2011 EMEA RegionalDubai, United Arab EmiratesConferenceThin Capitalization in BelgiumJean-Marie Leclercq
Belgium: General background
- Belgium is strategically located at the heart of   Europe :   London, Paris, Amsterdam and Frankfurt all lie within 300 ...
Belgium: Thin Capitalization
INTRODUCTIONNo real specific ‘thin capitalization rule per se in BelgiumBelgium refers to net equityOnly 2 anti-avoidance ...
1:1 debt/equity ratio - Art 18 ITCApplication:on loansgranted by:               - individuals directors,               -...
7:1 debt/equity ratio - Art 198 11°ITCApplication:on loansgranted by creditors:    - resident or non resident,    - exem...
Belgium: Advantages of NID
Notional interest deductionOff balance deduction from taxable income equalto a percentage of the net equity in the BE GAAP...
Notional interest deductionWho is concerned?Companies subjected to• Corporate tax• Non-residents / Corporate Tax
Notional interest deductionHow does it work ?             Annual Tax Deduction                      =         EQUITY X RAT...
Notional interest deductionWhich equity?Net equity for accounting purposes (end of the previousyear)Some elements to be de...
Notional interest deductionWhich rate?Rate = interest on 10 years bonds (“OLO”) issued by the Belgian StateIncome year 201...
NID rate = 3.425%Notional interest deduction                  Assets                      Liabilities Various Assets      ...
NID rate = 3.425%Notional interest deductionNotional interest for international tax planning(1/2)Foreign Co needs a capita...
NID rate = 3.425%Notional interest deductionNotional interest for international tax planning(2/2)Points of attentionInter...
ConclusionBelgium has no real thin capitalization rules butBelgium has 2 anti-avoidance rulesBelgium does not refrain thi...
Questions ?          Managing Partner              Jean-Marie Leclercq              jml@ taxconsult.be              + 32 2...
Jm tax session Dubai may 2011- Alliott Group
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Jm tax session Dubai may 2011- Alliott Group

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Jm tax session Dubai may 2011- Alliott Group

  1. 1. 2011 EMEA RegionalDubai, United Arab EmiratesConferenceThin Capitalization in BelgiumJean-Marie Leclercq
  2. 2. Belgium: General background
  3. 3. - Belgium is strategically located at the heart of Europe : London, Paris, Amsterdam and Frankfurt all lie within 300 km (by train 1h51, 1h22, 2h39 and 3h45 respectively) while some of Europes key business hubs including Lisbon, Rome, Madrid, Stockholm, Athens, Warsaw, Berlin and Dublin are only a 2h flight away.- Belgium enjoys a pivotal position in public organization : The European Union, NATO and some 1,400 international non-governmental organisations are also headquartered here.- Belgium tax system in a nutshell : Corporate tax rate of 33.99% Reduced progressive tax rates for small and medium sized companies Corporate income tax on their worldwide income (more than 90 DTT)
  4. 4. Belgium: Thin Capitalization
  5. 5. INTRODUCTIONNo real specific ‘thin capitalization rule per se in BelgiumBelgium refers to net equityOnly 2 anti-avoidance rules:1:1 debt/equity ratio7:1 debt/equity ratioBut… Advantages granted through notional interest deduction (NID) rules
  6. 6. 1:1 debt/equity ratio - Art 18 ITCApplication:on loansgranted by: - individuals directors, - shareholders & +spouse and children - non-EU corporate directorsMeasure:Interest of said loans exceeding the ratio = dividendsConsequence:Non-deductibility (taxed @ 34%) & Withholding tax
  7. 7. 7:1 debt/equity ratio - Art 198 11°ITCApplication:on loansgranted by creditors: - resident or non resident, - exempt or taxed at a reduced rateMeasure:Interest of said loans exceeding the ratio = non deductibleConsequence:Non-deductibility (taxed @ 34%)
  8. 8. Belgium: Advantages of NID
  9. 9. Notional interest deductionOff balance deduction from taxable income equalto a percentage of the net equity in the BE GAAPaccounts, corrected for tax purposesPurposes:reinforce equity position and improve solvencyattract large industrial groups in Belgiumpreserve fiscal competitiveness (EU average Effective Tax Rate)
  10. 10. Notional interest deductionWho is concerned?Companies subjected to• Corporate tax• Non-residents / Corporate Tax
  11. 11. Notional interest deductionHow does it work ? Annual Tax Deduction = EQUITY X RATE (3,425% for 2011)
  12. 12. Notional interest deductionWhich equity?Net equity for accounting purposes (end of the previousyear)Some elements to be deducted f.i.Own sharesShares booked as financial fixed assetsAssets held as investment not generating recurring incomeReal property used by a director or his spouse / childrenCapital subsidies
  13. 13. Notional interest deductionWhich rate?Rate = interest on 10 years bonds (“OLO”) issued by the Belgian StateIncome year 2010 = 3,800%Income year 2011 = 3,425%Increased for Small companies = 0,5%
  14. 14. NID rate = 3.425%Notional interest deduction Assets Liabilities Various Assets Net Equity (Share Capital 9.000 + Reserves 10,000 1.000) 10.000 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%
  15. 15. NID rate = 3.425%Notional interest deductionNotional interest for international tax planning(1/2)Foreign Co needs a capital increase of 10.000Solution?Step 1: capitalization of BelCo (+10.000)Step 2: BelCo grants a loan to foreign Co @ 5%Advantage of NID?Taxable Income BelCo = 500,00Notional Interest deduction (3,425%) = (342,50)Taxable Income = 157,50
  16. 16. NID rate = 3.425%Notional interest deductionNotional interest for international tax planning(2/2)Points of attentionInterest paid by Foreign Co deductible?In its country? or thin cap’ issue?
  17. 17. ConclusionBelgium has no real thin capitalization rules butBelgium has 2 anti-avoidance rulesBelgium does not refrain thin Cap’ butBelgium promotes local and international plannification via “high” capitalization (generated by the Notional interest deduction)
  18. 18. Questions ? Managing Partner Jean-Marie Leclercq jml@ taxconsult.be + 32 2 678 17 77

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