurring costs (e.g., school fees) subject to certain conditions. This special tax regime applies (if all conditions are met) both to Belgian tax residents and non-residents (inbound taxpayers/inbound researchers who maintain their tax residence abroad).

To boost competitiveness, the following amendments to the special tax regime for inbound taxpayers and researchers will be introduced for remunerations paid or attributed as of 1 January 2025: 

• The tax-free and social security-exempt allowance increases from 30% to maximum 35% of the gross annual remuneration (including bonuses and benefits in kind);
• The existing cap of EUR 90,000 (i.e., the maximum allowance) is removed; and
• The minimum gross annual remuneration required to qualify for the regime is lowered from EUR 75,000 to EUR 70,000. This condition applies only to inbound taxpayers, as there is no minimum gross annual remuneration requirement for inbound researchers.

Individuals who began their employment between 1 January 2025, and the tenth day following the publication of the law in the Belgian Official Gazette, and whose remuneration did not meet the previous threshold of EUR 75,000 but meet the new threshold of EUR 70,000, remain eligible to apply for the special tax regime for inbound taxpayers, provided they do so within three months. If the application is approved by the Belgian tax authorities, the special tax regime will apply retroactively from the date of hire. 

As previously communicated, employers will be permitted to raise their maximum contribution per meal voucher from EUR 6.91 to EUR 8.91 as from 1 January 2026. This increased amount will remain exempt from social security contributions for both employees and employers. Importantly, the exemption is now extended to the employee for tax purposes as well, ensuring that the tax and social security treatment are fully harmonized for this higher contribution.

If the employer increases its contribution to the maximum amount of EUR 8.91, it will be entitled to a tax deduction of EUR 4 per meal voucher instead of EUR 2.

To accelerate the greening of the car fleets, the previous government had implemented stricter rules for fossil fuel company cars purchased or leased as of 1 July 2023. More specifically, for company cars purchased or leased between 1 July 2023 and 31 December 2025, the tax deductibility of car expenses is set to gradually decrease, eventually phasing out completely from assessment year 2029 onwards (i.e. for taxable periods starting the earliest at 1 January 2028). For company cars purchased from 2026 onwards, the car expenses are no longer tax deductible at all. In this context, plug-in hybrid cars are in principle treated similarly to petrol and diesel cars for tax purposes. Only car expenses related to zero emission company cars remain (partially) tax deductibility in the future.

Since fully electric driving is not yet realistic for many taxpayers a more favorable tax regime is introduced for self-employed individuals, mainly in relation to plug-in hybrids. This implies that the rules will in general not change for the car fleet of companies. The new rules are technical and contain various specifics, but broadly, the tax deductibility of car expenses for plug-in hybrids purchased or leased from 2026 onwards is as follows:

• For plug-in hybrids purchased or leased in 2026 the electricity costs remain tax deductible for 100% which will gradually decrease to 67,5% for plug-in hybrids purchased or leased as of 2031.
• For other car expenses (except for fuel expenses), a specific formula is applied whereby only CO₂ emissions remain relevant, and the type of fuel is not considered. A maximum percentage applies though, which is gradually reduced depending on the year in which the car is purchased or leased. For example, for plug-in hybrids purchased or leased prior to 2028, the maximum percentage is in principle 75% (unless the CO₂ emission is below a certain threshold) The maximum percentage will be reduced to 0% for plug-in hybrids purchased or leased as of 2030.

For plug-in hybrids purchased or leased between 1 July 2023 and 2025, the above-mentioned more stringent rule is reversed. This means that the electricity costs remain fully tax deductible and that a maximum deduction percentage of in principle 75% applies for the other car expenses (except for fuel expenses). If the CO₂ emission is below a certain threshold this maximum percentage will not apply. Fuel expenses are, however, no longer tax deductible. This percentage will not further decrease and phase out, but will remain applicable for the entire usage period of the car.  

As of assessment year 2023, the prior government had introduced significantly extended investigation and assessment periods, notably including:

• A four-year investigation and assessment period for tax returns that were filed late or formally incorrect;
• A six-year investigation and assessment period for “semi-complex” tax returns for taxpayers subject to country-by-country or local file obligations, tax haven reporting, foreign tax credit, certain information exchanges such as DAC6 or for withholding tax returns in which certain exemptions were applied; and
• A ten-year investigation and assessment period in case of tax fraud and for “complex” tax returns that include hybrid mismatches or CFC-cases (corporate income tax) or the application of the cayman tax (personal income tax.

The above extensions are now largely reversed again, although an extended investigation and assessment period of 4 or 7 years is retained depending on the circumstances. As of assessment year 2023 (i.e. accounting years started as of 1 January 2022), the following investigation and assessment periods apply (with a retroactive effect, fully abolishing the previously introduced extended periods):

• Standard cases: 3 years;
• No or late filing or complex cases: 4 years. A tax filing is considered as “complex” if it relates to (i) a taxpayer that  is held to file a local file or a Country-by-Country Report (a mere Country-by-Country Notification is not sufficient), (ii) a tax return with a tax haven reporting obligation, (iii) withholding tax returns in which exemptions were applied based on a EU Directives or a double tax treaty, (iv) a tax return in which a foreign tax credit is claimed, (v) a tax return containing information that is subject to certain information exchanges under DAC 6 or DAC 7, (vi) a hybrid mismatch, (vii) the non-distributed profits of a CFC or (viii) a tax return in which the existence of a legal structure under the Cayman tax must be reported (personal income tax);
• Tax fraud cases: 7 years. The application of the 7-year investigation and assessment period is subject to a specific notification to the taxpayer, sanctioned by nullity of the assessment.

The extended 4-year period for complex cases cannot be applied to investigate and assess additional taxes in the fourth year if such additional assessment relates to certain elements that are considered to be “straightforward”, i.e. a limited number of disallowed expenses (e.g. fines, car expenses, reception expenses, etc.).