4. - 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 Europe's 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)
6. INTRODUCTION
No real specific ‘thin capitalization rule per se in Belgium
Belgium refers to net equity
Only 2 anti-avoidance rules:
1:1 debt/equity ratio
7:1 debt/equity ratio
But… Advantages granted through notional interest
deduction (NID) rules
7. 1:1 debt/equity ratio - Art 18 ITC
Application:
on loans
granted by:
- individuals directors,
- shareholders & +spouse and children
- non-EU corporate directors
Measure:
Interest of said loans exceeding the ratio = dividends
Consequence:
Non-deductibility (taxed @ 34%) & Withholding tax
8. 7:1 debt/equity ratio - Art 198 11°
ITC
Application:
on loans
granted by creditors:
- resident or non resident,
- exempt or taxed at a reduced rate
Measure:
Interest of said loans exceeding the ratio = non deductible
Consequence:
Non-deductibility (taxed @ 34%)
10. Notional interest deduction
Off balance deduction from taxable income equal
to a percentage of the net equity in the BE GAAP
accounts, corrected for tax purposes
Purposes:
reinforce equity position and improve solvency
attract large industrial groups in Belgium
preserve fiscal competitiveness (EU average Effective Tax Rate)
13. Notional interest deduction
Which equity?
Net equity for accounting purposes (end of the previous
year)
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
14. Notional interest deduction
Which rate?
Rate = interest on 10 years bonds (“OLO”) issued by the Belgian State
Income year 2010 = 3,800%
Income year 2011 = 3,425%
Increased for Small companies = 0,5%
15. 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%
16. NID rate = 3.425%
Notional interest deduction
Notional interest for international tax planning
(1/2)
Foreign Co needs a capital increase of 10.000
Solution?
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
17. NID rate = 3.425%
Notional interest deduction
Notional interest for international tax planning
(2/2)
Points of attention
Interest paid by Foreign Co deductible?
In its country?
or thin cap’ issue?
18. Conclusion
Belgium has no real thin capitalization rules but
Belgium 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)
