Invest in Belgium

Invest in Belgium Fiscal Aspects of doing Business with Belgium Marc De Mil – FPS Finance

Belgium Main Tax Incentives
Corporation
Notional Interest Deduction (NID)
Numerous fiscal treaties to avoid double taxation
Innovative measures to support R&D
Patent income deduction
Investment deduction for R&D related investments and patents
Income tax reduction for researchers
Ruling practice : legal certainty for investors
Shareholder
No taxation on capital gain
Management
Reduction of employment costs for expatriates, with simple proceedings

Belgium Effective (Average) Corporate Tax Rate (ECTR) 2009* Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU Commission Project : 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%)

Belgium Effective (Average) Corporate Tax Rate (ECTR) 2009* Sources : Report 2009, made by ZEW (Centre for European Economic Research) for the EU Commission Project : 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%)

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)
Notional Interest Deduction

Who?
Companies subjected to
Corporate tax
Non-residents / Corporate Tax

How does it work ? Annual Tax Deduction = EQUITY X RATE (OLO 10 years) Notional Interest Deduction

EXAMPLE 1: (Return on Equity: 4%) Notional Interest Deduction Assets Liabilities Group Financing 100.000 Share Capital 100.000 P&L Account Before N.I.D. After N.I.D Profit before tax 4.000 4.000 N.I.D. (3,425%) / - 3.425 Taxable 4.000 575 Corporate Tax (33,99 %) 1359 195 Effective Tax Rate 33,99 % 4,89%

EXAMPLE 2: Notional Interest Deduction 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 Assets 100.000 Share Capital 100.000

« 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.

Interest Rate
RATE = a nnual 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 %
+ 0,5 %  3,925 % (SME)

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

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
Notional Interest Deduction THUS: increases attractiveness of Belgium for capital intensive companies, equity funded headquarters and treasury centers.

Extensive tax treaty network

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 ;

No WHT
No LOB
10% shareholding
12 months
Dividend withholding tax exemption US parent company (treaty partner) Belgian subsidiary

Investment deduction for R&D related investments and patents
75% exemption from withholding tax on the remunerations of researchers, in favour of employers
Unique tax features for R & D

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 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 %

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

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
F or 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

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.

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 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 Patent income deduction

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 patents
acquired 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 .
Investment deduction for R&D

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
75% exemption from withholding tax

Manufacturing 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%
Example

Advanced decisions or ruling is about creating CONFIDENCE 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 BASIS
It ensures a LEGALLY BINDING ACCURATE FORECAST of all the tax implications of your investment project
Tax Ruling

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
Tax Ruling

Belgian DISTRIBUTION Centre Belgian SERVICES Centre Operational Companies Operational Companies PARENT COMPANY USA * OECD accepted norm: arm ’ s length standard Cost plus % case-by-case ruling * Notional Interest Deduction Tax Ruling

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 € Notional Interest Deduction -3.425 € Taxable basis 1.575 € Corp.tax rate: 33,99 % Corporate tax 535 € European Distribution Centre Income approved by the ruling Commission (ex. 105% of operational exp.) mark up 5% on operational expenses +NID

Belgium Management : Expatriate Status
For employees (foreign executives)
Tax free allowances :
for moving expenses and school fees of the children : unlimited amount
for cost of living, cost of housing, tax equalisation :
operational entity: 11 250 €
HQ or research centre: 29 750 €
Travel exclusion (of workdays performed outside Belgium)
For employers
Reduction of employment costs (no tax, no social security contribution)

VAT fiscal unity
Bonded warehouses and VAT deferal
European pension funds
Tax shelter for audiovisual sector
Extensive tax treaty network
Customs…
Other incentives

Tasks of the Belgian Customs Belgian Customs European Customs Legislation 27 Member States : One Goods Classification One Customs Tariff One Customs Legislation Protect financial interests of the EU Ensure safety and security Combat fraud Support legitimate business activity Facilitate legal trade
Traditionally the Belgian Customs were trendsetters in facilitating licit trade
by introducing Simplified Customs Procedures , as:
Temporary storage
Customs bonded Warehouse, VAT-Warehouse)
Transit
Local clearance procedures

Smooth import and export systems (simplified procedures)
All formalities (customs, excises, healthcare, economic licences ) executed in one process
Client-orientated customs service spread over the entire territory
7/7 and 24/24
Customs decision as near as possible to the flow of goods
Well trained customs staff and multilingual skills
E-Customs: 100% electronic & paperless
Single office
Belgian Customs & Excise Department The best solution = PARTNERSHIP Customer oriented Customs Customs oriented Customers

Belgian Customs & Excise Department Seaport ANTWERP Seaport ZEEBRUGGE Seaport GENT Int. Airport BRUSSELS Int. Airport LIEGE Int. Airport OOSTENDE Int. Airport CHARLEROI Int. Transport EYNATTEN Int. Transport MENEN-LAR Int. Transport MOUSCRON Int. Transport STERPENICH The main Customs posts where customs is facilitating trade

For Further Information Marc De Mil Federal Public Service Finance Fiscal Department for Foreign Investments Wetstraat, 24 (Parliament Corner) 1000 Brussels - BELGIUM Email: [email_address] Tel.: +32 257 870 19

Invest in Belgium

by BLBA BLBA on May 09, 2011

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Invest in Belgium — Presentation Transcript