BELGIUM: An Introduction to Tax

Tax in Belgium 

Belgium typically stands out as a shortlisted jurisdiction for investors, distinguished by its compact yet thriving presence in the heart of the Europe. Characterised by an open economy, a highly skilled workforce, and excellent accessibility, it offers an attractive investment environment.

Since the 1960s, Belgium has fostered extensive cross-border relations through a well-established network of double tax conventions, currently facilitating business with 98 tax jurisdictions. Moreover, as a member of the European Union (EU), market participants can rely on the assurances provided by EU law.

The Corporate Income Tax Regime 

The Belgian corporate income tax regime features a 25% nominal corporate income tax rate (gradually decreased from 34% to 25% since the 2018 tax reform). Small-and medium sized enterprises (SMEs), under certain conditions, benefit from a reduced rate of 20 % for the initial tranche of EUR100,000 taxable income. The corporate income tax regime encompasses notable features for holding activities. Subject to participation and subject-to-tax conditions, Belgium provides a 100 % dividend received deduction and a complete exemption for capital gains on shares. Additionally, transfers of shares outside the stock exchange are generally not subject to Belgian stamp tax.

Innovation Income Deduction 

The Belgian tax regime robustly encourages innovation through various mechanisms, all subject to various conditions. The innovation income deduction (IID), which replaced the patent income deduction and which is aligned with BEPS Action 5, allows an 85% deduction of the net income derived from certain IP rights, subject to a nexus-fraction. A tax credit for R&D investments extends to environmentally friendly R&D investments and for patents, offering a deduction of 25% or 13.5% of qualified investments. Furthermore, an 80% relief from paying professional withholding taxes to the tax authorities applies in the R&D sector.

Group Contribution Regime 

The Belgian group contribution regime offers avenues for tax consolidation, but it is subject to rigorous limitations. These include the prerequisite of a 90% direct shareholding between the pertinent group companies (or by a common parent company), a four-year waiting period, and the rule that no tax attributes from preceding years can be transferred.

Corporate Tax Law 

Belgium’s corporate tax law adheres to the arm’s length principle, as defined by the OECD transfer pricing guidelines for multinational enterprises and tax administrations, and has incorporated transfer pricing documentation requirements outlined in Action 13 of the BEPS Action Plan into its regulatory framework. The Belgian corporate tax regime has implemented the measures outlined in the EU Anti-Tax-Avoidance Directive 2016/1164 (ATAD), encompassing the interest limitation rule, commonly referred to as the “30% EBITDA rule”, exit taxation rules, and the controlled foreign company rule (CFC). At the end of 2023, Belgium adopted Model B for CFCs. According to this model, CFC’s non-distributed passive income, including dividends, royalties, interest, is under certain conditions included in the taxable income at the parent level. Prior to this change, Belgium had opted for Model A, which taxes a CFC’s non-distributed income at the parent level if derived from non-genuine arrangements primarily for tax advantages.

Multinationals and Large Domestic Groups 

The Belgian legislator has implemented a minimum tax for multinationals and large domestic groups, implementing EU Directive 2022/2523 within the framework of OECD’s Pillar Two, aiming for a 15% effective tax rate. This measure applies to taxable periods starting as from 31 December 2023. Belgium has introduced a domestic top-up tax (QMDTT), an income inclusion rule (IIR), and an under-taxed payment rule (UTPR, which applies to years starting from 31 December 2024). The Belgian implementation closely mirrors the rules outlined in the EU Directive.

Withholding Tax 

Dividend, interest, and royalty payments are generally subject to a 30% Belgian withholding tax, irrespective of the question whether the beneficiary is a Belgian tax resident. However, several exemptions and reductions are applicable, stemming from domestic policy decisions, the fulfilment of Belgium’s obligations under European Union law, or the implementation of double taxation conventions. Qualifying parent companies in the European Union or a treaty jurisdiction, for instance, enjoy a complete withholding tax exemption on dividends. SMEs may distribute dividends at reduced rates. Moreover, extensive exemptions are in place for interest payments, including those to qualifying group entities in the European Union, interest paid by Belgian financial institutions (as defined broadly), and interest related to nominative bonds held by non-resident bondholders.

Specialised Audits 

In recent years, there has been a noticeable shift within the tax authorities towards the establishment of specialised teams dedicated to conducting audits with distinct focuses, both regarding multinationals and SMEs. These targeted areas include corporate restructurings, transfer pricing, and outbound “passive income” streams such as dividends, interest, and royalties. More generally, audits of multinational enterprises are focuses on potential profit shifting strategies. Additionally, increased attention is directed towards examining beneficial regimes, among others those applicable to R&D.

Tax Disputes 

Tax disputes are increasingly leading to tax litigation, primarily due to the uncertainties surrounding the interpretation of the rapidly changing tax rules and the expanding application of anti-abuse measures by tax authorities (including domestic general anti-abuse provisions, specific anti-abuse regulations, and the overarching principle of EU law that prohibits abusive practices).

Tax Certainty 

Tax certainty can be secured through obtaining an advance ruling issued by the Office for Advance Tax Rulings, an autonomous department within the Belgian tax authorities. This mechanism allows for the resolution of queries pertaining to both domestic and EU law, as well as tax treaties, including issues relating transfer pricing. No tax ruling can be obtained regarding the application of the minimum tax in accordance with the Pillar Two rules. Tax rulings must in all instances comply with applicable legislation (no “sweet deals”).

Advance Pricing Arrangements 

Bilateral or multilateral advance pricing arrangements (APAs) serve as an additional instrument for managing cross-border tax risks associated with Belgium. However, this tool is less commonly employed due to the significant investment of time and resources required, on the part of both the taxpayer and the tax authorities. Mutual agreement procedures (MAPs) are often initiated in case of cross-border tax disputes. All Belgian tax treaties include a mutual agreement provision, and Belgium ratified the Multilateral Instrument (MLI) without reservations regarding Article 16 which relates to MAPs.

Alternative Tax Dispute Resolution Programs 

Belgium also actively engages in alternative tax dispute resolution programs. In 2018, Belgium launched its domestic Co-operative Tax Compliance Programme (CTCP). Furthermore, Belgium actively participates in the International Compliance Assurance Programme (ICAP) at the OECD level and the European Trust and Cooperation Approach (ETACA) at the EU level.