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
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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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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
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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
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Who?
Companies subjected to
- Corporate tax - Non-residents / Corporate Tax
1. Notional Interest Deduction
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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
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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
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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
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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
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« 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
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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
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Interest Rate (for SME’s)
for 2010 (Tax Year 2011) :
+ 0,5 % 3,925 %
1. Notional Interest Deduction
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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
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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.
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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
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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
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2. Tax Ruling
Unlimited application field for ruling:
Transfer pricing Business Restructuring Deductible expenses Financing Branches Bonded warehouses, etc.
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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
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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
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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 €
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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 €
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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%
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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;
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4. Dividend withholding tax exemption
Parent company(treaty partner of Belgium)
Belgian Subsidiary
• No WHT
• No LOB
• 10% shareholding
• 12 months
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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
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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
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6. Expatriate status
For employers:
No tax, no social security contributions on expatriate allowances and reimbursement of expenses
Deductible from Corporate tax
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VAT fiscal unity
Bonded warehouses and VAT deferal
European pension funds
Tax shelter for audiovisual sector
Etc.,…
7. Other incentives
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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