federal public service finance unique tax incentives in belgium 2011 fiscal department for foreign...
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Federal Public Service Finance
UNIQUE TAX INCENTIVESin BELGIUM
2011
Fiscal Department for Foreign Investments
Albert WOLFS
Effective (Average) Corporate Tax Rate (ECTR) 2009*
Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099, Mannheim and Oxford, October 2009
*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)
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Effective (Average) Corporate Tax Rate (ECTR) 2009*
Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU CommissionProject : Taxud/2008/CC/099), Mannheim and Oxford, October 2009
*(based on asset and source of finance) Especially in Belgium, the ECTR is considerably below statutory tax rates (-9,3%)
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www.invest.belgium.be
1. Notional Interest Deduction
2. Tax Ruling
3. Unique tax features for R & D
4. Dividend withholding tax exemption
5. Holding regime
6. Expatriate status
7. Other tax incentives
INVEST IN BELGIUMINVEST IN BELGIUM
What is it?
A notional interest calculated and deducted yearly from the taxable basis
used to off-set operational or financial income (thus lowering effective tax rate)
1. Notional Interest Deduction
Who?
Companies subjected to
- Corporate tax - Non-residents / Corporate Tax
1. Notional Interest Deduction
How does it work ?
Annual Tax DeductionAnnual Tax Deduction==
EQUITY X RATE (OLO 10 years)EQUITY X RATE (OLO 10 years)
1. Notional Interest Deduction
EXAMPLE 1:
(Return on Equity: 4%)
Assets Liabilities
Group Financing10,000
Share Capital10.000
P&L Account Before N.I.D. After N.I.D
Profit before tax 400 400
N.I.D. (3,425%) / - 342,5
Taxable 400 57,5
Corporate Tax (33,99 %) 135,96 19,5
Effective Tax Rate 33,99 % 4,89%
1. Notional Interest Deduction
EXAMPLE 2:
Net Result(Return on Equity)
Effective Tax Rate
≤ 3,425 % 0 %
4 % (Previous slide) 4,89 %
5 % 10,71 %
8 % 19,44 %
Assets Liabilities
Business Assets10,000
Share Capital10.000
1. Notional Interest Deduction
EXAMPLE 3: (For SME’s)
(Return on Equity: 6%)
P&L Account Before N.I.D. After N.I.D.
Profit before tax 600 600
N.I.D. (3,925%) / - 392,5
Taxable 600 207,5
Corporate tax (24,98%) 149,88 70,53
Effective Tax Rate 24,98 % 11,75 %
Assets Liabilities
Business Assets10,000
Share Capital10.000
1. Notional Interest Deduction
« Qualifying » equity
Equity = total equity as defined under Belgian GAAP
(includes retained earnings)
in the opening balance sheet of the taxable period
“adjusted” to avoid double use and abuse.
1. Notional Interest Deduction
Interest Rate RATE = annual average of the monthly published
rates of the long term Belgian Government Bonds (10-year OLO)
Fixed yearly for 2011 (Tax Year 2012) : 3,425 %
1. Notional Interest Deduction
Interest Rate (for SME’s)
for 2010 (Tax Year 2011) :
+ 0,5 % 3,925 %
1. Notional Interest Deduction
Other particularities
Permanent measure Carry forward of 7 years No ruling nor agreement is needed Suppression of the 0,5% capital duty as of
1/1/2006 EU compliant
1. Notional Interest Deduction
OPPORTUNITIES It’s a valuable tool for further development of Coordination Centre
activities
Opens possibilities for international groups of allocating new activities to a Belgian entity such as intra-group financing, central procurement or factoring
1. Notional Interest Deduction
THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.
ForeignCo
BelCo
Bank Loan
Capital injection 200
Loan 200 Interest 10
Interests received : 10
N.I.D. : -6,85 (200 x 3,425%)
Income : 3,15
Corp. tax = 3,15 X 33,99% = 1,07
Effective tax rate : 10,7%
1. Notional Interest Deduction
Advanced decisions or ruling is about creating CONFIDENCECONFIDENCE to invest in Belgium;
The investor describes the facts, allowing the tax administration to determine, in advance, how the tax laws are to be applied on a CASE BY CASE CASE BY CASE BASISBASIS
It ensures a LEGALLY BINDING ACCURATE FORECAST of all the tax implications of your investment project
2. Tax Ruling
2. Tax Ruling
Unlimited application field for ruling:
Transfer pricing Business Restructuring Deductible expenses Financing Branches Bonded warehouses, etc.
Characteristics of the Belgian ruling
Ruling on all kind of taxes (Corporate, Personal, VAT,..)
Case-by-case ruling in a new open culture Legal certainty for investors In accordance with international rules Open to potential AND existing investors Legally binding for a 5 year renewable period Economic “substance” required
2. Tax Ruling
Belgian DISTRIBUTION Centre Belgian SERVICES Centre
Operational Companies
OperationalCompanies
PARENT COMPANY e.g. USA / UK / Japan …
* OECD accepted norm: arm’s length standard
2. Tax Ruling
Cost plus % case-by-case ruling
* + Notional Interest Deduction = double limitation of taxable basis
European Distribution Centre Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses
Expenses
Transport (27.000 €)
Warehousing (27.000 €)
Staff (46.000 €)
Income
Interco Reinvoicing
European Distribution
Centre
100.000 € 105 % X 100.000 € = 105.000 €
Income 105.000 €
Expenses - 100.000 €
profit 5.000 €
Corporate tax rate 33,99 %
Corporate tax 1.700 €
European Distribution Centre Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses with N.I.D. (ex: Equity 100.000 €)
Expenses
Transport (27.000 €)
Warehousing (27.000 €)
Staff (46.000 €)
Income
Interco Reinvoicing
European Distribution
Centre100.000 € 105 % X 100.000 € = 105.000 €
Income 105.000 €
Expenses - 100.000 €
Profit 5.000 €
Notional Interest Deduction -3.425 €
Taxable basis 1.575 €
Corp.tax rate: 33,99 %
Corporate tax 535 €
1/ Patent income deduction
What is it ?
Deduction of 80% of the income from patents from the taxable basis, resulting in an effective tax rate of maximum 6,8% on this income
Who can benefit ?
Belgian companies and Belgian establishments of foreign companies
3. Unique tax features for R & D
1/ Patent income deduction
Example Patent income: 100 Deduction: (80)
Taxable basis: 20 Corporate Tax (33,99%) (6,8) Net income after tax: 93,2
Effective Tax rate: 6,8 %
3. Unique tax features for R & D
1/ Patent income deduction
Patents concerned
self-developed by a Belgian company or branch in R&D centers (*) in Belgium or abroad;
acquired by a Belgian company or branch provided they are being further developed in R&D centers (*) in Belgium or abroad (by acquisition, or license,…)
(*) R&D center must qualify as branch of activity
3. Unique tax features for R & D
1/ Patent Income Deduction Calculation of the deduction
For patents that are licensed: 80% of the patent income received, to the extend the income is at arm’s length
For patents that are used in the production process: deemed deduction of 80% of the at arm’s length royalty that would have been received had the patents been licensed to unrelated third parties
3. Unique tax features for R & D
1/ Patent Income Deduction
Applies to variable income streams, fixed income streams, as well as upfront fees, milestones, etc.
Other intellectual property rights (copyrights, know-how, designs, trademarks, etc.) do not qualify.
3. Unique tax features for R & D
1/ Patent Income Deduction
Anti-abuse provision in order to avoid double deduction of certain costs, in the case of patents acquired by the company;
no carry forward or carry back;
compliant with EU rules;
formalities: an enclosure to join to the tax return;
applicable to new patent income as from Tax Year 2008 (financial year ending on or after December 31, 2007).
Particularities
3. Unique tax features for R & D
1/ Patent Income Deduction
Very low effective tax rate of maximum 6,8% and absence of any capping rules;
Tax deduction in addition to normal tax-deductibility of R&D related expenses;
Investment deduction for R&D related investments and patents;
Can be combined with Notional Interest Deduction for invested equity, etc.
Highly competitive measure
3. Unique tax features for R & D
2/ Investment deduction for R&D related investments and patents
Investment deduction for R&D related investments:for assets which aim to promote R&D of new products and advanced technologies which are environment-friendly : deduction of 13,5% on the investment value (in one shot)
or 20,5% on the annual depreciation (spread deduction)
Investment deduction in patentsacquired or self-developed by the company deduction of 13,5% on the investment value
NB: In case of insufficient profits, deduction carried forward for an unlimited period .
3. Unique tax features for R & D
3/ 75% exemption from withholding tax on the remunerations of researchers, in favour of employers
Principle: the salary withholding tax is normally retained
on the remunerations paid to the researcher, but the amount of tax so retained must not be totally
paid to the Revenue Collector (= extra financial means for the employer)
For researchers with a specific degree, engaged in R&D program
3. Unique tax features for R & D
INVEST IN BELGIUM – increase your profitsINVEST IN BELGIUM – increase your profits
ExampleManufacturing company with a R&D division:
Share capital: 10.000 (of which 2.000 = contributed patent value)
Return on equity: 12% Net profit: 1200
(of which 300 = patent income ; 900 = product revenue)
To deduct Invest. ded. on patents: 13,5% x 2.000 = 270 Patent Income Ded.: 80% x 300 = 240 N.I.D. 3,425% x 10.000 = 342 Taxable basis: 348
Corporate Tax: (348 x 33,99%) = 118,28 Effective tax rate: 9,85%
4. Dividend withholding tax exemption
Conditions to benefit
be resident in a country with which Belgium has concluded a double tax treaty;
the beneficiary holds a participation of at least 10% in a Belgian subsidiary, for an uninterrupted period of at least 12 months = low participation threshold;
4. Dividend withholding tax exemption
Parent company(treaty partner of Belgium)
Belgian Subsidiary
• No WHT
• No LOB
• 10% shareholding
• 12 months
Participation exemption dividends received : deduction of 95%
Deductibility of interest paid to acquire shares
No capital duty
Exemption of realized capital gains on shares
5. Holding regime
For foreign executives and managers temporarily detached in Belgium : Tax free expatriate allowance (cost of living, cost of housing, tax
equalization) operational entity: 11.250 € / an HQ or R&D centre: 29.750 € / an
Reimbursement of mainly non-repetitive expenses (installation costs, moving expenses, school fees) unlimited amount tax free
« Travel exclusion »:workdays performed outside Belgium tax free in Belgium
6. Expatriate status
6. Expatriate status
For employers:
No tax, no social security contributions on expatriate allowances and reimbursement of expenses
Deductible from Corporate tax
VAT fiscal unity
Bonded warehouses and VAT deferal
European pension funds
Tax shelter for audiovisual sector
Etc.,…
7. Other incentives
Federal Public Service Finance Fiscal Department for Foreign InvestmentsRue de la Loi, 24 (Parliament Corner)1000 Brussels - BELGIUM
Albert WOLFS
Email: [email protected] Tel.: +32 257 938 67Fax: +32 257 951 12
Need to know more ?
INVEST IN BELGIUM – increase your profitsINVEST IN BELGIUM – increase your profits